Denmark Unfreezes $9 Billion in Vacation Funds for Spending

(Bloomberg) -- Denmark plans to release 60 billion kroner ($9 billion) of vacation pay that’s been held in reserve in an effort to create new jobs and boost consumer spending.

The government has agreed with parliament to make it available to both public and private-sector workers by October, according to a statement published on Monday by the Finance Ministry in Copenhagen. The funds had been set aside amid changes to the system.

The step comes as Denmark moves to lift direct support for businesses extended in the wake of the Covid-19 crisis. It raises the total value of the government’s replacement stimulus packages to 76 billion kroner.

“All these initiatives will contribute to Denmark getting through the crisis,” Finance Minister Nicolai Wammen said in a statement.

The vacation funds equal about 1.5% of Denmark’s gross domestic product and will provide a significant injection into the economy, Las Olsen, the chief economist at Danske Bank, said in a note.

“Even if it’s just half that will be used for consumption, it will still make a significant difference to total growth,” Olsen said. “It won’t change the fact that 2020 will be a year of sharp economic contraction, but it will lessen the decline and it may in particular improve the rate of progress in 2021.”

In Denmark, employees receive 12.5% of their gross income in the form of holiday pay. The government plans to release 60% of about 100 billion kroner that’s been withheld in reserve. Danes who are unemployed or retired will get a one-time payment of 1,000 kroner from the government.

The government also agreed with opposition parties on a timeline for phasing out aid packages as Denmark ends its lockdown.

©2020 Bloomberg L.P.