DANISH TAXES

Other Governments are catching up fast, but Denmark still holds the record for the state that takes the most out of your wallet in taxes. According to the OECD, Danish taxes represented 48.2% of GDP in 2009, versus an average of 33.7% across the rich country group and a paltry 24% for the United States (no wonder it has a fiscal problem).

In general, Danish residents get fairly good value for (all that) money. Health and education are pretty much free, with the right to get an operation from the private sector after just one month on a waiting list, and no tuition fees at university. Roads are good, there are lots of green public spaces, child care is a right, and the proportion of women working is high. Basically, there are no poor people, and no slums (Danish politicians often talk about ghettos; but they don't know what a ghetto means). Taxes on income are too high, and a number of people want to get them reduced. However, many Danes say, and genuinely believe, I think, that in a choice between more taxes and reduced welfare, they would happily pay the extra taxes. After-tax income inequality is remarkably low, the concept of fælleskab ("community") remarkably strong.

There is, though, one area where all those high taxes are going to be a problem, and that is immigration. Everybody accepts that just like other ageing European societies, Danes will need to import labour in the future. But because of fears about being swamped by poor people, it has to be the right sort of labour; qualified labour, in the jargon. Unfortunately, all the debate is about devising rules to ensure that unqualified labour can't get in (i.e. demand management). My concern is that qualified labour won't want to come (i.e. there is a supply problem).

The example I often use is a hypothetical Egyptian doctor, about 50 years old, working at a major hospital in Cairo. His children have left home, and he would like to spend his last 15 years working abroad before retiring back to his home country to live in the house he has built from his foreign earnings. He is well-educated, a specialist in his field, and probably speaks Arabic, English and perhaps another language (French, say).

Why on earth would he want to come to Denmark? First, he would have to learn Danish, a minority language if ever there was one. Secondly, he is Muslim, which gives a lot of problems here. Thirdly, his medical qualifications might not be accepted as bona fide; there have been scare stories about Arabic doctors in the press recently. Fourthly, his wife may well not be educated to the same standard as him; even though they are married, that might cause problems, since she is not also "qualified labour". And even if he got through that whole minefield, taxes are so high here that he wouldn't be able to save any money in order to build that retirement house. Yes, he would have a very comfortable existence in Copenhagen or wherever for 15 years. But the Danish economy is structured around a 2-earner family core, which pays a lot and gets a lot. Since he would not get a lot (in terms of free health, education and other good things for children), he would simply end up paying a lot (in terms of taxes).

It is very difficult to save up out of income in Denmark (unless it is to buy a house). Top earners such as sportspeople know this, and tend to live abroad (the 20-year old tennis player Caroline Wozniacki decamped to Monaco long ago). If the Government wants to attract qualified labour to Denmark in the future, then it is going to have to make it more attractive to come here for less than a lifetime. And that means lower taxes.

Walter Blotscher