Danish Government Unveils Plan to Help Economy Exit Crisis

Denmark’s government unveiled its second growth package in two years designed to drag Scandinavia’s weakest economy out of its crisis.

The plan will raise Denmark’s structural output by 6 billion kroner ($1.1 billion) and cut costs for companies by 4 billion kroner in 2020 through 89 measures to improve the business climate and boost employment, the Copenhagen-based Finance Ministry said in a statement.

Denmark’s $350 billion economy has struggled to surface from a housing bubble that burst in 2008, triggering a local banking crisis in its wake. Property prices slumped about 20 percent through 2013, undermining consumer confidence and demand. The economy will grow 1.5 percent this year, less than the 1.6 percent by which the European Union as a whole will expand, the European Commission said May 5.

“This won’t flip anything upside down in the Danish economy,” Peter Jakobsen, an economist at Aabenraa, Denmark-based Sydbank A/S, said by phone. “Cutting energy taxes appears to be the biggest part of the plan. Still, long-term, toward 2020, what they’re doing is really just capping the increase of the tax rather than removing it.”

Sustaining Jobs

The package will target as much as 10 billion kroner in corporate investments every year through 2020, including 5.8 billion kroner in reduced electricity fees for businesses and a 650,000-krone tax break for investing in startups. Dividend taxes on unlisted companies will be cut to 15.3 percent from 22 percent.

The plan will make it more attractive for companies to keep production in Denmark and protect jobs at industrial companies outside city centers, Prime Minister Helle Thorning-Schmidt and Economy Minister Margrethe Vestager told reporters in Copenhagen.

“The biggest companies are able to sustain jobs in Denmark while the situation is more troublesome for the smaller businesses,” Vestager said. “Cutting energy taxes is important to production companies, which are often located outside big cities. The plan is an investment in holding on to jobs.”

The initiatives bring the government more than halfway to meeting a target of raising Denmark’s structural gross domestic product by 20 billion kroner at the end of the decade. The coalition last year pledged to raise the annual growth rate to 2 percent on average from 2014 through 2020.

Further Out

The recovery of the Danish economy stems from a pickup globally, Danske Bank A/S said, estimating the government’s growth plan will contribute only 0.3 percent to GDP by 2020.

“The growth plan isn’t a bad idea,” said Steen Bocian, the bank’s chief economist. “It may increase the growth potential of Denmark’s economy a bit further down the road.”

Finance minister Bjarne Corydon said in an interview earlier this week that his government won’t back any measures that test EU fiscal limits. The government is committed to defending Denmark’s stable AAA credit rating, he said.

“We’ll have to do more as countries around us continue to develop,” Vestager said today. “What this plan does is making it more attractive to do business in Denmark for now.”