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IMF Recommends Real Estate Tax Review In Denmark

by Ulrika Lomas, Tax-News.com, Brussels

30 September 2014


The International Monetary Fund (IMF) has advised Denmark to reduce tax preferences for housing to reduce distortions to investment decisions.

In its latest Article IV report, the IMF points out that "the freeze on real estate valuations at 2002 levels … creates a bias in the tax system towards owner-occupied dwellings relative to other investment." The report recommends tax preferences for housing should be reduced and should be accompanied by measures on the tax treatment of mortgages.

The IMF said that "high household debt is an underlying vulnerability and house price volatility has consequences for the real economy." It said, therefore, that "some features of tax [and the] rental market should be reconsidered."

More generally, the IMF noted that, although fiscal consolidation was sufficient for Denmark to exit from the European Union's Excessive Deficit Procedure in 2013, the fiscal deficit is likely to expand in 2014 to about three percent of gross domestic product (GDP) and is expected to deteriorate further in 2015 as one-off tax revenue measures expire.

The IMF has suggested that "a somewhat tighter fiscal position in 2015 (by 0.25 percent of GDP) would start building buffers in the case of a downturn and provide some margin for maneuver in the event of other negative fiscal shocks. This is particularly important given the inherent uncertainty of some revenue items, particularly pension taxation."

TAGS: tax | economics | Denmark | property tax | fiscal policy | real-estate | gross domestic product (GDP) | International Monetary Fund (IMF) | tax breaks | Europe

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