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November 14th, 2012

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The government is being accused of writing a secret tax increse into the 2013 budget it agreed last week with far-left support party Enhedslisten.

The budget deal agreed to scrap the controversial fat tax and a planned tax on sugar. The move will eliminate four billion kroner from the budget, and the Socialdemokraterne-led government sought to make up that revenue by raising the basic tax rate, bundskat, by 0.19 percent, and reducing the personal tax deduction by 900 kroner, to 42,000 kroner.

According to new calculations, however, the reform means that some Danes will end up with a heavier tax burden next year. This is because the amount that many people paid in fat and sugar taxes was less than they will pay in increased income taxes.

As a result, about 460,000 people will end up paying more than 51.5 percent of their total income in tax, which is higher than the agreed tax limit for their income group, the so-called ‘tilted tax-ceiling’. These taxpayers now face a total tax burden of 51.7 percent, but the economy minister, Margrethe Vestager (Radikale), described the increase as 'modest'.

“It is a finely balanced solution that has to be seen in light of the fact that this summer we passed a wide ranging tax reform that considerably reduced income taxes,” Vestager told Jyllands-Posten newspaper.

Political opponents are not happy with the effective tax hike, however.

“It contradicts the ambitions of both centre-right and centre-left governments over the years, namely to reduce the amount of tax paid on the last kroner earned,” Konservative tax spokesperson, Brian Mikkelsen, told Jyllands-Posten. “It will cost jobsand productivity and we can only but fear what Enhedlisten will manage to get through next time, now that the levee has broken.”

Enhedslisten seemed to be unaware of the increase in the tilted tax-ceiling, though their finance spokesperson, Frank Aaen, said it was a pleasant surprise.

“I am surprised that it was possible to increase the tilted tax-ceiling,” he told Jyllands-Posten. “It has been a mantra that you cannot raise the tilted tax-ceiling which is why this is very satisfying. It’s a small millionaire’s tax.”

Enhedslisten previously tried to have a millionaire’s tax introduced but the idea was categorically rejected by Radikale.

The actual tax increase for the wealthy will be marginal, according to economist Bo Sandemann Rasmussen. Danes earning a million kroner a year will end up paying an extra 1,200 kroner as a result of the increase.