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Denmark's tax cuts 'should favor poor'

Denmark should give any future tax cuts to people at the bottom of the income scale where the reductions would do more to boost the labor supply, Danish Minister of Employment Claus Hjort Frederiksen said.

Cutting taxes for lower income groups is "where we think we can make the biggest difference to the labor supply, by getting these people into jobs," Frederiksen said in a telephone interview on Friday.

The ruling coalition needs to ease a labor shortage that threatens to push up inflation and slow economic growth. It also needs to raise its own support after Danish Prime Minister Anders Fogh Rasmussen last week called an election for Nov. 13 in a country where opinion polls show that welfare spending has become more popular than tax cuts.

I am "not a great believer in major change to the taxation system," Frederiksen said, even though cutting taxes is a declared goal of his government.

The employment minister also said the government won't consider limiting the pace of increases in unemployment benefits. The unemployed can claim as much as 14,500 kroner (US$2,800) a month in benefits, with that amount pegged to wage growth.

"Just tracking inflation wouldn't be enough to ensure that people can continue to lead reasonable lives," he said. "This is an expensive society we live in."

The Liberal-Conservative coalition and parliamentary ally, the Danish People's Party, would receive 86 of 175 seats in parliament if an election were held now, a Ramboell poll published on Saturday by Jyllands-Posten showed. The Social Democratic-led opposition would get 79 seats.

Frederiksen's comments imply the government will resist pressure from coalition partners, the Conservative Party, to target tax cuts on the rich. Reducing taxes at the top of the income scale, where Danes pay 63 percent on annual income above US$68,750, would boost the labor supply more than cuts lower down in the income scale, according to data compiled by the Copenhagen-based Center for Political Studies.

"Economic models are all well and good, but we have to push through policies that receive popular acceptance," Frederiksen said. "I haven't seen any evidence suggesting that cutting taxes for top income earners will actually encourage people to work more."

Forty percent of Danes in full-time jobs pay the top tax rate, according to provided by the Center for Political Studies.

The government last month cut taxes for lower and middle income earners to try to encourage Danes to work longer hours in what the central bank has dubbed the worst labor shortage in decades. The unemployment rate held at 3.3 percent in August, a 33-year low.

The government is trying to persuade voters that tax cuts don't come at the expense of welfare or create inequality.

Sixty-seven percent of Danes would pay higher taxes to ensure improved state services for all, a Synovate survey published by the weekly electronic magazine Mandag Morgen showed on Sept. 3. Forty-eight percent of voters don't want tax cuts, according to an Aug. 19 Vilstrup poll for Politiken newspaper. That compares with 44 percent of voters who welcome cuts.
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