Tax and welfare cuts central to 2025 economic plan

Cuts to student grants and a later retirement age are hoped to fund economic growth over the next decade, according to the government’s plan

In late August, the minority Liberal Party (Venstre) government presented an economic plan to foster growth from now to 2025. Entitled A comprehensive plan – for a stronger Denmark, the ambition is to increase GDP by 65 billion kroner and increase the labour force by 250,000 people. While the welfare state will continue to grow at a steady 0.5 percent annually, both the wealthiest and poorest will pay fewer taxes.

Funding the tax cuts is a reform of the education grants (SU), a later retirement age, forced retirement savings, as well as reducing the number of Danes on unemployment benefits.

“Some say that the solution to all problems is lower taxes – this is wrong,” PM Lars Løkke Rasmussen said when presenting the plan live over Facebook. “Others will say that tax cuts are the root of all evil. This is also wrong.”

Taxes a sticky issue
Venstre’s government mandate is provided by the remaining parties in the right wing ‘blue bloc’. Liberal Alliance has demanded that the rate of the top tax bracket, topskat, should be reduced from 15 to 10 percent. Venstre’s 2025 plan included the desired cut to topskat, but only on incomes below one million kroner.

READ MORE: Government death by taxes

Few other parties support cutting the top tax rate, least of all the populist Danish People’s Party (DF), which is a member of the ruling blue bloc. The government could turn to DF and parties on the left wing to pass a tax reform that does not include the tax cuts demanded by LA, but Samuelsen has promised to withdraw his support for the government – and prompt an election – if his party didn’t get its way.

“If the government will make a different agreement about tax relief with support from the Social Democrats (Socialdemokraterne), they will get to vote it through, but then we’ll retract our government support,” Samuelsen told Berlingske.

Broken promise on student grants
Cuts to SU were also highly criticised by the left wing parties. Largely inspired by the Swedish and Norwegian SU systems, the government wants to lower the grant, turn half into a loan, and increase the amount students can earn on top.

While SU costs have doubled from 10 billion to 20 billion kroner over the past decade, opposition party Socialdemokraterne was particularly disappointed by the proposal.

“It’s completely unreasonable that the government has proposed cutting SU in order to finance tax cuts,” education spokesperson Mette Reismann told Jyllands-Posten newspaper. “It will hit the poorest hardest, and the risk is that those affected will delay their studies, or drop out.”

Fellow left-wing parties the Socialist People’s Party (SF) and the Red-Green Alliance also oppose the SU proposal, while leader of The Alternative (Alternativet) accused the PM of breaking a promise.

“Lars Løkke said during the last election that he would not dream of cutting SU, and now we see it’s on the drawing board,” Elbæk told TV2 News. “In the Alternative we view the issue from a much larger perspective. Which sorts of education do we want and who should be entitled to them? So I implore young people: get started with a youth revolt! We are waiting for you, and us oldies on the sidelines will cheer you on.”

To be continued
Negotiations over the plans, that will be executed in the coming budget and a series of reforms, have now been kicked off. It will be interesting to see if the negotiations will make way for an unusual friendship between             Socialdemokraterne and DF, to stave off further tax relief. And will Liberal Alliance eventually accept the proposed tax relief, or will they follow through with their promise to spark an election?

Either way, this political autumn will be attention grabbing, due to lack of cohesion on both the left and right wing.

The central initiatives of the 2025-plan:

  1. It must pay to have a job.
    Tax deductions for low income workers.
    Tax reduction for incomes between 463,000 and one million kroner.
    30,000 kroner tax deduction for long-time unemployed who find work.
    Homeless given opportunity to earn small amounts tax free.
  2. Competitive conditions for our companies
    Tax relief for new entrepreneurs
    Tax deductions for investments
    Strategy for the sharing economy
    Cheaper electricity, water and heat
    Abolish PSO-tax
    27 billion kroner extra for infrastructure investments
    Adjusting the corporate tax model to incentivise investment
    Extra tax deduction for more investments in research and development
  3. Belated retirement to secure future welfare
    Delaying the retirement age from 67 to 67.5 years in 2025
    Raising the age of early retirement from 63 to 63.5 yeas in 2021
  4. Better basic welfare and security
    Public service expenses will on average increase with 0.5% per year
    An extra one billion kroner investment in welfare funds
    800 million kroner investment in national security
    One billion kroner investment in adult education
    More public infrastructure investment
    Renewal and repriotisation in the public sector
  5. Control refugee-flow
    Emergency brake to reject refugees at the border
    Tighten up deportation, repatriation and conditions for permanent residence and welfare
  6. Good and useful education and a sturdy SU-system
    Reforming the education grant system (SU) so half becomes an interest-free loan. Changes to take effect from mid-2019
    Investment in adult education
    Education committee to examine make up of courses offered at universities
    Between 8,000 and 10,000 more internships
  7. Increased savings for a secure retirement
    Obligatory pension savings
    Pension bonus. Extra job-reductions for citizens saving up for retirement
    Increased incentive to pension savings

By Sophie Stenner Frahm

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