Danish tax payers contributed record amounts during Covid-19 crisis

Tax contributions in Denmark hit a record high amount in the last tax year despite the effects of the coronavirus pandemic. Wage compensation schemes have been praised for protecting private and national economies.

Danish tax payers contributed record amounts during Covid-19 crisis
People paid more tax in Denmark last year despite the Covid-19 pandemic. Photo: Ólafur Steinar Gestsson/Ritzau Scanpix

The average tax payment by individuals last year was 93,183 kroner, according to Statistics Denmark data.

Encompassing income, shares and property tax, the amount is a 5.1 percent increase on the preceding year.

The increase has been linked to “frozen” holiday money (feriepenge) payouts, part of the government’s response to soften the economic impact of the coronavirus crisis.

“Additionally, wage compensation schemes contributed to supporting the labour market and thereby kept both incomes and tax revenues up during Covid-19,” Statistics Denmark writes.

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

Many, or even a majority of people in Denmark are in a better place financially now than they were before the pandemic, according to the Danish Chamber of Commerce (Dansk Erhverv).

“The big increase in Danes’ taxable incomes reflects the positive development most Danes have seen to their private financial situations during the corona crisis,” the organisation’s senior economist Tore Stramer said.

“A series of compensation packages have simply given protection to many Danes’ private finances,” he added.

“It’s a huge success because healthy private Danish finances have ensured that the Danish economy has come flying out of the corona crisis,” Stramer commented.

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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.