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February 25th, 2013

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Corporate tax will be reduced from 25 percent to 22 percent as part of the government’s jobs and growth bill, according to TV2 News.

The bill, which will be presented later this week, is intended to increase competitiveness and encourage businesses to recreate some of the 80,000 jobs that were lost after the financial crisis.

But banks won't be offered the lower tax rate, and nor will the companies responsible for drilling for North Sea oil, Dansk Undergrunds Consortium (DUC).

TV2 News also reported that the government plans to reduce VAT on the hotel and hospitality industries, which business lobby group Dansk Erhverv and the hotel and restaurant association HORESTA have both advocated.

A final proposal is to abolish a tax that lorry drivers have to pay for every kilometre driven.

The revelations received mixed responses. Liberal think-tank Cepos praised the government’s initiative to reduce the corporate tax, but argued it needed to go even lower.

“It will help maintain investment in new technology, machines and research which will increase productivity and increase welfare,” Cepos's chief economist, Mads Lundby Hansen, wrote in a press release. “But having said that, the ambition level should be higher. The government ought to reduce corporate tax to 20 percent so that we can compete better with Sweden, where the rate is 22 percent.”

Centre-left think-tank Cevea disagreed, however. Cevea's managing director, Kristian Weise, wrote in a press release that it was a myth that lowering corporate tax would create more growth and jobs.

“That might be the result of economic modelling but in the real world, the story is very different,” Weise wrote. “Corporation tax has often been reduced without it leading to either greater investment or higher growth.”

There were also varied responses from politicians. Far-left government support party Enhedslisten was particularly disappointed by the news given that cuts to student grants and unemployment benefits are expected to finance the reduced tax rate for companies.

“We’re taking money from people who are the worst off in order to give tax cuts to businesses that have generated record profits in recent years,” Finn Sørensen (Enhedslisten) told Politiken newspaper. “It’s especially horrible given that it is a Socialdemokraterne-led government that is proposing it.”

Trade union LO also voiced concern that reducing company tax may not create any new jobs.

“There is the risk that it doesn’t create any new jobs in the next three to five years,” LO's chief economist, Jan Kæraa Rasmussen, told online political news source Altinget. “It might make businesses invest some of their saved-up resources, but it’s very uncertain.”

Rasmussen added that reducing levies on businesses was a better strategy.

“That directly affects the cost of production and the level of cross-border trade, both of which will definitely create more jobs,” Kæraa said.

Parliament’s largest opposition party, Venstre, last week stated that the government needed to promise Danish businesses that no extra taxes or levies would be placed on them in the coming years.

But while the government seems to want to go further and reduce the tax burden on businesses, Venstre now states that the government's proposals don't do enough to create jobs in the short-term.

“Where is the home improvements initiative that will allow homeowners to deduct renovations and cleaning of their homes?” Venstre’s financial spokesperson Peter Christensen asked Berlingske newspaper, adding that the home improvements initiative would create an immediate demand for jobs.

“I am surprised by how unambitious the government is," he said. "The prime minister has announced a jobs and growth bill but these initiatives won’t create jobs anytime soon.”