Government’s growth bill under scrutiny

Most agree that reducing levies on businesses will help production and industry, but the jury’s out on whether the growth and jobs bill will secure 150,000 extra jobs by 2020

The Danish economy needs a boost. Growth has flat-lined and unemployment is still 80,000 higher than before 2008’s financial crisis.

To address these challenges, the government yesterday presented its 15 billion kroner plan to stimulate economic growth and create 150,000 new jobs by 2020.

Their three main strategies are to reduce corporate tax from 25 to 22 percent, reduce or abolish a range of taxes and levies on businesses, and increase public spending on infrastructure projects.

The debate has now started over whether the government’s nod to liberal economics will have the desired effect.

Industry lobby group Dansk Industri commended the government for addressing the country’s economic problems and for its efforts to make Denmark a more attractive place to invest in.

“The government’s proposal to reduce corporate tax sends an important signal to business that Denmark is an attractive place to start production and crate new jobs,” DI’s managing director, Karsten Dybvad, stated in a press release. “Together with the promise not to raise taxes and levies, it will make Denmark a more interesting place to invest in.”

Dybvad pointed out that Denmark’s main challenge in creating jobs is that production costs are too high compared to neighbouring countries.

To address this, the government will scrap a planned levy on every kilometre driven by lorry drivers, while also reducing the CO2 levy on electricity consumption, and levies on the recycling of waste water and packaging.

Not everyone was pleased with the easing of levies that were mostly installed to regulate polluting behaviour, not least think-tank and publication Mandag Morgen.

“This move points us in the wrong direction,” Bjarke Møller, managing editor of Mandag Morgen, wrote. “Instead of reducing the green pressure on businesses, the government should raise it. In the future markets,  resource and energy efficiency will make the difference in competition. These parameters will probably become more important than the development of salaries in a world where the prices of resources and energy are rising.”

Møller acknowledged that the reduction of levies would improve the profit margins for Danish producers but added that the lowering of the corporate tax rate would make little difference and ought to go even further down if Denmark is to truly attract foreign investment.

Others, including the think-tank Cevea, argued that the corporate tax rate cut was pointless.

“The government is right to want to strengthen economic growth and win back the jobs we lost during the crisis,” Cevea CEO Kristian Weise wrote in a press release. “But the the plan would have worked just as well without the reduction of corporate tax. It’s mostly a gift to businesses that are already doing okay.”

Weise added that it was a shame that the government seemed to believe that cutting the corporate tax rate would increase investment.

“There is no historical evidence for this. Businesses that are in trouble because of the crisis won’t benefit because they don’t have a profit to be taxed. Lowering corporate tax also doesn’t affect the marginal costs, which is where competition is won and lost.”

The government hopes that the growth plan, together with the reforms of the student grant system, SU, and the unemployment benefit kontanthjælp, will contribute to an additional 150,000 jobs being created by 2020.

But several economists point out that the government needs a return to pre-crisis growth levels in order for this prediction to pan out.

Speaking to Berlingske newspaper, University of Aarhus economics professor Bo Sandemann said that the government’s use of the number was misleading.

“The number is unlikely because it requires an end to the crisis in Europe, and there is no guarantee of that,” Sandemann said. “This jobs plan does not provide [the growth] so they have decorated it with some borrowed feathers. It is pure spin. In the long term, what counts is the reduction of corporate tax and even though this will make a positive contribution, it will be several orders of magnitude too little.”

Lars Andersen, chairman of the Economic Council of the Labour Movement, agreed that new jobs will only come to Denmark if the nation's economy receives a boost, which the plan itself does not provide.

He added, however, that the plan could contribute psychologically in convincing businesses and producers that Denmark is the right country to invest in.

“Businesses need to believe in a brighter future in order for them to start investing again,” Andersen told Berlingske. “Investments create jobs [and] reducing levies will keep the jobs and create faith in the fact that it can pay to run a business.”

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