Denmark Welcomes Rich Getting Richer as Welfare Has Facelift

After witnessing Europe’s biggest leap in income disparities during the debt crisis, the Finance Minister of Denmark says there needs to be a more nuanced approach to tackling inequality.

“There’s room to make Denmark a place where it’s OK to make more money, even if you make a lot of money already,” Finance Minister Bjarne Corydon said in an interview in his office overlooking the parliament in Copenhagen.

A 12 percent increase in income inequality in Denmark from 2008 to 2012 was the biggest jump recorded in a Eurostat study of European Union members. Though the gap between rich and poor Danes remains much smaller than in the U.K. and the U.S., the rise in inequality has left Denmark the Nordic region’s most unequal nation. And as the richest 1 percent of Americans emerge richer still from the global financial crisis, the Eurostat figures show that even nations with well-established welfare systems have struggled to protect their weakest members.

Now, with Danes heading into an election year, the subject of how efficiently their government is redistributing income is ripe for debate. Corydon says placing caps on wealth shouldn’t be the goal.

“A scenario where we can improve conditions for those that have the least while also improving conditions for those making the most money shouldn’t be something we reject purely on principle,” Corydon said.

‘Sensitive Issue’

The 41-year-old, who became finance minister when Prime Minister Helle Thorning-Schmidt led the Social Democrats to victory in 2011, says he finds it “peculiar that this has become a sensitive issue in Denmark as the scale of the differences that we face shouldn’t be a cause for concern.”

In 2005, a similar comment by a Cabinet member of the then-ruling Liberal Party, Eva Kjer Hansen, triggered a national furor as the opposition, and even the government, condemned the remarks as being in conflict with Danish ideals of egalitarianism.

Hansen had argued that “equality will grow” if now-deceased billionaire Maersk Mc-Kinney Moeller left the country, “but that wouldn’t improve the lot of the country’s poorest.”

According to the Eurostat survey, Denmark emerged from the debt crisis with greater income inequality than the Czech Republic, Slovenia, Slovakia, Belgium, the Netherlands, Austria, Finland, Sweden, Iceland and Norway. On a so-called Gini coefficient scale of zero to 100 -- where zero reflects total income equality and 100 total inequality -- Denmark scored 27.5 in 2013, compared with an EU average of 30.5. The U.K.’s score was 30.2.

Perceived Inequality

Danes want income discrepancies to narrow but over-estimate how well-off rich Danes are and how poor the least well-to-do Danes are, according to a survey by YouGov and political scientist Esben Hoegh published in the A4 newsletter today. Danes believe the richest 20 percent generate 43 percent of income, while in reality they earn 36 percent, according to the survey. The poorest fifth receives nine percent of total income in Denmark, 50 percent more than Danes believe they do.

Tax Burden

Danes pay their government more in taxes than most other people across the globe, for a tax burden of more than 49 percent of gross domestic product in 2014, up from 47.9 percent in 2009, according to the Economy Ministry. That compares with about a quarter of GDP in the U.S., the Organization for Economic Cooperation and Development estimates.

While Corydon says income equality is something his government targets, he argues that the goal for a well-functioning society shouldn’t just be income redistribution.

“In Denmark, we spend a lot of resources on offering public services for free, such as education, but it hasn’t had the impact we had wanted,” Corydon said. “We’ve started a lot of reforms, which could be dubbed courageous, to address that.”

While those reforms include means-testing households for services such as child support, they also aim to ensure all Danes get the best possible education, Corydon said. Giving students the same starting point is an equalizing force that reduces the need for income redistribution later, he said.

Welfare Facelift

“I very much expect equality to grow in Denmark,” Corydon said. “The road won’t be about higher taxes and even higher social benefits.” He describes “the next step toward equality” as “the redistribution of options.”

With reference to the gap between rich and poor in the U.S., Corydon says extreme income inequality risks undermining democracy.

Income equality “is not only a nice-to-have, it’s a need-to-have attribute if you’re to do well long-term as society,” he said. “It’s of functional importance in society.”

While growth rates in the U.S. look better than Europe’s, Corydon says much of the difference is to do with governance systems.

“The EU’s structure isn’t optimal,” he said. “But dreaming of a different setup is pointless as that would bring other problems. I don’t think anyone wants a European federation or imagines that one is within reach.”

Given the system of government that exists in Europe, Corydon said the failure of countries in need of reform to push through agreed measures is hurting richer nations like Denmark.

“It’s not because of an excessive need to interfere with what other countries do,” he said. “But we have to live with the consequences of what other states do.”

Like the euro area, Denmark’s economy will probably grow 0.8 percent in 2014, after contracting in the past two years, the European Commission estimates. The nation, which pegs its krone to the euro, relies on exports for half its economic output. The economy of the U.S. will expand 2.2 percent in 2014, the commission estimates.

“We don’t have a well-functioning European economy yet,” Corydon said. “That’s obvious.”

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