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February 26th, 2013

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The final piece of the government’s ‘Big Bang' reforms was presented today in the form of a growth and jobs plan entitled 'Vækstplan DK' (Growth Plan DK) that promises "stronger businesses and more jobs".

The highly-anticipated plan uses savings made by cutting the least generous unemployment benefit, kontanthjælp, and the student grant system SU in order to pay for lower taxes and levies on businesses.

The full catalogue of proposals includes several additional sources of financing that that will pay for a reduction of taxes and levies on businesses and an increase in public investment worth a total ten billion kroner in 2014. The cost of the growth plan is expected to rise to 15 billion by 2020 and result in an additional 150,000 jobs.

In the plan, released by the Finance Ministry this morning, the government states: “The initiatives will make it noticeably more attractive to invest in Danish businesses both now and in the coming years. We will also increase public investment and ensure improved levels of education.”

Here are the key elements of the plan and their cost in 2014.

• Gradual reduction of corporate tax from 25 percent to 22 percent, except for banks and companies drilling for North Sea oil. Cost: 1.2 billion kroner
• Reduced energy levies on businesses. Cost: 1.8 billion kroner
• Abolishment of the mileage tax for lorries and increased support for railway freight. Cost: 1.5 billion kroner (in 2020)
• Increased tax credits for research and education and reduction of VAT on hotels. Cost: 0.7 billion kroner
• Initiatives to improve growth and attract highly-qualified foreign workers. Cost: 0.1 billion kroner
• Increases in public investment. Cost: 2 billion kroner
• Reintroduction of the income tax deduction for home renovations. Cost: 1.5 billion kroner
• Increased investment in renovation of public housing. Cost: 2.3 billion kroner
• Increased adult training and re-education together with the private sector. Cost: 1 billion (between 2014 and 2017)

This is how the government plans to finance these initiatives.

• In exchange for increased government investment in public infrastructure, councils will not increase spending on services: Gain: 2 billion kroner
• Reduce annual growth of public sector from the planned 0.8 percent to 0.4 percent in 2014. This will slowly rise to 0.75 percent in 2020. Gain: 1.9 billion kroner a year in 2014, rising to 4.2 billion kroner a year in 2020.
• Cuts to the student grant system, SU. Gain: 1 billion kroner by 2020.
• Cuts to the least generous unemployment benefit, kontanthjælp. Gain: 0.4 billion kroner in 2014
• Temporary tax on capital pensions. Gain: 1 billion kroner in 2014.
• Reduce salary increase in public sector to match the lower wage increase in private sector. Gain: 1.5 billion kroner a year from 2013.

The government has received a mixed response to the growth and jobs bill. While the left-wing criticises them for cutting welfare and reducing the burden on businesses, the right-wing has commended the government for the same initiatives.

In the plan, the government explains that there are three main challenges faced by Denmark that the reforms and growth and jobs bill hopes to address.

Firstly, it’s expensive to run a business in Denmark because salaries have increased faster than productivity. The uncompetitive level of taxation also makes it unattractive for businesses to invest, which limits the amount of new jobs that can be created.

To address this, the government is making it more attractive to run a business by lowering taxes and costs on production.

Secondly, the new generation of Danes aren’t as competitively educated on the world stage as they once were, while the overall productivity of Denmark remains lower than in other countries.

Government reforms, including the recent proposed reforms of kontanthjælp and SU, are hoped to both increase educational levels while also getting more workers into the labour market.

Thirdly, Denmark spends the greatest proportion of its GDP on public spending of all OECD countries. The government therefore wants to limit the growth of public spending in the coming years, which means that improving public services will have to depend on increased effectivisation and modernisation as well as an increased role of the private sector.