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January 19th, 2012

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If youÂ’re a student or on welfare, better luck next time, as the government plans to only cut taxes for those holding jobs.

The tax reform, presented yesterday by the tax minister, Thor Möger Pedersen (Socialistisk Folkeparti), and outlined by the government after last September’s election win, states that reducing taxes on employment will increase the workforce by 7,000 and contribute to raising an additional three billion kroner in taxes.

“Tax reduction should go to those who have jobs and incomes,” Pedersen told the press. “This also means that welfare recipients and students are not the focus this time around. They would not be my target with a tax reform, because it is not supposed to be a poverty, education or social reform.”

PedersenÂ’s decision to use a tax reform to reward those in employment was praised by the opposition party Venstre and the pro-enterprise think-think Cepos

“Our target audience is those in employment,” Venstre vice-chairman Kristian Jensen, said according to Berlingske newspaper. “It should always pay to make an effort.”

Cepos chief economist Mads Lundby Hansen shared a similar view to Jensen.

“If you want to increase productivity you have to increase the incentive to work,” Hansen told Politiken newspaper. “That’s why it’s positive that the tax minister has said that people in employment will receive tax breaks.”

The decision by Pedersen not to also reduce taxes for the poorest is a departure from the traditional views of his party, which usually calls for increased taxes on the wealthiest in order to maintain social equality.

But speaking to Jyllands-Posten newspaper, Pedersen said the concept of equality needed a more ‘nuanced’ understanding.

“Our target and ambition has to be securing better working environments for hard-working wage earners,” he said, adding that the government’s had already addressed social inequalty by eliminating the reduced cash welfare benefit rates implemented by the previous government.

While precise details of the tax reform have yet to be revealed, there are two likely scenarios. First is increasing the tax deduction for everyone in employment.

While this option will benefit all jobholders equally, some have argued that the alternative, raising the threshold for the top tax bracket (topskat), would create more of an incentive to work and ultimately raise more money for the state’s coffers.

The metalworkerÂ’s union, Dansk Metal, is one voice arguing this approach. It suggested in a press release last week that the government ought to increase the threshold for topskat by 60,000 kroner.

“The advantage of increasing the threshold for topskat to about 450,000 kroner is that you will get metal workers, electricians and other workers in similar industries to make an extra effort when their business gets an extra order,” Allan Lyngsø Madsen, Dansk Metal’s chief economist said.

Government support party Enhedslisten was critical of any tax reform which would benefit the wealthiest, however.

But Frank Aaen, the party’s tax spokesperson, argued that it might support such a reform as long as there was a guarante that other initiatives which would reduce societal inequality would be put forward.

“It would be absurd to try and help those with the lowest incomes by raising  tax deductible allowance because the wealthiest would also get the increased allowance,” Aaen said. “But it could definitely be put together with other initiatives. Taxation is not necessarily the easiest way to achieve a result.”