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April 19th, 2013

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A complicated period of negotiation between the government and opposition ended yesterday with agreements on how to reform the least generous unemployment benefit, kontanthjælp, and the student grant system, SU.

The reforms were agreed upon by all parties except the far-left Enhedslisten and will result in combined savings of around 3.4 billion kroner by 2020.

The government has now started new talks with the opposition on which initiatives this money will be spent on in a growth and jobs bill designed to stimulate the Danish economy. These negotiations are likely to be split into several stages as not all political parties agree on which initiatives the savings, particularly from kontanthjælp, should be spent on, however.

Concessions to the opposition

Opposition parties managed to modify the government’s initial proposals on several key areas of the reforms.

The SU reform will find its savings by encouraging students to finish their studies faster while students living at home will receive a much smaller sum that can be increased depending on their household income.

Read about the central points of the SU reform here

The government initially wanted the additional sum to depend upon the combined income of the student’s biological parents. But Dansk Folkeparti (DF) successfully argued that the policy would have punished children brought up by single parents and those who have no contact to their absent biological parent.

After pressure from main opposition party, Venstre, the government also included in the SU agreement a promise that they would find ways to minimise the number of EU students who can claim SU.

A recent EU ruling stated that students from the EU should be entitled to claim SU if they had worked a nominal length of time before starting their studies here – a ruling that could cost the government hundreds of millions of kroner.

Concessions were also granted to opposition parties in exchange for their support of the kontanthjælp reform.

Read about the central points of the kontanthjælp reform here

The government’s main target of the reform was to force uneducated under-30s to take an education instead of languishing on the cash welfare benefit. Studies show that the likelihood of a person finding a jobs diminishes the longer they receive kontanthjælp. 

Following the reform, under-30s will no longer receive kontanthjælp and will instead be given a lower benefit more equivalent to SU, while those considered able to work may face greater sanctions for turning down employment offers.

The government had initially wanted couples under 30 to be obligated to financially provide for one another. The idea was that if one member of the couple pair earns or has savings over a certain threshold, then the other would not be able to claim kontanthjælp. But after pressure from DF, this duty will not apply to those under the age of 25. However, the policy was criticised by an economist who argued it was counterproductive if the intention was to get more people into work.

“Unless couples change their behaviour and choose to leave one another, there will be more people who find that it doesn’t pay to work,” economy professor Bo Sandemann from the University of Aarhus told Jyllands-Posten newspaper, arguing that couples would be better of both taking kontanthjælp, rather than having to survive off one income.

But the employment minister, Mette Frederiksen (Socialdemokraterne), defended the reform, arguing that it would prevent able-bodied young people from languishing on benefits.

“We owe the 50,000 young people currently receiving kontanthjælp some real help to take an education,” Frederiksen wrote in a press release. “We need to make demands on people who have the resources and we should never give up on the vulnerable. We think that with the right help, anyone can develop and get closer to the labour market.”

Welfare paying for growth

Now that the reforms have been finalised and the savings tallied, the government has now opened negotiations into its growth and jobs bill.

The bill is expected to be negotiated in stages due to opposition by some parties, including DF and Enhedslisten, to using cuts to social services to finance a proposed corporate tax cut from 25 to 22 percent.

The finance minister, Bjarne Corydon (Socialdemokraterne), argued in Jyllands-Posten that the policy is needed to track a similar drop in Sweden’s corporate tax rate and protect Danish jobs from moving across the Øresund.

“When other countries lower their corporate tax rate, it is a sort of attack as they become more attractive places for investment and workplaces than us,” Corydon said.

Media reports suggest that the first stage of the growth and jobs bill should be finalised over the weekend.