Economy of Denmark - Welfare State

Welfare State

Denmark has a broad-reaching welfare system, which ensures that all Danes receive tax-funded health care and unemployment insurance. Denmark ranked the first in the European pensions barometer survey for the past two years 2007 Europm the age of 65 receive 120% of their pre-retirement income in pension and miscellaneous subsidies.

The largest public sector (30% of the entire workforce on a full-time basis) is financed by the world's highest taxes. A value added tax of 25% is levied on the sale of most goods and services (including groceries). The income tax in Denmark ranges from 42.9% to 63% progressively, levied on 4 out of 10 full-time employees. Such high rates mean that 1,010,000 Danes before the end of 2008 (44% of all full-time employees) will be paying a marginal income tax of 63% and a combined marginal tax of 70.9% resulting in warnings from organisations such as the OECD. TV2 (Denmark) reported in April 2008 that abolishing the middle- and top-level income tax brackets would amount to two (2) and one (1) percent of public sector revenue, respectively, which equals one and a half percent of GDP. The public sector as a whole had a budget surplus of 4.4% of GDP in 2007, but the tax cuts would increase private consumption and the labor shortage, thus, resulting in a deficit on the trade balance and pressure to increase wages even further. Proceeds from selling ones home are not taxed, as the marginal tax rate on capital income from housing savings is around 0 percent. A survey by Standard & Poor's found that the total debt secured by mortgages in Danish homes amounts to 89.8% of GDP, which is above the debt level in other EU countries (and the USA at 74.6% of GDP).

Discussions on increasing the labor supply include abolishing a labor market arrangement called efterløn (eng.:early retirement pay), at the present (end of 3rd quarter 2008) with more than 130,000 participants (60 years until 64 years of age). Participation in this scheme is also open for self-employed people (farmers, fishermen, lawyers, and so on). Shortening the time unemployment benefit can be received (four years at the present), as an example, is also discussed. The Danish Economic Council in its 2008 spring report (27 May) proposes limiting the dagpengeperiode to 2.5 years, which is still half a year more than at present in Norway and one and a half years more than in Sweden, said in an interview by the chairman (da: overvismand) (professor of economics, University of Copenhagen) Peter Birch Sørensen 27 May 2008 on the TV program Deadline (10.30 pm), channel DR2, the Danish Broadcasting Corporation.