New Danish government plans to boost labour force, overhaul welfare model

11:34 am Wednesday, December 14th, 2022

COPENHAGEN (Reuters) – Denmark’s new coalition government plans to cut tax to incentivise work, abolish a public holiday and reform its generous welfare model, Social Democratic leader Mette Frederiksen said on Wednesday.

The announcement came a day after Frederiksen agreed with the main opposition party, the Liberal Party, and the Moderates to form a rare bipartisan government with her as prime minister.

Danes pay some of the highest taxes in the world to finance their cherished cradle-to-grave welfare model, but have seen the quality of universal healthcare, education and elderly services erode as the population ages.

“We have a clear goal of making the decisions needed to secure the future of Denmark,” Frederiksen said as she presented the government’s political platform. The country faces soaring energy prices and the highest inflation in four decades eating into household budgets.

The government plans 5 billion Danish crowns ($717 million) in tax cuts to encourage people to work more and the abolishing of a public holiday, bringing the number down to 10, she said.

The measures are aimed at boosting productivity and increasing the labour supply by 45,000 people by 2030, she added.

Tax cuts would benefit the Danish economy in the long run, according to Nordea’s chief economist Jan Storup Nielsen, but the country was still at present in an inflation crisis.

“We may see rising unemployment in the coming months, but the structural challenge in Denmark to increase labour supply will persist,” he said.

The government also agreed to accelerate defence spending following increased geopolitical uncertainty after the sabotage of two pipelines carrying gas from Russia to Germany through Danish waters.

Denmark will aim to meet a NATO defence spending target of 2% of GDP by 2030, three years earlier than planned.

The new government will also set more ambitious climate change targets, aiming to become carbon neutral by 2045 instead of 2050, and cutting greenhouse gas emissions more steeply.

To help meet those goals it plans an emission levy on its agriculture sector as well as a tax on air travel, similar to that introduced in Germany and Sweden.

($1 = 6.9825 Danish crowns)

(Reporting by Jacob Gronholt-Pedersen and Nikolaj Skydsgaard; Editing by Alexandra Hudson)