Death by taxes

Divisions among supporting parties have forced the minority Venstre government to postpone a tax code reform. While a deal will likely be reached, it exposes the minority government's inevitably weak position

It might come as a surprise to non-Danes that the Liberal Party (Venstre) government doesn’t command anything close to a majority in parliament. With 34 out of 179 seats, their power relies on a majority of parties in parliament that do not oppose their rule.

This means the minority Venstre government needs to keep their supporters in parliament – the so-called ‘blue bloc’ – happy, or risk facing a vote of no confidence.  The risk of this threat has forced the government to delay a reform of the tax code, and demonstrates the sharp divisions within the bloc.

To the government’s left is the Danish People’s Party (DF), a populist and pro-welfare party who joined the blue bloc due to their position on immigration. To the right of the government is Liberal Alliance (LA), a small-government and free enterprise party. If there’s anything they can’t agree on, it’s taxes.

This division is a problem for the government, which wants to reduce taxes on those with low-income work in order to bring down the number on unemployment benefits. In addition, they want to reduce tax on the last earned krone by five percentage points across the board.

Liberal Alliance has different priorities. Their central political objective is to cut the top tax bracket, topskat, which currently stands at 15 percent of income over 467,000 kroner. DF is opposed, however, and in December leader Kristian Thulesen-Dahl stated that the pressure on government finances resulting from the increase in refugees, means it is a bad time to reduce state revenue.

“We don’t like the idea of cutting topskat,” Dahl told TV 2 News, while LA leader Samuelsen told Politiken: “It’s going to happen.”

With the battle lines drawn, finance minister Claus Hjort Frederiksen announced that the government would postpone the planned tax reform from the spring to the autumn. Instead, the government would first draw up an economic plan through to 2025 where they would find money for both welfare and tax cuts.

Samuelsen responded to the postponed reform by stating his party would not guarantee the survival of the government if they do not live up to their promises.

“Our promise to the government is that we support them as long as they live up to their [promises],” Samuelsen told Politiken. “[They promised] that there would be a tax reform in the spring.”

Prime Minister Lars Løkke Rasmussen has taken the threat in his stride, and argued that the best possible tax reform would only be possible after drawing up their 2025 economic plan during the summer.

“There is a much bigger chance of an ambitious reform if we know beforehand how we will be tackling the refugee crisis, and what the economy is going to look like in that period,” Rasmussen told Berlingske.

Do or die
Hans Engell, a political analyst and former head of  the Conservatives (Konservative), says Samuelsen’s strong position represents a “do or die” situation for his party, especially given that tax reform is a cornerstone of the PM’s project.

“By threatening the government and by emphasizing LA’s demand for tax cuts as forcefully as he has, Samuelsen has in reality risked all of his party’s credibility. If LA succeed and the negotiations bring a significant lowering of tax for the highest earners, then the party will really have accomplished something and a large group of voters will be very thankful to LA. If, however, they do not succeed and there are no significant cuts, Samuelsen will have made empty threats and will lose all credibility. It really is a high-risk project,” explains Engell, adding that making a deal won’t be an impossible task.

“I think a deal will be struck with LA, Konservative and DF. I don’t think it is possible to lower the rate of topskat, but it should be possible to raise the threshold for when one pays it. That means that some concessions will have to made to please DF, concessions which could be in a number of areas,” Engell concludes.

Weak government
Flemming Juul Christiansen, Associate Professor at Department of Social Sciences and Business at at the University of Roskilde, is an expert on minority governments. He argues that the Venstre government is in a weak position.

“This is a situation where the government party has three supporting parties of which one party, DF, is actually larger than the party in power. That makes a weak government, as the government has to take many more interests into account when attempting to implement reform,” he says, adding that the reform was postponed due to the complexity of funding a compromise.

“The negotiations have been postponed so that the Prime Minister can buy some time to take care of the different interests at play and find a lasting solution going into the negotiations.” M


By Joshua Hollingdale

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