How will Denmark’s new transport proposal affect the cost of cars?

A new system for applying registration fees to electric and fossil fuel-powered cars is part of a climate and transport proposal launched by the Danish government this week.

How will Denmark’s new transport proposal affect the cost of cars?
Photo: Emil Helms/Ritzau Scanpix

On Thursday, the government began negotiations over a planned reform to transport taxes which it has said will correct the ‘uneven’ current system.

The proposal includes measures aimed at increasing incentives to buy and use electric cars, in line with the government’s stated target of increasing the number of such cars from 45,000 to 500,000 on Danish roads by 2030.

To that end, the proposal seeks to make popular models of electric cars equivalent in price to their fossil fuel-driven counterparts and to end large subsidies on luxury electric vehicles.

Under current rules, newly-purchased electric cars are only liable for 20 percent of overall registration fees and are also encompassed by exemptions for 40,000 kroner of their value.

This means that, in practice, electric cars worth up to 400,000 kroner are free of registration fees.

READ ALSO: Explained: Why is it so expensive to buy a car in Denmark?

But the current rules also mean that larger electric cars achieve the biggest registrations fee subsidies. That would change under the new proposal.

The new system for applying registration fees to electric cars is part of a broader climate transport proposal. It also includes provisions to change the way registration fees are applied to traditional petrol and diesel cars.

Taxes on these types of car were reduced in 2017 under the previous government, but they are now set to become more expensive to run again through increased fuel costs as well as changes to the existing car tax system.

“The registration tax on purchase price for the cars we most commonly own will make the new-purchase price increase by around one percent. For more expensive cars, the new-purchase price will increase by around 1-4 percent,” tax minister Morten Bødskov told DR.

Changes in fuel prices will make it more only slightly more costly for petrol and diesel car owners to refuel, compared to electric car drivers.

“For normal family cars with normal daily fuel use for petrol cost the owner in the region of 60 kroner (extra) per year,” Bødskov said.

“For diesel cars it is a bit more expensive, but there we are talking about 300 kroner per year,” he added.

The minority government will now negotiate with parliamentary partners in order to achieve a majority for the overall proposal.


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Denmark scraps popular tax deduction for home improvements

A tax deduction for home improvements, the “håndværkerfradrag”, is to be scrapped in 2022 after parties agreed to end it in next year’s budget.

A popular tax subsidy for home improvements, the
A popular tax subsidy for home improvements, the "håndværkerfradrag", will end in Denmark on April 1st 2022. Photo: Signe Goldmann/Ritzau Scanpix

The government, along with its left wing allies Red Green Alliance, Social Liberals and Socialist People’s Party; and minor parties Alternative and the Christian Democrats, presented the 2022 budget on Monday, including an agreement to drop the home building subsidy.

Sofie Carsten Nielsen, leader of the Social Liberals, said “we are dropping the building subsidy that has ignited the already overheated housing and construction market”.

READ ALSO: Four ways to (legally) lower your tax bill in Denmark

The tax deduction will be removed from April 1st next year. Other tax deductions that can be applied for home services, including cleaning and childcare, are retained.

Tax subsidies for people who hire services in their homes, termed boligjobordningen, were broadened last year as part of government measures to support the economy during the coronavirus crisis.

The provision allowed for a higher tax deduction for the encompassed home services.

Demand for builders has since increased so dramatically that supply can no longer meet demand. As such, the parties behind the budget deal reason that the deduction is no longer needed.

Additionally, the Danish central bank, Nationalbanken, has warned that high demand could contribute to an overheating of the housing market.

Although the deduction was adjusted five years ago to favour green home improvements, the government’s allied parties still maintained they wanted to scrap it.

Nielsen said on Monday that the deduction has put Denmark’s building trade under strain.

“This is an economically responsible budget which also contains huge green decisions,” the Social Liberal leader said.

Finance Minister Nicolai Wammen said that the deduction would remain applicable to other trades, including cleaning, in order to prevent cash-in-hand arrangements.

“The biggest challenge we have in regard to the Danish service industry is in building and extensions. That’s why we are revoking the building element of the (subsidies),” Wammen said.

“But we are very concerned with keeping down cash-in-hand work in the service sector,” he added.