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May 16th, 2012

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Government coalition partner Socialistiske Folkeparti (SF) announced yesterday that they would seek to raise the threshold for the top rate of tax (topskat) as part of the government’s tax reforms.

According to the party’s political spokesperson, Jesper Petersen, too many Danes are paying an additional 15 percent tax on all earnings over 390,000 kroner a year.

“Our goal with the tax reform is to give Danes in low and middle income groups a larger reward from their work,” Petersen told Berlingske newspaper. “In order for the budget to be financed fairly, the reform needs to raise the threshold for topskat. This will mean that significantly fewer ordinary employees will pay topskat.”

The announcement was treated as surprising by many, given that SF traditionally supports high taxes for the wealthiest. But Petersen pointed out that some metalworkers, nurses, teachers and carpenters end up paying the top tax rate.

Negotiations on tax reform are still in their early stages and are not expected to finish before the end of the summer, though PM Helle Thorning-Schmidt did offer her support for SF’s proposal at her weekly press conference yesterday.

“The government feels that there are too many Danes paying topskat that shouldn’t be,” Thorning-Schmidt said. “It’s good that we are having a discussion about how we see the tax system.”

With so far to go with the negotiations, neither she nor Jespersen would state exactly how much higher they intend to raise the tax threshold.

Dennis Kristensen, chairman of trade union FOA, expressed concern that the poor would end up paying for the tax cut.

“We are beginning to see the outline of a tax reform that will benefit those in employment,” Kristensen told Berlingske. “That means that welfare recipients, pensioners and other weak groups will have to sponsor it. Our trade union believes in protecting the weak rather than benefiting the richest.”

Government support party Enhedslisten also sounded worry over SF’s position.

“SF used to fight against easing topskat so it’s a little bizarre that they themselves are now demanding it in the tax reform,” Frank Aaen from Enhedslisten told Berlingske. “The tax reform is close to being the government’s last chance for sending a portion of the bill to wealthiest. The government has said that everyone has to contribute to fixing the crisis.”

Libertarian think tank Cepos welcomed the move to reduce the number of people paying the top rate but argued it would be more effective to simply cut the top rate instead.

“It is of course positive that they want to raise the threshold for the top rate of tax, but it sill won’t be attractive enough for the most productive Danes,” Cepos’ chief economist, Mads Lundby Hansen, told epn.dk.