Danish government accused of breaking promises on tax cuts

Critics of the Danish government say it is failing to meet promises on tax cuts made in the coalition policy agreement because of a plan to apply a special tax to energy firms and use it to assist individuals struggling with high living costs.

Danish government accused of breaking promises on tax cuts
The Danish government has been accused of not implementing traditional tax cuts, having promised tax would be reduced in the coalition policy agreement. File photo: Ida Marie Odgaard/Ritzau Scanpix

The criticism has emerged from the recent announcement that energy companies are to be required to pay a special tax contribution totalling 1.2 billion kroner due to additional revenues resulting from the energy crisis. The special tax is connected to an EU measure aimed at relieving high energy prices for consumers.

The money will be spent by the state on support for members of the public who are struggling with costs caused by inflation. This will funnel it back to consumers, the government argues.

READ ALSO: Danish energy companies ordered to return 1.2 billion kroner

“That is not what you would normally think to be a tax freeze,” economy professor Bo Sandemann Rasmussen of Aarhus University said in comments to newspaper Berlingske.

In December’s coalition policy agreement, the government states that its tax policies will be “be based on tax freeze” (skattestop).

The term skattestop has been a key part of tax policy within the Liberal (Venstre) party, one of the two junior partners in the coalition, for over two decades.

The government suggested it will use a fund of 300 million kroner previously set aside for a temporary subsidy for vulnerable families in order to meet its tax promises.

It also wants to give inflation-related tax-free cash payments to low-income senior citizens who receive the ældrecheck welfare benefit.

READ ALSO: KEY POINTS: What are the main policies of the new Danish government?

But these plans do not fit with a “tax freeze” in the traditional sense, Rasmussen said to Berlingske.

“Normally you would say this [a tax freeze] should happen within the tax system. In other words, via either direct taxation of people’s incomes or through indirect taxes like VAT,” he said.

In September, the European Commission asked member countries to implement plans to cap to energy company profits. These, as well as levy collections from fossil energy companies, were expected to raise 140 billion euros.

The policy was a key element of the Commission’s measures to relieve high energy prices for consumers.

Tax Minister Jeppe Bruus noted in a comment that the EU had required the Danish government to apply a special tax, news wire Ritzau writes.

“This is therefore a proposal that is the consequence of a regulation that took effect before the new government was in place,” Bruus said.

“The policies the government has presented mean, overall, that taxes will be considerably reduced,” he stated.

Negotiations with other parties could determine the way in which the money regained from energy companies is spent – and therefore whether it takes the character of tax cuts.

The Liberals said they stand by their “tax freeze” principle.

“We naturally stand by the tax freeze and want to reduce tax by billions for both Danes and Danish companies. The EU has – before the coalition was formed – required Denmark to implement [caps on energy companies],” Liberal tax spokesperson Jan E. Jørgensen said in a written comment.

“At the same time, there are a number of criteria from the EU on what the proceeds from these measures can be used for and what they may not be used for,” he added.

The libertarian thinktank Cepos accused the government of breaking promises to reduce tax and rejected its argument relating to the EU regulation.

“According to the tax ministry, the proceeds from tax increases [on energy companies] can go to things like measures to relieve the consequences of high electricity prices for consumers,” Cepos senior economist Mads Lundby Hansen told Ritzau.

“Lower electricity taxes reduce electricity prices, so I therefore see no obstacle to the government, for example, reducing the electricity tax and thereby complying with its tax freeze,” he said.

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Danish government to increase tax break for trade union members

The Danish government says it wants trade union membership to be made cheaper by increasing tax subsidies given on membership fees.

Danish government to increase tax break for trade union members

The tax subsidy for trade union membership fees would be increased from 6,000 kroner to 7,000 kroner per year under the government plan.

“We are doing this to strengthen the Danish [labour] model and it obviously will also give a tax break to many Danes,” Social Demlcratic tax minister Jeppe Bruus told financial news outlet Finans.

“The Danish model depends on a high grade of membership for both trade unions and employer organisations. We are giving a helping hand in this regard,” he said.

Danish tax rules allow reductions on taxable income for membership fees paid to both trade unions and unemployment insurance providers termed A-kasser.

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

A similar proposal was tabled in parliament by the previous, single-party Social Democratic government and had a majority backing, but was not adopted in time for last November’s election.

The Social Democrats have since supported their current partners in the coalition government, the Liberal (Venstre) and Moderate parties, to support the plan.

The Liberals were reported to oppose the move as recently as November 24th, when they were still in talks to form the government.

The new proposal to increase the tax break on trade union membership comes after the government successfully abolished the Great Prayer Day public holiday, effective from 2024.

The Great Prayer Day abolition was strongly opposed by trade unions, who accused it of being an attack on the Danish labour model.

But the new proposal will not soften the blow of losing the public holiday, the leader of trade union HK said in comments to Finans.

“If the government thought this, they certainly have a quite different target to me,” HK chairperson Anja C. Jensen told Finans.

Jensen meanwhile praised the proposal for being a “recognition of the role of trade unions in the Danish [labour] model”.