TAX AND PROPERTY RIGHTS

The flipside of the coin, whereby Denmark has the highest tax take in the world, is that there is a huge incentive to try to evade tax. One of the biggest loopholes is "black work", where builders and carpenters do work on the side in exchange for cash. The customer is happy, since he or she saves, at a minimum, 25% VAT on labour rates. Furthermore, those rates, instead of being kr.500 an hour, can be negotiated down to perhaps half of that. The handyman is still happy, since kr.250 cash is perhaps twice what he would have received after tax through his wage packet. A win-win deal (for everyone except the taxman).

The obvious solution to this problem is to reduce tax rates, and the resulting incentive to cheat. However, the Danish Government has taken a different approach. Today they passed a law giving the Inland Revenue the power to go onto people's private property when handymen are working there, in order to check that they are doing it officially. This is a power, that not even the police have, since they have to get a search warrant first. It is also against the Danish constitution, which makes a sharp distinction between public and private rights.

Governments everywhere are desperate for cash at the moment, and so need to collect as much in taxes as they possibly can. However, I suspect that they have overreached in this particular instance. I predict a serious backlash, once the first prosecutions start arriving in the court system.

Walter Blotscher