Skatteministeriet
17. januar 2017

The tax burden

The tax burden in Denmark 2010-2016 and a historical overview of developments since 1971

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The tax burden

Since 1971 the tax burden has developed as shown in the figure below.

The tax burden in Denmark 1971-2017
taxburden-dec2016

The tax burden for a specific year is shown in percentages in table 2.

The tax burden is an indicator at the macro level of the total amount of taxes and duties in society. It shows the proportion of GDP that the public sector has at its disposal. To make international comparisons possible, since 1973 OECD has chosen to measure the tax burden as:

>> The total taxes and duties as a percentage of the gross domestic product (GDP) in market prices <<

Table 1 shows recent developments in the total taxes and duties measured as a percentage of GDP, often described as the traditional tax burden.

Table 1. The tax burden 2011-2017
Pct. of GDP 2011 2012 2013 2014 2015 2016* 2017*
Income tax and property value tax for individuals 19.9 19,9 22.1 23.4 22.4 21.1 21.1
Labour market contributions 4.4 4.3 4.3 4.3 4.3 4.4 4.5
Real interest tax/pension returns tax 2.2 2.6 2.8 2.8 2.6 2.6 2.5
Corporation tax 2.1 2.3 1.0 2.7 1.1 1.3 0.5
VAT 9.6 9.6 9.4 9.4 9.4 9.6 9.7
Other indirect taxes2) 6.9 6.9 7.2 7.0 7.1 7.1 6.9
Other taxes3) 0.3 0.3 0.3 0.3 0.3 0.3 0.3
Tax burden 45.3 46.0 47.1 49.9 47.2 46.4 45.5
Total taxes and duties, DKK billion 835.8 870.9 908.3 986.0 956.3 946.8 954.4
GDP, DKK billion 1,846.9 1,895.0 1,929.7 1,977.3 2,027.2 2,040.8 2,097.0

Source: Statistics Denmark and Economic Survey, Danish Ministry for Economic Affairs and the Interior, December 2016 and own estimates.
1) Contributions to unemployment insurance fund, early retirement schemes and flex contributions.
2) Excise duties, car tax, property taxes, corporate vehicle excise duty, payroll tax, customsetc.
3) Inheritance and gift tax, household vehicle excise duty, other labour market contributions etc.

The tax burden is expected to decrease to 46.4 pct. of GDP in 2016 and further to 45.5 pct. of GDP in 2017.

When observing the recent development in the tax burden one has to consider the extraordinary high revenues from income taxes in 2013-2015, which are generated by one-off revenues during the conversion of the endowment pensions to the age pension plan. On top of this come the temporary revenues from bringing forward the ordinary redemption of endowment pensions. In the opposite direction come the revenues from the pension yield tax that are expected to decrease compared to the extraordinary high revenues during the previous years as stated in Economic survey, Danish Ministry for Economic Affairs and the Interior, December 2016.

The page developments in the tax structure shows the significance of the various types of tax for the tax burden since 1983. This shows that income tax to the government has been reduced considerably, while municipal taxes have increased, partly as a consequence of municipal tax increases and partly as a consequence of rental value tax being changed to a municipal and county property value tax.

International comparisons show that traditionally calculated tax burdens and other tax burden measurements are heavily influenced by the organisation of the individual country's tax and transfer income systems. The existence of tax expenses (i.e. public sector expenses, resulting in tax exemptions) makes it difficult to compare the tax burdens of different countries.

An example of this is that in Denmark the tax burden technically rose between 1993 and 1994 as a consequence of the restructuring of a number of social pensions from fully or partially tax free, to fully taxable. Contributions before tax rose accordingly.

Neither do developments in the tax burden show if tax and duty rates have been increased or reduced. For example, corporate tax as a proportion of GDP raised throughout the 1990s despite the fact that corporate tax had been reduced from 50% to 30%. The reason for the increase was a general boom with better profits for the sector, including increased tax payments from financial institutions.

Finally, it should be mentioned that changes in consumption towards heavily taxed goods (such as cars) will increase the tax burden. The increase in car purchases since 1993 has resulted in a dramatic increase in revenue from car taxes, which has increased the tax burden by 0.5 percentage points between 1993 and 1998.

The demarcation of the total taxes and duties that make up the tax burden is based on the national accounts and also includes obligatory contributions to social insurance schemes, which in Denmark primarily consist of unemployment insurance fund contributions and in 1999 to 2001 the special pension savings.

The temporary pension savings for 1998 and the special pension savings from 2002 onwards are not defined in terms of the national accounts as a tax or a social contribution and are not included in the tax burden as it is a form of saving in which the amount saved can be linked directly to the individual.

For the income years 1999, 2000 and 2001, the special pension savings are defined in terms of the national accounts as a tax, as the amounts for all three years have been collected with a view to redistribution. For 2001, a subsequent transfer was made to the individual accounts in ATP (the labour market supplementary pension scheme), so that the entries into the accounts correspond exactly to the amount collected from the individual taxpayer. For these three years, the special pensions savings contributions are included in the tax burden.

 

Table 2.1 The tax burden 2003 - 2017
  03 04 05 06 07 08 09 10 11 12 13 14 15 16* 17*  
Taxes and duties as a pct. of GDP 45.7 46.5 48.2 46.6 46.4 44.7 45.1 45.2 45.3 46.0 47.1 49.9 47.2 46.4 45.5  
Table 2.2 The tax burden 1987 - 2002
  87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02
Taxes and duties as a pct. of GDP 46.8 47.2 46.0 44.7 44.0 44.4 45.7 46.8 46.8 46.9 46.9 47.5 48.0 47.0 46.1 45.5
Table 2.3 The tax burden 1971 - 1986
  71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86
Taxes and duties as a pct. of GDP 39.8 39.4 38.9 40.7 37.1 38.1 38.5 39.7 40.8 41.5 41.0 39.8 41.5 42.6 43.9 46.1

Source: Statistics Denmark and Economic Survey, Danish Ministry for Economic Affairs and the Interior, December 2016.