Danish govt publishes draft plans to fund early retirement policy; I&PD criticises plans

Denmark’s Ministry of Taxation has published a raw draft of its plans to introduce a special tax on the country’s financial sector to fund the government’s early retirement policy.

However, the government has increased the amount it plans to collect from the Danish financial sector. It originally intended to collect DKK 1bn when it published its plans in October 2020 but this has increased to DKK2bn, despite the government only needing to raise DKK 1.25bn in revenue. This has been heavily criticised by lobby group, Insurance and Pension Denmark (I&PD).

In October 2020 the Social Democrats reached an agreement with the Danish People's Party (DF), the Socialist People's Party (SF) and the Red-Green Alliance to allow some citizens to retire early. At the time it was predicted that it would cost DKK 3bn, with a tax on the financial sector expected to fund half.

The final legal proposal is expected to be published in February 2022 but the government has now revealed that it needs to find financing of DKK 1bn in 2023 and DKK 1.25bn in 2024. It plans to collect DKK 2bn in tax from the financial sector in 2024 to fund DKK 1.25bn of this.

The large gap between the amount it intends to collect and the amount needed is because DKK 2bn is the aim before the Danish economic term ‘tilbageløb og adfærd’ (backflow and behaviour) is taken into account. The DKK 1.25 figure is what the government expects to collect after this is taken into account, based on the likely reaction of the Danish financial sector to the introduction of the special tax.

The significant gap before and after ‘tilbageløb og adfærd’ is taken into account is because of the small group, the financial sector, that is required to fund the policy. Had more groups been identified, then this would have likely been smaller.

I&PD CEO, Kent Damsgaard, said: “The draft law for the special tax proposes to send a huge additional bill to Danish insurance and pension companies and thus all their customers… When the Ministry of Taxation obviously assesses that the distortion of an additional corporation tax is so great, you should look for alternative financing. To collect DKK 2bn to end with a revenue of DKK 1.25bn is simply not fair on Danish insurance and pension customers.”

I&PD is calling on the government to speed up the planned January 2024 introduction of digital cash registers at kiosks, supermarkets, restaurants and cafes etc, which are intended to reduce the risk of fraud by automatically collecting data about sales in a way that is more easily accessible by the tax authorities. This would then allow the government to use the expected higher tax income from digital cash registers to reduce the tax burden on the financial sector to fund early retirement.

“Digital cash registers are an effective weapon in the fight against fraud, such as VAT fraud. The parties in the Folketing have already agreed that the income from this can be used to reduce, or completely remove, the extra bill from the special tax. Let's roll out digital cash registers faster and wider to all those industries where there are demonstrably big problems with tax and VAT fraud - and use this money to finance the early retirement scheme instead of sending extra bills to insurance companies and pension customers,” Damsgaard concluded.

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