OECD urges tax cuts and welfare reform

The Organisation for Economic Development argues that high tax rates stifles entrepreneurship and competition

Cut taxes, reform welfare, increase competitiveness and make students pay for university.

These were some of the recommendations outlined by the Organisation for Economic Development (OECD) in their economic survey of Denmark that was released on Thursday.

The OECD took as its starting point DenmarkÂ’s slow recovery from the financial crisis of 2008, stating that while the Danish economy showed some strengths, it still faced several challenges to stimulate its relatively poor economic growth.

One of the OECD’s main concerns was Denmark’s high tax burden, particularly in the top level of tax (topskat)¸ which they think has too low of a threshold, discourages entrepreneurship and also makes Denmark a less attractive country to foreign skilled workers.

The OECD recommended that the burden of taxation should be switched from labour to property, which might help fend off future housing booms. Implementing a property tax once the housing market had stabilised could also offset the diminished wealth redistribution caused by reducing the top levels of tax.

The report also stated that a lack of competition has created some of the highest consumer prices in Europe, which is not helped by DenmarkÂ’s relatively ineffective competition authorities who are unable to directly prosecute and impose fines.

On the issue of welfare, the OECD commended the low level of poverty as brought about through the welfare system, but worried about the increase in the already high level of public spending during the economic crisis.

The OECD singled out disability benefits as being too generous – often higher than an individual could get in work – and suggested that integrating different benefits could produce a system that would make work pay.

The Danish education system was also served its fair share of criticism. Notably, the OECD criticised the Danish insistence on keeping class sizes in high school small as being too costly and having a limited effect.

Furthermore, the OECD noted the low performance of children with immigrant backgrounds despite the high expense of the nation’s broad and inclusive educational system.

A suggestion which is unlikely to be popular among Danish university students involves moving the university system towards a fee-paying model, with funding by student loans that encourage students to finish on time.

Danish students often chose fields where business demand is low, decreasing their employment options. Making students pay for their education would encourage them to choose fields based on their income and employability at the end of their studies.

On a final positive note, the OECD praised Danish efforts to use investment in green energy to help stimulate growth, but recommended that Denmark invest in a wide range of green energy solutions as well as lobby for tighter EU emissions targets.