Denmark’s prime minister is abandoning what could have been the biggest tax cuts in a generation after the party he relies on for political survival said it would only back the plan if rules on letting in foreigners were tightened significantly.
Lars Lokke Rasmussen, who heads a minority government in the country that boasts the world’s highest tax burden, said his coalition will instead try to push through much narrower reductions that target only the lowest paid workers. The anti-immigration Danish People’s Party, which provides Rasmussen with the parliamentary seats he needs to pass legislation, has already indicated it will back these more modest proposals, even without any further restrictions on foreigners.
Rasmussen’s efforts to defuse a stand-off with the DPP come amid speculation that Denmark might be facing early elections. Just over a year ago the prime minister was forced to expand his cabinet to incorporate two smaller parties -- the Liberal Alliance and the Conservatives -- in a bid to keep his job. The DPP is part of the ruling bloc but has stayed outside government. Aside from fewer immigrants, it wants more money spent on the elderly.
Rasmussen’s decision to abandon his tax plan was the only way to avoid a stalemate, he said. To continue would have been like “ramming our heads into a wall,” he told reporters in Copenhagen on Tuesday. The announcement means his government is now backtracking on an election campaign promise that he reiterated only a week ago, and Rasmussen’s bloc has trailed in recent polls.
But Tuesday’s move was greeted positively by much of Denmark’s mainstream media in their editorial pages. Jyllands-Posten said Rasmussen “drew a very important red line” that addresses the DPP’s “bizarre coupling of tax cuts with immigration policy.” Politiken called the premier’s decision a “victory for Denmark.” Altinget said Rasmussen’s coalition partner, the anti-tax Liberal Alliance, and the DPP were the main losers.
Rasmussen made clear he draws the line at immigration policy that alienates skilled foreign professionals. His comments follow a string of high-profile cases in which a number of academics were trapped by ever-tighter rules backed by the DPP. These include a controversy in which a U.S. professor and tax expert faces criminal prosecution for allegedly breaching the terms of her employment in Denmark by providing her expertise to members of the Danish parliament.
Rasmussen said he wants to “continue to hold Denmark open for foreign talent.” The Finance Ministry has warned of bottlenecks forming in the labor market due to a lack of skilled workers, while the Chamber of Commerce has argued that shortages are causing Denmark to grow at a slower rate than the rest of Europe.
“I’m happy to discuss immigration,” Rasmussen said. “But not to haggle over tax cuts in exchange for immigration reform.”
The government’s initial tax plan, which it had referred to as “historic,” would have looked as far ahead as 2025 and targeted cuts for low, middle and top earners. Rasmussen said he hasn’t entirely given up on pushing those measures through in the future.
The prime minister and his allies have argued that lower tax levels would help wean people off welfare at a time when public finances are facing growing pressure from an aging population.
Steen Bocian, chief economist at the Danish Chamber of Commerce, says letting in more foreign workers would provide a bigger boost to the labor market than tax cuts. “If you want an immediate impact on the economy, attracting foreign labor is by far the most effective policy,” he said on Wednesday.
Overall, Denmark’s economy is showing every sign of strength, according to Tore Stramer, an economist at Nykredit in Copenhagen. He expects private consumption to keep growing as real wages pick up, interest rates stay low and rising property values underpin household wealth.
Since assuming office in 2015, Rasmussen’s administration has tightened immigration law a total of 67 times, according to the Integration Ministry’s website. The measures have come in response to the 2015 refugee crisis, which saw more than 21,300 asylum seekers arrive in Denmark -- the highest level since the Yugoslav civil war of the 1990s.
Last year, just under 3,500 people fleeing war or violence applied for refugee status in Denmark.