Danish tax payers contributed record amounts during Covid-19 crisis

Tax contributions in Denmark hit a record high amount in the last tax year despite the effects of the coronavirus pandemic. Wage compensation schemes have been praised for protecting private and national economies.

Danish tax payers contributed record amounts during Covid-19 crisis
People paid more tax in Denmark last year despite the Covid-19 pandemic. Photo: Ólafur Steinar Gestsson/Ritzau Scanpix

The average tax payment by individuals last year was 93,183 kroner, according to Statistics Denmark data.

Encompassing income, shares and property tax, the amount is a 5.1 percent increase on the preceding year.

The increase has been linked to “frozen” holiday money (feriepenge) payouts, part of the government’s response to soften the economic impact of the coronavirus crisis.

“Additionally, wage compensation schemes contributed to supporting the labour market and thereby kept both incomes and tax revenues up during Covid-19,” Statistics Denmark writes.

READ ALSO: Four ways to (legally) lower your tax bill in Denmark

Many, or even a majority of people in Denmark are in a better place financially now than they were before the pandemic, according to the Danish Chamber of Commerce (Dansk Erhverv).

“The big increase in Danes’ taxable incomes reflects the positive development most Danes have seen to their private financial situations during the corona crisis,” the organisation’s senior economist Tore Stramer said.

“A series of compensation packages have simply given protection to many Danes’ private finances,” he added.

“It’s a huge success because healthy private Danish finances have ensured that the Danish economy has come flying out of the corona crisis,” Stramer commented.

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Beskæftigelsesfradraget: What is Denmark’s employment allowance?

Denmark's government may soon announce changes to its tax reform plans, which will give all wage earners a bigger employment allowance. What is this and how will it affect foreigners' earnings?

Beskæftigelsesfradraget: What is Denmark's employment allowance?

What is the employment allowance? 

The Beskæftigelsesfradraget (from beskæftigelse, meaning employment, and fradrag, meaning rebate) was brought in by the centre-right Liberal Party back in 2004, the idea being that it would incentivise people to get off welfare and into a job.

Everyone whose employer pays Denmark’s 8 percent AM-bidrag, or arbejdsmarkedsbidrag, automatically receives beskæftigelsesfradraget. Unlike with some of Denmark’s tax rebates, there is no need to apply. The Danish Tax Agency simply exempts the first portion of your earnings from income taxes. 

In 2022, beskæftigelsesfradraget was set at 10.65 percent of income with a maximum rebate of 44,800 kroner. 

How did the government agree to change the employment allowance in its coalition deal? 

In Responsibility for Denmark, the coalition agreement between the Social Democrats, the Liberals and the Moderate Party, the new government said it would set aside 5 billion kroner for tax reforms.

Of this, 4 billion kroner was earmarked for increasing the employment allowance, with a further 0.3 billion going towards increasing an additional employment allowance for single parents.

According to the public broadcaster DR, the expectation was that this would increase the standard employment  allowance to 12.75 percent up to a maximum rebate of 53,600 kroner. 

How might this be further increased, according to Børsen? 

According to a report in the Børsen newspaper, the government now plans to set aside a further 1.75 billion kroner for tax reforms, of which nearly half — about 800 million kroner — will go towards a further increase to the employment allowance. 

The Danish Chamber of Commerce earlier this month released an analysis in which it argued that by raising removing all limits on the rebate for single parents and raising the maximum rebate for everone else by 20,300 kroner, the government could increase the labour supply by 4,850 people, more than double the 1,500 envisaged in the government agreement. 

According to the Børsen, the government estimates that its new extended allowance will increase the labour supply by 5,150 people.