Denmark Wants to Raise Tax on Top 1% to Fund Labor Shortage Fix

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Denmark’s government proposed raising taxes on the country’s richest to help fund measures designed to tackle growing labor shortages threatening to derail the economic recovery.

The administration of Prime Minister Mette Frederiksen is seeking to cut unemployment benefits for fresh graduates and add incentives for the elderly to stay in the workforce longer. To pay for that, Frederiksen wants to raise levies on capital gains from the stock market as well as dividends, most of which are paid by the “wealthiest 1%,” according to a government statement.

After suffering one of the smallest economic fallouts from the pandemic in Europe, Denmark is also recovering faster than expected. That has added significant strain on the supply of workers across various industries. 

“We are asking that you -- at a time of quite high gains on the stock market -- will pay a small amount extra in taxes if you have very big gains,” Finance Minister Nicolai Wammen told a news conference in Copenhagen on Tuesday.

Danes would have to pay 45% of gains on shares exceeding 56,500 kroner ($9,000) a year, instead of 42% now. The rate for profits below that threshold would stay at 27%. 

Boosting the Workforce

The measures, which the government estimates would add about 10,500 people to the workforce, need to be approved by parliament. Frederiksen’s Social Democrats said they aim to secure a broad cross-party support for the package. Denmark already collects the most tax as a percentage of economic output in the European Union.  

About a quarter of people receiving unemployment benefits are new graduates, who receive as much as $2,200 a month. The government proposes to cut that by roughly 30%, Frederiksen told reporters. 

The government last month raised its 2021 economic growth forecast to 3.8% from 2.4%. With output already at its pre-pandemic level, some economists are concerned that a rapid rebound will challenge the flexibility of the country’s labor market.

“The biggest domestic risk to growth currently is the labor shortage and capacity in general,” said Las Olsen, chief economist at Danske Bank. “An economic upturn often ends because you run out of the necessary labor and this economic upturn is almost over already -- the question now is if we will see a hard or a soft landing.”

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