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February 18th, 2013

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Opposition parties are starting to make demands in order to support the government’s upcoming reforms of unemployment benefits and student grants.

The government already seems to be preparing to use cuts to these services to pay for a growth bill consisting of initiatives to help businesses create jobs and growth.

But now opposition party Venstre – parliament’s largest party – has called on the government to include a promise to not increase taxes on businesses before the next election in around 30 months.

“If the [growth bill] is to have any perspective, parliament needs to promise to protect Danish businesses for the rest of the election period,” Venstre leader Lars Løkke Rasmussen told Politiken newspaper.

The government has been attacked by the opposition for introducing – and subsequently rescinding – a range of new taxes on businesses such as the sugar tax, even though the Rasmussen-led former government was itself responsible for introducing over 100 new taxes and levies on businesses.

Rasmussen has also called for an end to the government’s planned 0.8 percent annual growth of the public sector. Last autumn, he argued that it was possible to freeze the size of the public sector and make up the lost revenue by increasing its efficiency. For example, councils are increasingly turning to using robot vacuum cleaners, instead of cleaning staff, to clean the homes of elderly residents.

But Lars Barfoed, leader of the Konservative party, argues that freezing the size of the public sector will have to result in cuts.

“We need to make cuts if we are to make it work, and we need to have the courage to tell Danes this openly,” Barfoed said in an interview with Berlingske newspaper, adding that it wouldn’t be possible to continue providing the same public care while also limiting the size of the public sector given the country's rapidly ageing population.

”We need to cut in some areas where some people are going to feel it,” he said.

At the heart of the debate is the sense that Denmark’s high tax burden and large welfare state are restricting the economy’s ability to rebound from the financial crisis. Growth remains sluggish and unemployment remains about 80,000 higher than pre-2008 levels.

While the centre-right and libertarian parties have been calling for tax and welfare cuts, others argue the real cause of the economic difficulties is a lack of confidence in the economy.

According to Politiken Research, many left-wing MPs argue that making it easier to earn unemployment benefits, dagpenge, may provide extra security that will result in higher private consumption.

Danes currently have to pay an unemployment insurer for 12 months before being entitled to dagpenge for two years, but Ejnar Søndergaard, the chairman for Socialistik Folkeparti in Esbjerg, argued that the length of time it takes to earn dagpenge should be halved.

“There’s a clear connection between growth and earning the right to dagpenge,” Søndergaard told Politiken. “Security is disappearing from our flexicurity model. People react to that by saving more money. So [making it easier to earn dagpenge] will definitely help to stimulate demand.”

According to the government’s economic advisers, De Økonomiske Råd, Denmark’s economy isn't in as dire straits as one might have assumed given the level of political and media attention focused on discussing Denmark’s weak competitive abilities.

While the crisis has resulted in a higher level of unemployment, Denmark has a robust trade surplus, meaning that Danish businesses are successfully competing on the international markets.

They add, however, that more could be done to improve the chances of Danish businesses internationally, though the only strategy available to the government is to reduce or remove levies on businesses whose sole purpose is to create income for the government – though this would have to be financed through cuts to public services.

“Electricity and energy levies burden the abilities of businesses to produce,” four co-chairs of De Økonomiske Råd wrote in Saturday’s Berlingske. “Reducing these should be financed kroner-for-kroner in the public finances in order to maintain a responsible economic policy.”

They added, however, that any lasting economic recovery is dependent upon consumers spending more money.

“With or without a jobs bill, we will only experience an upturn that will bring employment back to normal levels once European businesses and consumers start to have faith in the future again.”

Governments traditionally seek large parliamentary majorities when making fundamental reforms of public services, which is why the Socialdemokraterne-Socialistisk Folkeparti-Radikale government is appealing to Venstre by presenting a self-financing package of reforms in March.

The government's far-left support party Enhedslisten was not impressed by Venstre's focus on attempting to streamline the welfare state while reducing the economic burden on businesses.

"Lars Løkke wants to completely protect business up until the election," Enhedslisten MP Johanne Schmidt-Nielsen wrote on Facebook. "Banks and oil companies won’t have to pay an extra kroner. And we can’t place any more demands on businesses to, for example, create more trainee positions. On the other hand, Løkke has no problem making cuts to daycares, schools and old people’s homes. And Løkke happily sends the bill on to pensioners, the unemployed and the sick. It says something about Venstre’s priorities. What about a stop on cuts to welfare instead?"