Denmark Looking To Cut Taxes

By Global Tax Weekly

Denmark is a benchmark country. It is the archetype of a high-tax, high-spend northern European economy. So, when politicians in various parts of the world debate fiscal policy, they sometimes ask the electorate if they would rather live in a country like Denmark in preference to their own i.e. would they be prepared to put up with high taxes in return for a welfare state in which nobody is left behind economically. Indeed, the small Scandinavian nation, barely twice the size of Massachusetts, became an unexpected focal point in the last election campaign, and was held up by Democratic candidate Bernie Sanders as a model of social democracy.

Those on the right tend to argue of course that prosperity and individual liberty go hand-in-hand with low taxes and a small government. Singapore, for example, would be much closer to their ideal of a classically liberal economy than Denmark.

However, as is usually the case in life, the answers aren’t clear cut. Both countries (although Singapore is more akin to a city-state than a country), with their divergent economic models, are rich: Denmark’s GDP per capita is well above the EU average; Singapore’s is the best in Asia, and one of the highest in the world (although there is a separate debate to be had about how extensively that wealth is spread among the populace).

And, arguably, overall, the inhabitants of each place are happy: Singapore is frequently rated as one of the safest cities in the world in which to live; Denmark is famous for its contented, laid back approach to life, and they even have a word for it – hygge.

What’s more – and serving to emphasize that we are living through strange, unpredictable times – recent tax developments in Denmark and Singapore should give politicians pause for thought when debating the merits of Singaporean dynamism and Danish hygge. For while the Danish Government is keen to cut taxes, Singapore is raising its level of taxation, largely to fund more comprehensive public services.

What this shows us, perhaps, is that no system is ever going to be perfect, and that change, both incremental and revolutionary, including in tax policy, is permanent. For its part, the Danish Government is aware that high marginal tax rates, combined with a generous welfare state, is a disincentive to work. Conversely, Singapore appears to have come to the realization that its low-tax, low-spend paradigm cannot generate the revenues needed for high-quality education, health services, and infrastructure.

Ultimately, perhaps the question should be not how much a government can raise in tax, but how well it spends it. I have never lived in Denmark, but I must admit that the prospect of seeing over half my income taken in tax, and my alcohol consumption drastically reduced due to eye-wateringly high prices (mainly due to tax) is not an attractive one. But then, by all accounts, given what they get back in return – in a word, Hygge – the Danes wouldn’t have it any other way. So good luck to the Government if it can cut tax without also reducing rates of happiness. Similarly, it will be interesting to see if Singapore can maintain its position as one of the world’s premier business and investment hubs, while asking those who run the businesses to pay more tax.

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