Debate sparked over how to stimulate sagging economy – The Post

Debate sparked over how to stimulate sagging economy

Government’s economic advisers recommend increasing spending, former PM calls for investment from pensions, while liberal think tank calls for tax cuts to stimulate consumption

June 6th, 2013 8:00 pm| by admin

Parties on the left and right both agree that the government’s tight fiscal policy could be stunting the economy, but they can’t agree on the remedy.

Last week the government’s independent panel of economic advisers recommended that the government increase public investment by 12 billion kroner next year to stimulate the economy after warnings it would only grow by about 0.25 percent this year.

PM Helle Thorning-Schmidt (Socialdemokraterne) was at once dismissive of borrowing more money to pay for public investments, arguing that the government had already brought forward billions kroner of investment in infrastructure.

Denmark’s tight fiscal policy is designed to keep spending down and comply with EU debt regulations, Poul Nyrup Rasmussen, a former Socialdemokraterne PM, thinks the government is playing it too safe.

“As far as I understand from my sources in the [European] Commission, there is space for relaxation,” Rasmussen told Jyllands-Posten newspaper. “France and other countries have more or less been given the green light and I can see no logical reason why Denmark would also receive a 'no'.”

Rasmussen added that pension savings were also a resource the government could turn to finance large infrastructure projects.

“I think that it is possible to invest massively in a responsible and sensible way that fits with our economic policy,” Rasmussen said. “The idea is to use the pension savings, which in Denmark are very large and unique. We could already start electrifying the railways for example.”

Pension funds have already been identified as possible investors in Copenhagen’s planned harbour tunnel and the Fehmarn Fixed Link tunnel to Germany.

Rasummsen’s idea was supported by far-left party Enhedslisten, which saw pension savings as an obvious source of funding to fuel growth without burdening public finances.

“The pressure on the government to tackle unemployment is growing,” Frank Aaen (Enhedslisten) told Jyllands-Posten. “We have discussed the idea with the government and pension funds several times.”

The finance minister, Bjarne Corydon, said he welcomed the idea of using pension savings to stimulate growth, but that it wasn’t a complete solution.

“[Pension funds] going to invest based on the return on investment and in particular areas makes sense,” Corydon told Jyllands-Posten. “I don’t think, however, it’s a silver bullet that can be used to increase investment without costs. Investments need to be paid for regardless of whether it is the state or pensions funds that finance them.”

He added: “The government is trying to balance two needs: firstly to support growth and employment as much as possible while also making sure we comply with the commitments to lead a responsible economic policy that won’t massively increase the deficit.”

Liberal think tank Cepos welcomed calls for the government to loosen its economic policy in the 2014 budget, but said tax relief should come ahead of increased spending.

“I would warn against the recommendations to increase public spending,” Cepos chief economist Mads Lundby Hansen told the Ritzau news bureau. “We have the largest public sector in the OECD and Denmark’s growth potential will not increase if the public sector is also made larger.”