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Denmark To Cut Income Taxes

by Ulrika Lomas,, Brussels

23 August 2007

The Danish government has announced its intention to cut taxes by DKK10 billion (EUR1.34 billion) per year in 2008 and 2009 in a bid to stimulate the labour market, and improve incentives to work.

Under the proposed reforms, announced by the government on Tuesday, the income ceiling for the middle and top income tax brackets will be raised to DKK353,000 per year from DKK304,100, and to DKK381,300 per year from DKK365,000, respectively.

The government is also proposing to raise the employment tax deduction, which is subtracted by all working wage earners, to 4.7% from 2.5%.

Some of these tax cuts would take effect on January 1, 2008, with the total tax cut package coming into force on January 1, 2009.

In the same announcement, the Danish government also promised that a broad economic plan for the next eight years would not raise any taxes between now and 2015.

The economic package also promises DKK50 billion in extra spending to improve Denmark's welfare system between 2009 and 2018.

A general election is due in Denmark by the end of 2008, when Prime Minister Anders Fogh Rasmussen's four-year mandate comes to an end, although the Prime Minister is entitled to call an early election under the terms of the country's constitution. However, it is unclear whether his centre-right government will garner enough support to push the reforms through. The government's centre-left opponents have criticised the tax package for favouring the well-off. However, business interests have urged the government to go further by cutting income tax rates, rather than merely tinkering with tax brackets.

To help offset the tax cuts, the government also announced that green taxes on energy consumption would increase from 2008 to match inflation. This would increase taxes on heating, water and electricity.

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