2009-05-04/Only immigrants from developed countries contribute positively to public finances - CEPOS
By Michael de Laine, The Copenhagen Voice, 4 May 2009
Only immigrants from developed countries have a positive net contribution to Denmark’s public finances, according to a new note from the liberal think-tank CEPOS. Other groups in Denmark - including ethnic Danes - have a negative net contribution to the country’s public finances. CEPOS says the figures mean Denmark must change its immigration and social policies.
New calculations carried out by the independent organisation DREAM for the liberal think-tank CEPOS show that future generations in three of four immigrants groups in Denmark and the group classified as Danes will have a negative net contribution to Denmark’s public finances.
Only immigrants from developed countries have a positive net contribution to the country’s public finances, according to a new note from CEPOS, which adds that the figures are an argument for Denmark changing its immigration and social policies, but are neither an argument against immigration from less-developed countries nor criticism of immigrants in Denmark.
The calculations show that the negative net contribution to Denmark’s public finances for a new generation of ethnic Danes is DKr 5,470 a year per person. For immigrants from less developed countries the figure is almost DKr 29,600 a year per person, and it is only slightly less, just under DKr 29,000 a year, for the children of these immigrants.
While immigrants from the more developed countries have a positive contribution amounting to just over DKr 13,500 year per person, their children also have a negative net contribution - of DKr 8,500 a year per person.
The think-tank says the reason why immigrants from the better developed countries have a positive net contribution to the Danish public finances is that they first come to Denmark after they have received their education and do not receive transfer incomes.
Net contribution is defined as a person’s positive contribution to the public finances in the form of income tax and other taxes and duties, less the person’s income from the public in the form of transfer incomes, including cash benefits, student grants, early retirement pension etc.
While a positive net contribution to the public finances means that a person ‘gives’ more to the state than he/she ‘receives’, CEPOS notes that such calculations over a long period are very uncertain and can be changed if the economic behaviour of immigrants or their children change from the present pattern.
DREAM’s calculations show that a negative net contribution of about DKr 4,400 a year per person is compatible with sustainable public finances, which also cover company taxation that is not included in individuals’ contribution to the state. But a large and long-term deviation from this figure indicates a need to change the framework for the public finances.
An increase in immigration of 5,000 people a year from lesser developed countries would weaken the public finances by about 0.5% of gross domestic product (GDP), Danmarks Nationalbank, the country’s central bank, calculated in 2008.
CEPOS says the negative net contribution of immigrants and their children to Denmark’s public finances is actually an expression of political choices - the present immigration, social and labour market policies partly attract immigrants with modest formal qualifications and partly keep many immigrants in the benefit-oriented social system.
“However, it is possible to turn immigration into an economic advantage if the immigration, social and labour market policies are changed, so being in work is rewarded to a greater extent, while transfer incomes are made less generous,” CEPOS says.
The think-tank adds that initiatives to achieve this could be strengthening the entitlement element for transfer incomes, so recipients must contribute to the Danish society before receiving social benefits; reducing the minimum pay level or initial pay level for people entering the labour market, so more people with low formal qualifications can get work; and cutting the marginal tax rate, so making an extra work effort more attractive.
“It is imperative to emphasise that the financial burden of immigration is not an argument against immigration from less-developed countries, much less a criticism of immigrants in Denmark,” CEPOS says. “But it is an argument to change the existing immigration and social policies.”
For the full, Danish-language CEPOS note go to: