Denmark: cautious new taxes for a progressive turn

In the recent parliamentary elections, the Danes have voted for more welfare spending and action on climate change. Now it is up the new prime Minister Mette Frederiksen to keep the promises of the campaign. But with the economy in good shape, taxing the rich in order to finance a new early retirement scheme, acting against climate and hiring people in the day care sector provide a unique chance for the progressive Denmark to promote social and green policies.

Just 10 days after voting in the European parliamentary elections, the Danes elected a new national parliament. The previous election campaign primarily focused on three topics: Acting on climate change, improving welfare services and immigration policy.

The economy as such, however, has not been a priority during the campaign. The consensus among the main parties was that the Danish economy is in good shape. And it is true that the economy is growing, and that employment figures keep reaching new record levels. Several labour supply reforms are already in place, which have raised the retirement and early retirement ages. This has future-proofed the public finances, but no more low-hanging fruits remain. 

The recent election is a unique chance for the progressive Denmark to promote social and green policies!

Economic issues were present in the discussions, but they focused to a great extent on whether the public purse can finance what is needed to uphold welfare services given the expected rise in the number of elderly and children in the coming years. Forecasts believe that it can be done without increased taxes. Thus, there is no burning need for reforms.

Broadly speaking, the right-wing parties want tax cuts and the left-wing parties want more welfare services after years of austerity. Both scenarios will put pressure on the public finances and call for either further cuts to the welfare spending or increased taxes. Altogether however, confidence in the Danish welfare state is high, and in every poll, people trust the SD to be better on welfare issues, which explains, to a certain extent, their election victory.

They do have a few tax increases on the agenda such as the inheritance tax, higher top bracket rate for capital income and new tax contributions from the financial sector, but these are all areas which are not intended to hit ordinary people, but rather the rich. The SD will need this money to finance a new early retirement scheme for people who have been in the labour force for many years and have been worn down by it. 

Mostly this election has been about spending money. Acting against climate change will require more spending. Either for research or as incentives – for instance to trade a petrol-car for an electric one. Furthermore, the left-wing wants to put a cap on how many children one kindergarten teacher should look after, which will require hiring thousands of professionals in the day care sector. 

In her new role as Prime Minister, SD leader Mette Frederiksen, has to square the circle with the left-wing parties wanting more welfare spending, which she doesn’t have the money for, and the far left and the centre-liberal party demanding a softer immigration policy, when the SD promised no changes in the broad immigration policy during the election. 

So, the course will not be easy for Frederiksen, but when it comes to setting a new direction for Denmark, we have seen no better chance in the last 20 years. The recent election is a unique chance for the progressive Denmark to promote social and green policies!