PM's tax reform: no net change

After receiving the recommendations of its Tax Commission earlier this month the government presented its own plan for reducing income taxes and adding new hands to the national workforce.

The ‘Spring Package 2.0’ proposal unveiled by Prime Minister Anders Fogh Rasmussen today seeks to cut income tax by 23 billion kroner and expand the number of people in employment by 19,000.

To do so, it would start next year by eliminating the middle tax rate, which is 6 percent of income earned over the first 272,600 kroner annually. The highest tax rate would be lowered from 15 percent to 13.5 percent in 2011. The cut-off line for those falling into the highest tax bracket would be raised by 18,000 kroner in 2010 and by the same amount again in 2011, ending at 388,000 kroner a year.

The proposal also aims to help businesses, allowing them to postpone their VAT and tax payments one month at a time, over a six-month period.

But according to calculations, it is the wealthiest residents who would benefit most from the plan. A home-owning couple with two children and a joint income of 1.1 million annually would have an extra 31,540 kroner in their pockets each year.

If the same couple earned 600,000 kroner a year, in either a bought or rented apartment, their net bonus from the plan would be only 3,950 kroner.

But homeowners in general may be the biggest losers if the government’s new proposal is passed. The plan would lower tax deductions for mortgages from the current 33 percent to 25 percent by 2019.

Rasmussen defended the move, indicating that only couples with mortgage payments totalling over 100,000 kroner per year would be affected by the reduction. He added that any homeowner that came out of the tax reform plan with less money overall would be compensated ‘krone for krone’.

But Rasmussen’s reassurances did not stave off widespread political criticism of the plan. Many pointed to the government’s ‘green fees’, the result of energy costs skyrocketing 15 percent, which they insist will hurt homeowners more than the proposed tax breaks would help.

Parties that the government may have hoped to have on board with its proposal, the Social Liberals, the Liberal Alliance and the Danish People’s Party (DF), all found serious flaws in the plan.

The Social Liberals called the environmental aspects of the proposal ‘more withered than green’, while the Liberal Alliance felt the initiatives did not go far enough to stimulate the economy.

DF, a key ally of the government, indicated it felt the green fees were too high.

‘But you can’t expect the proposal to glide right through the approval process as it stands,’ said DF leader Pia Kjærsgaard. ‘There’s still a lot to be done.’

The Liberal-Conservative government would need the Danish People’s Party’s support to pass the proposal.

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