The tax burden

The tax burden in Denmark 2006-2012 and a historical overview of developments since 1971.

Since 1960 the tax burden has developed as shown in the figure below.

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

The tax burden is an indicator of the macrolevel of the total amount of taxes and duties in society. It shows the proportion of the 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.

Source: Economic Survey, Danish Ministry of Finance, August 2011.
1)  Contributions to unemployment insurance fund, early retirement schemes, flex contributions and Special Pension Savings (SP) in 2001.
2)  Excise duties, car tax, property taxes, corporate vehicle excise duty, payroll tax, customs, other labour market contributions etc.
3)  Inheritance and gift tax, household vehicle excise duty etc.

The tax burden measured as described is expected to fall around 1.5 pct.points in 2011, mainly due to a fall in the pension fund yield tax after a historical large revenue in 2010. This tax tends to be highly volatile as it is linked to financial market developments.

BoligJobplan and Aftale om senere tilbagetrækning from May 2011, which reduces revenues due to less expected contributions to the early retirement scheme efterlønsindbetalinger and extraordinary high contributions to pension schemes , contribute to a declining tax burden from 2011 to 2012. Opposite Aftale om genopretning af dansk økonomi from May 2011 contributes to increases in the tax burden. In total the tax burden is expected to decline 0.2 pct. points in 2012.

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.

Source: Statistics Denmark and Economic Survey, Danish Ministry of Finance, August 2011.