Agreement on a tax reform and further measures to stimulate economic activity
The Danish Government and the Danish People’s Party have agreed on a tax reform and additional measures to stimulate activity in the Danish economy.
The tax reform continues in the direction set out in the Spring Package from 2004 and the agreement on Lower tax on earned income from 2007 by reducing markedly the tax on work, including marginal income taxes:
- The middle-bracket tax is abolished
- The bottom-bracket tax rate is reduced
- The income threshold for the top-bracket tax is raised
- An income-graduated “Green check” is introduced
- In addition, the pension supplement is increased by 2,000 DKK.
The tax reform implies that income taxes (including the “green check”) are reduced by more than 28 billion DKK (1½ per cent of GDP) (long-term, permanent effect).
On the other hand, taxes on pollution and energy consumption are raised. That will raise incentives to protect the climate and the environment.
The agreement on a tax reform and additional growth-initiatives underpins economic activity in the Danish economy at a time when the international economy is hit by a severe crisis:
- The tax reform implies that tax reductions kick in quickly in 2010 and 2011 while the financing elements are implemented gradually until 2019, thus boosting household incomes in the near term.
- Households are allowed in 2009 to withdraw all savings in the compulsory Special Pension scheme, implying a potential increase in liquidity by 25-30 billion DKK (around 1½ per cent of GDP).
- Funds amounting to 1½ billion DKK (0.1 per cent of GDP) are set aside to subsidies for maintenance and construction works, including energy savings, in owner-occupied housing.
- The government and the Local Governments Association will discuss ways to increase investments in construction in 2009.
The tax reform is fully financed. Furthermore, the reform is estimated to raise labour supply by 19,000 fulltime persons, thereby contributing to meeting the requirements in the 2015 Plan. That will boost the longer term growth potential of the Danish economy. And it also implies a marked improvement of public finances by 5½ billion DKK (0.3 per cent of GDP) in the long term, which strengthens fiscal sustainability.