2009-02-24/Govt announces plan for growth, climate and lower taxes
Govt announces plan for growth, climate and lower taxes
By Michael de Laine, Copenhagen, 24 February 2009
The Liberal-Conservative government today released details of its ‘Spring package 2.0′. Tax rates on earned income will fall, so there is a greater incentive to make an extra effort, and it will be dearer to produce and consume products and goods that are harmful to the environment, climate and health.
“The reform has a balanced distribution and is fully financed over time,” the government said. “It will make a large contribution to wealth and jobs and it will help finance the public services in the longer term.”
“The tax reform will give a large boost to the Danish economy as the tax cuts will apply before the elements that will finance them,” the government said. “Overall, taxes on earned income will fall by about 23 billion kroner, with 21 billion of this taking effect in 2010. This supports jobs and will contribute to Denmark’s ability to navigate safely through the deep international recession .”
According to government documents, the reform will strengthen growth and wealth in both the short and long term. It will increase labour by over 19,000 full-time positions, contributing to a slow-down in the rise in unemployment.
The environment, climate and health will benefit from the reform, which will also improve the financial political sustainability by about 5.5 billion kroner.
Home-owners have been concerned that their economic situation would be affected negatively by other tax reform proposals, including those of the recent tax commission.
The government’s proposals do cut the value of the deduction against tax of interest expenses above 50,000 kroner a year from 33.5% today to 25% in 2019, but the government has taken note of these concerns in its proposals.
“The tax reform is designed to it creates security for home-owners and can contribute to the generation of renewed optimism and faith in the future,” the government says. “It contains a scheme the ensures compensation to the limited number of families who could experience a fall in disposable income as a result of the tax changes.”
Based on its own calculations, the government says 82% of Denmark’s 1.9 million home-owners with interest expenses pay less than the 50,000 kroner per person threshold and will not be affected.
Other deductions - especially deduction of transport costs for getting to and from work - will also be affected.
The lowest tax rate will be cut from 5.26% to 4.76% in 2010 - but it will be increased gradually by 8% as the health contribution is merged with the lowest tax rate from 2012.
The interim tax rate will be abolished from 2010.
The top tax rate will be cut from 15% in 2009 to 13.5% in 2011. At the same time, the threshold for paying the top tax rate will be increased by 18,000 kroner in both 2010 and 2011. Some 300,000 people will no longer need to pay the highest tax rate, according to the government.
Everyone over the age of 18 will receive a ‘green cheque’ worth 700 kroner a year from 2010, and the personal deduction for people aged 18 or more will be raised by 1,000 kroner from 2010.
“Most full-time employed - over 70% - will at most pay a marginal tax rate of almost 44% after deduction of the labour market contribution, while the marginal tax rate for the highest incomes will fall to just over 55% after deduction of the labour market contribution,” the government said.
As well as motivating people to work more, generating over 19,000 full-time job openings, the proposals will increase the national wealth, measured as gross domestic product (GDP) by at least 1.5% in the long term, equivalent to about 30 billion kroner, the government added. The long-term effect will improve the public finances permanently by about 5.5 billion kroner.
The deduction for being in work will be raised gradually from 4.25% (maximum of 13,600 kroner) today to 7.0% (maximum 22,300 kroner) in 2019.
“A ‘green tax reform’ to raise taxes and duties on energy consumption and pollution will support the government’s ambitious climate, energy and environmental policies,” the government said.
It added that the overall gross energy consumption will be reduced by about 2% of the expected consumption in 2020, while greenhouse gas emissions will be cut by almost 2% of the expected emissions in 2020. There will be a 2% increase in the expected use of renewable energy in 2020.
The government said its proposals will mean a 15% increase in energy taxes on electricity and heating, with compensation in the form of the 1,000 kroner increase in personal tax deduction and the green cheque.
Various other energy-related taxes and duties will be raised or introduced, including changes to vehicle taxation. Green road pricing will be launched for heavy vehicles, and will be included in proposals for a fundamental change in car taxes, to be laid before parliament in 2009/2010 session.
In the health sphere, the government’s target of an increase of three years in average life expectancy over the next decade will be supported through taxes aimed at motivating people towards good and healthy eating habits.
These proposals include higher duties on products containing sugar and a new duty on saturated fat in milk products, vegetable oils and other fat products. Duties on tobacco products will also rise.