Danish lawmakers started talks on a second part of a growth plan after reaching an accord late yesterday to boost consumer spending and jobs through some tax deductions and lower levies on beer.
The government will update its growth forecast next week and plans to invest 75 billion kroner through 2020 to help businesses and create jobs, Finance Minister Bjarne Corydon said today in e-mailed response to questions.
Talks on the second leg of the plan, which will include corporate tax cuts, start today after the Social Democrat-led ruling coalition and the opposition yesterday agreed on a 17 billion-krone ($2.98 billion) package of measures including tax deductions on home refurbishments and tax cuts on soft drinks and beer designed to curb border trade. The measures will be introduced in 2013, a may help the economy earlier than the government’s initial 2014 target, Corydon said.
“The agreement will give the economy, which has stood still the past two to three years, a little push in the right direction,” said Steen Bocian, chief economist at Danske Bank A/S in Copenhagen. “It’s not, in isolation, enough to drag the Danish economy out of its slump.”
“The government’s priorities haven’t changed,” Economy Minister Margrethe Vestager said in an e-mail. “Public investments, education and better business conditions are also good news for the economy in general and households.”
Gross domestic product shrank 0.7 percent in the fourth quarter from the third as Denmark’s economy suffered its worst year since the height of the global financial crisis in 2009. Denmark has yet to emerge from a housing crisis that’s sent property values down more than 20 percent since 2007 and wiped out more than a dozen regional banks. GDP will grow 0.5 percent to 1 percent this year, the government estimates.
Denmark plans to raise 40 billion kroner in 2013 and 2014 by offering capital pension savers a 2.7 tax percent rebate to have their pensions taxed now rather than when they are paid out. The government plans to spend 1 billion kroner of that revenue on the growth plan and will otherwise use the revenue for debt reductions.
“This growth plan is financed year by year,” Corydon said. “It is very important for the government to safeguard the credibility and confidence in Denmark’s economic policy to keep interest rates low in support of corporate investments, growth and employment.”
Bocian estimates that once the effect of the measures agreed yesterday peaks in 2014, only a maximum of 10,000 jobs will have been added.
Prime Minister Helle Thorning-Schmidt in February resorted to corporate tax cuts to underpin demand. The stimulus will be financed through reduced spending on the elderly, the unemployed and students.
Thorning-Schmidt has said she wants to cut business costs and align the corporate tax rate in Denmark with Germany and Sweden. Danish unemployment has more than tripled since 2008, wiping out a third of the nation’s industrial jobs.
The three-party coalition on Feb. 26 pledged to lift annual economic growth to 2 percent on average from 2014 through 2020, and unveiled plans to create 150,000 private jobs by 2020 through stimulus measures.