Pressure on government to increase spending

Economic experts, political parties and rating agencies all agree that the government can increase the budget deficit to stimulate the economy

Public finances are in such good shape that the government could increase spending to stimulate the economy, argue a number of political parties.

While the Danish economy seems to have flat lined after recovering some of the lost ground brought about by the financial crisis, the government’s strict economic policies have led foreign investors to see Denmark as a safe haven.

Faith in Danish public finances is so high that the major rating agencies have all conferred on Denmark their top rating, meaning that the government can borrow cheaply from international lenders. According to Jyllands-Posten newspaper, rating bureaus Standard and Poor’s and Moody’s agree with investors Deutsche Bank and Nomura from Japan that Denmark’s government can spend more.

The message from the financial markets chimes with the report this May from the government’s independent panel of economic advisers who argued that the government could safely spend up to 12 billion kroner more next year.

This spring the government passed two stimulus packages that increase public spending on infrastructure and reduce levies on businesses, but now several parties want a new spending package included in next year’s budget that will be negotiated this autumn.

Per Clausen, group chairman of Enhedslisten, wants the government to use the extra spending to create to increase welfare and employment.

“If [the international markets] agree with it then there is no excuse not to spend more money to create more welfare,” Clausen told Jyllands-Posten. “We could give councils an economic lift to create more welfare in some areas where they have cut back. Lots of people have lost their jobs in areas such as elderly care.”

Opposition parties also agree that increased spending could help the economy, though they have different ideas about what the money should be spent on.

 “A new growth package should be considered during the budget negotiations in the autumn,” Konservative political spokesperson Brian Mikkelsen told Jyllands-Posten. “The way we best get the economy going is by reducing taxes in order to encourage people to spend. It will increase domestic consumption, help the housing market and create more trust in the economy.”

Leading opposition party Venstre, on the other hand, want to use the spending it to phase in more quickly cuts to energy levies that were part of the spring stimulus plans.

 “It would benefit businesses and workplaces if we bring forward the last growth deal we made with the government,” Ventres’s political spokesperson Inger Støjberg said.

While the Socialdemokraterne, who lead the government, have also voiced some eagerness to take a look at increased spending, their coalition partners Radikale are not at all keen to push the limits of the tight fiscal policy.

“We want a good safety margin stay on the safe side. We have not considered using more money. We want to use the precautionary principle to ensure that there is faith in the Danish economy,” Rasmus Helveg Petersen (Radikale) told Jyllands-Posten, adding that the low cost on borrowing enjoyed by the government is dependent on following a cautious path.

“The low interest has helped maintain employment throughout the crisis. And the only way we can keep the low interest is the trust that investors show us here.”