You are here

Rich world's biggest tax burden targeted in Nordic welfare haven

[COPENHAGEN] Successive polls in Denmark have shown that voters in the country don't really like tax cuts. And lowering taxes for the rich is a political non-starter.

But the country's finance minister says such measures are actually the best way to protect Denmark's fabled social welfare model.

Kristian Jensen, the 46-year-old in charge of the country's finances, will unveil a proposal to parliament later this month. After a plan to cut the top marginal tax rate was killed in its infancy just days ago, the center-right coalition will now push a broader package of measures that will lighten the total tax burden, Mr Jensen said in a phone interview in Copenhagen on Wednesday.

Denmark boasts the planet's highest tax burden relative to gross domestic product (the OECD estimates the figure was about 47 per cent in 2015, the fattest ratio in the rich world). That revenue is used by the state to make sure Danes have universal access to free education, hospitals, childcare and elderly care.

Market voices on:

But Mr Jensen says Denmark is now running out of workers because too many people are on welfare and more should be contributing to state coffers. Economists earlier this month said there were already signs of bottlenecks building, echoing warnings from the central bank.

"Cutting taxes for top earners would undoubtedly have had a positive effect," Mr Jensen said. But with that option no longer on the table, he says the goal is to find other ways to raise the labour supply via tax cuts.

"We need to use the good times we're experiencing now to drive down the number of Danes on welfare payments," Mr Jensen said. In a country of about 5.8 million, "there are about 750,000 people receiving state aid and we have a unique opportunity to bring that number down."

According to Statistics Denmark, the number of people on welfare totaled 729,233 at the end of the first quarter, down from 755,133 a year ago.

Tax cuts "would encourage people to work more, work weekends and so on. We can see that tax cuts raise the supply of labour," he said. "Ideally, no one should be receiving welfare benefits aside from those people on sick leave or child leave," Mr Jensen said, acknowledging the goal was unrealistic.

"We have to do more" to match supply and demand in the labour market, he said.

"At least 20,000 of the extra people we need should come from the group of people currently on welfare," he said.