Photographer: Freya Ingrid Morales/Bloomberg

A Rich Little Welfare Oasis Is About to Get a ‘Culture’ Shock

  • Danes urged to shift savings into stock market, work harder
  • Tax reform program is designed to expand the Danish workforce

A former culture minister and one of Denmark’s richest Cabinet members wants to bring about a socioeconomic revolution by targeting the nation’s welfare addiction.

Brian Mikkelsen, now Denmark’s business minister, this week presented measures designed to persuade households to put more of their savings in the stock market and to work longer hours. The proposals being pushed by the center-right government represent some of the biggest tax cuts in a generation.

The initiatives will reduce the rich world’s heaviest tax burden (the latest OECD figures show Danish taxes were about 47 percent of GDP in 2015) and encourage a spirit of risk-taking and self-reliance not normally associated with Scandinavian welfare states.

“We want to move toward a culture where people are more independent," Mikkelsen said in an interview in Copenhagen on Wednesday. "We want to reward those who start their own businesses and provide better conditions for them."

Opposition Criticisms

It’s not the first time a Danish government has tried to cut taxes. In 2001, former NATO leader Anders Fogh Rasmussen set the economic agenda with a tax freeze that the opposition Social Democrats still blame for eroding the Danish welfare state.

The left-wing Red-Green Alliance has slammed the latest proposals as "a massive deception toward voters," since they make it "abundantly clear that the government is looking after the interests of the rich," said spokeswoman Pernille Skipper. "Welfare is being shelved as money is spent on tax cuts for the wealthiest," Skipper said in an email Thursday.

It’s a criticism that resonates with the Danish People’s Party, which provides crucial support to the government in parliament and may seek to water down its proposals during the legislative process.

But Mikkelsen says a more market-based economy is the only way to save Danish welfare.

"The fuel that propels the welfare society is people going to work every day," he said. "We want to have good hospitals and fund those unable to support themselves, but we can only do that if people want to work." He says the argument that you can’t have both tax cuts and better welfare is “completely crazy."

Denmark already does well in ease of doing business rankings. And some economists question whether now is the time to cut taxes. Interest rates have been negative for half a decade, house prices are approaching pre-crisis peaks and there are bottlenecks forming in the labor market.

Dangerous Cocktail

Jacob Graven at Sydbank suggests that adding fiscal stimulus to that cocktail could be dangerous.

The economy grew at an annual rate of 2.7 percent in the second quarter (after posting similar rates in the preceding two quarters), and the government raised its economic outlook for this year and the next on Thursday. It will also need to borrow more via the bond markets to cover the gap left by less tax revenue, according to the Finance Ministry.

Separately, the government said it would set aside 10.5 billion kroner ($1.7 billion) through 2021 to be spent on improving the efficiency of the nation’s tax agency. That follows roughly 100 billion kroner in tax revenue lost through poor administration over the past decade. The government has already acknowledged it probably won’t be able to recoup more than about one-fifth of that amount.

Meanwhile, Danes have displayed some pretty risk-averse behavior, placing record amounts of cash in deposit accounts that pay virtually nothing. Mikkelsen says that money would be put to better use in the stock market, which is why he’s creating tax incentives to redirect savings. The goal is to spur job growth, he says.

"The point of this reform is to increase the advantages of working compared to not working," he said.“These numbers are all very clinical, but we believe this should also create a mental change, as the incentive to work becomes so much bigger."

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