Denmark Promises Tax Cuts to Help Fight Labor Supply Shortages

Updated on
  • Government sees smaller deficit in 2017 vs April forecast
  • Budget shortfall is also expected to be smaller in 2018

Denmark’s center-right government promised to cut taxes for high and low income earners, as well as companies, simplify rules and improve the country’s infrastructure as part of a major drive designed to combat a lack of labor supply.

“It will be easier and cheaper to run a company in Denmark,” the government said in a statement published on Tuesday, as part of its 2025 economic plan. Part of the goal is to reduce the overall tax burden, so that tax as a percentage of gross domestic product falls over the next eight years, it said. A more detailed proposal for tax cuts will come after the summer, it said.

The minority coalition of Prime Minister Lars Lokke Rasmussen expects to have a buffer in its budget of about 33.5 billion kroner ($5 billion) by 2025 that can be spent mostly on tax cuts, with some of those funds also going toward other “growth initiatives” and security, according to the plan. The idea is to entice more people to work longer, also by providing incentives to delay retirement.

Denmark lags behind Germany, Sweden and the U.K. in terms of the number of hours worked by its labor force. “We need to do better,” the government said. It hopes its proposals will add as many as 60,000 people to the workforce by 2025.

Denmark also raised its forecast for economic growth this year and predicted it will borrow less via bond markets as the public deficit shrinks. Gross domestic product is set to expand 1.7 percent this year, faster than the 1.5 percent it forecast just last month, the Economy Ministry estimates. It expects the deficit to shrink to 1.5 percent of GDP this year, versus the 1.9 percent shortfall previously seen.

The government sees a borrowing need of 100 billion kroner this year, which is 7 billion kroner less than previously estimated. Of that, 93 billion kroner will target the krone debt markets, with the rest set to be issued in foreign currencies, it said.

According to Nordea, the expectation remains that Denmark’s state bond issuance will “probably be unchanged,” Jan Storup Nielsen, a senior analyst at the bank in Copenhagen, said in a note to clients.

In its latest forecasts published earlier this month, the European Commission estimated that Denmark’s economy will grow 1.7 percent this year and 1.8 percent in 2018, slightly less than the 1.9 percent average for the European Union seen in both years. Sweden will be the Nordic region’s fastest-growing economy, with the commission predicting 2.6 percent expansion this year and 2.2 percent in 2018.

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