Denmark rethinks its out-of-kilter welfare state

Danes pay the highest income tax in the world in exchange for extravagant benefits that lead to some people getting more money on welfare than when working. Many say this situation has become untenable

By Suzanne Daley  /  NY Times News Service, COPENHAGEN

Thu, Apr 25, 2013 - Page 9

It began as a stunt intended to prove that hardship and poverty still existed in this small, wealthy country, but it backfired badly. Visit a single mother of two on welfare, a liberal member of parliament goaded a skeptical political opponent, see for yourself how hard it is.

However, it turned out that life on welfare was not so hard. The 36-year-old single mother, given the pseudonym “Carina” in the news media, had more money to spend than many of the country’s full-time workers. All told, she was getting about US$2,700 a month and she had been on welfare since she was 16.

In past years, Danes might have shrugged off the case, finding Carina more pitiable than anything else. However, even before her story was in the headlines 16 months ago, they were deeply engaged in a debate about whether their beloved welfare state, perhaps Europe’s most generous, had become too rich, undermining the country’s work ethic. Carina helped tip the scales.

With little fuss or political protest — or notice abroad — Denmark has been at work overhauling entitlements, trying to prod Danes into working more or longer, or both. While much of southern Europe has been racked by strikes and protests as its creditors force austerity measures, Denmark still has an “AAA” bond rating.

Denmark’s long-term outlook is troubling, though. The population is aging and in many regions of the country people without jobs now outnumber those with them.

Some of that is a result of a depressed economy, but many experts say a more basic problem is the proportion of Danes who are not participating in the workforce at all — be they dawdling university students, young pensioners or welfare recipients, like Carina, who lean on hefty government support.

“Before the crisis there was a sense that there was always going to be more and more,” said Bjarke Moller, the editor-in-chief of publications for Mandag Morgen, a research group in Copenhagen. “That is not true anymore. There are a lot of pressures on us right now. We need to be an agile society to survive.”

The Danish model of government is close to a national religion and it has produced a population that regularly claims to be among the happiest in the world. Even the country’s conservative politicians are not suggesting getting rid of it.

Denmark has among the highest marginal income tax rates in the world, with the top bracket of 56.5 percent kicking in on incomes of more than about US$80,000. In exchange, the Danes get a cradle-to-grave safety net that includes free healthcare, free university education and hefty payouts to even the richest citizens.

Parents in all income brackets, for instance, get quarterly checks from the government to help defray childcare costs. The elderly get a free maid service if they need it, even if they are wealthy.

However, few experts here believe that Denmark can long afford the current perks. So Denmark is retooling itself, tinkering with corporate tax rates, considering new public-sector investments and, for the long term, trying to wean more people — the young and the old — off government benefits.

“In the past, people never asked for help unless they needed it,” said Danish Minister of Social Affairs and Integration Karen Haekkerup, who has been outspoken on the subject. “My grandmother was offered a pension and she was offended. She did not need it.”

“Now people do not have that mentality. They think of these benefits as their rights. The rights have just expanded and expanded, and it has brought us a good quality of life, but now we need to go back to the rights and the duties. We all have to contribute,” Haekkerup said.

Last year, a little more than 2.6 million people between the ages of 15 and 64 were working in Denmark — 47 percent of the total population and 73 percent of 15 to 64-year-olds.

While only about 65 percent of working-age adults are employed in the US, comparisons are misleading, since many Danes work short hours, and all enjoy perks like long vacations and lengthy paid maternity leave, not to speak of a de facto minimum wage approaching US$20 an hour. Danes would rank much lower in terms of hours worked per year.

In addition, the workforce has far more older people to support. About 18 percent of Denmark’s population is more than 65, compared with 13 percent in the US.

One study, by the municipal policy research group Kora, recently found that only three of Denmark’s 98 municipalities would this year have a majority of residents working. This is a significant reduction from 2009, when 59 municipalities could boast that a majority of residents had jobs. (Everyone, including children, was counted in the comparison.)

Joachim Olsen, the skeptical politician from the Liberal Alliance party who visited Carina 16 months ago in her pleasant Copenhagen apartment, is particularly alarmed. He says Sweden, which is already considered generous, has far fewer citizens living on government benefits. If Denmark followed Sweden’s example, it would have about 250,000 fewer people living on benefits of various sorts.

“The welfare state here has spiraled out of control,” Olsen said. “It has done a lot of good, but we have been unwilling to talk about the negative side. For a very long time it has been taboo to talk about the Carinas.”

Already the government has reduced various early-retirement plans. The unemployed used to be able to collect benefits for up to four years. Now it is two.

Students are next up for cutbacks, most of which are intended to get them into the workforce more quickly. Currently, students are entitled to six years of stipends, about US$990 a month, to complete a five-year degree which, of course, is free. Many of them take even longer to finish, taking breaks to travel, and for internships before and during their studies.

In trying to reduce the welfare rolls, the government is concentrating on making sure that people like Carina do not exist in the future. It is proposing cuts to welfare grants for those under 30 and stricter reviews to make sure that such recipients are steered into jobs or educational programs before they get comfortable on government benefits.

Officials have also begun to question the large number of people who are receiving lifetime disability checks. About 240,000 people — roughly 9 percent of the potential workforce — have lifetime disability status; about 33,500 of them are under 40. The government has proposed ending that status for those under 40, unless they have a mental or physical condition that is so severe that it keeps them from working.

Instead of offering disability, the government intends to assign people to “rehabilitation teams” to come up with one to five-year plans that could include counseling, social-skills training and education, as well as a state-subsidized job, at least in the beginning. The idea is to have them working at least part-time or studying.

It remains possible that the cost-cutting push will hurt the left-wing coalition that leads the government. By and large, though, the changes have passed easily in parliament and been happily endorsed by conservatives like Olsen, who does his best to keep his meeting with Carina in the headlines.

Carina was not the only welfare recipient to fuel the sense that Denmark’s system has somehow gotten out of kilter. Robert Nielsen, 45, made headlines in September last year when he was interviewed on television, admitting that he had basically been on welfare since 2001.

Nielsen said he was able-bodied, but had no intention of taking a demeaning job such as working at a fast-food restaurant. He made do quite well on welfare, he said. He even owns his own co-operative apartment.

Unlike Carina, who will no longer give interviews, Nielsen, called “Lazy Robert” by the news media, seems to be enjoying the attention. He says he is greeted warmly on the street all the time.

“Luckily, I am born and live in Denmark, where the government is willing to support my life,” he said.

Some Danes say the existence of people like Carina and Nielsen comes as no surprise.

Lene Malmberg, who lives in Odsherred and works part-time as a secretary, despite a serious brain injury that has affected her short-term memory, said the Carina story was not news to her. At one point, she said, before her accident when she worked full-time, her sister was receiving benefits and getting more money than she was.

“The system is wrong somehow, I agree,” Malmberg said. “I wanted to work, but she was a little bit: ‘Why work?’”

Additional reporting by Anna-Katarina Gravgaard