The tax structure
Progressive income taxes to the government have decreased over the past 10-15 years while the tax basis has widened and labour market contributions and green taxes on environmentally harmful consumption have become more important. This is shown in table 1 where the total taxes for the period 1983 to 2010 are shown according to types of tax.
The part of the total taxes from 1983 to 2006 going to income tax has more than halved from around 24% to 11%. In the meantime, contributions to the labour market fund have increased and in 2010 they make up around 10%.
The Local Government Reform and the Financing Reform in effect per 1 January 2007 had some implications for the distribution of income taxes between the municipalities and the government. Most importantly, the number of taxation levels were reduced from three to two as the new regions, as opposed to the counties, cannot impose taxes. As per 1 January 2007 municipalities took over the share of the county revenue that did not correspond to the new state health contribution of 8% - i.e. approx. 4%.
This increase in income tax to government and the corresponding decrease in income tax to municipality, county and church from 2006 to 2007 are clearly seen below.
The tax reform called Forårspakke 2.0 - which gradually will come into force in the years 2010-2019 - is expected to cause a decline in the government's share of personal taxes of approx. 4 pct.points in 2010.
| Table 1. Development in the tax structure in Denmark 1983 - 2010 (selected years) | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Pct. | 1983 | 1986 | 1993 | 1994 | 1997 | 1998 | 2002 | 2006 | 2007 | 2008 | 2009* | 2010* |
| Income tax to government | 24.4 | 23.5 | 24.3 | 19.5 | 14.5 | 12.7 | 11.7 | 10.5 | 19.9 | 19.9 | 20.7 | 16.4 |
| Income tax to municipality, church and county (-2006) | 28.3 | 24.8 | 28.3 | 28.9 | 29.5 | 30.0 | 31.0 | 29.2 | 21.2 | 21.5 | 22.6 | 24.3 |
| Labour market contribution | 0.0 | 0.0 | 0.0 | 5.5 | 8.8 | 8.9 | 9.3 | 8.8 | 9.2 | 9.5 | 10.1 | 10.1 |
| Social contributions1) | 3.0 | 2.4 | 2.3 | 2.2 | 2.1 | 2.1 | 2.5 | 2.1 | 2.0 | 2.0 | 2.1 | 2.1 |
| Property taxes, property value tax2) | 2.2 | 1.9 | 2.4 | 2.2 | 2.0 | 2.0 | 3.9 | 3.6 | 3.7 | 4.0 | 4.4 | 4.6 |
| Real interest tax/pension returns tax | 0.0 | 2.7 | 4.1 | 3.7 | 2.8 | 2.0 | 0.2 | 1.5 | 0.5 | 1.1 | 0.8 | 1.5 |
| Business taxes | 3.0 | 6.2 | 4.2 | 4.0 | 5.4 | 5.7 | 6.0 | 8.8 | 7.7 | 7.1 | 5.0 | 5.8 |
| VAT and payroll tax | 21.3 | 19.5 | 20.2 | 20.0 | 20.2 | 20.3 | 20.6 | 21.3 | 21.7 | 21.5 | 21.5 | 21.9 |
| Green taxes | 7.5 | 9.7 | 7.3 | 8.2 | 9.3 | 9.9 | 9.9 | 9.4 | 9.2 | 8.9 | 8.5 | 9.1 |
| Other taxes on goods and services | 7.2 | 6.8 | 4.0 | 3.7 | 3.3 | 3.8 | 2.8 | 2.7 | 2.6 | 2.2 | 2.0 | 1.9 |
| Other taxes and duties3) | 3.2 | 2.6 | 2.8 | 2.1 | 2.0 | 2.6 | 2.2 | 2.1 | 2.2 | 2.3 | 2.4 | 2.4 |
| Total, pct. | 100.0 | 100.0 | 100.0 | 100.0 | 100.0 | 100.0 | 100.0 | 100.0 | 100.0 | 100.0 | 100.0 | 100.0 |
| Total taxes and duties, DKK billion | 235.9 | 337.2 | 437.2 | 478.5 | 553.2 | 575.6 | 658.8 | 812.2 | 831.1 | 839.6 | 793.5 | 805.9 |
Source: Statistics Denmark and the Danish Ministry of Finance, December 2009.
Note: The figures from 2000 and onwards are based on Statistics Denmark’s figures from the new revised national accounts.
1) ATP (the labour market supplementary pension scheme), unemployment insurance funds etc. From 1999 the figures include contributions to early retirement schemes.
2) The years before and after 2000 are non comparable. The figures exclude tax on rental value from 1983-1999 but include property value tax from 2000.
3) Capital tax, inheritance tax and gift duties, fees etc.
Since the start of the 1990s, VAT and duties have accounted for around 32-34% of the total.
The proceeds of the real interest tax, which was replaced by the tax on pension returns in 2000, tend to be highly volatile as they are linked to financial market developments. In 2002 the proportion of tax on pension returns in relation to the total taxes and duties is considered insignificant because of the set-off of negative tax from 2001. The proportion was at a very high level in 2005. Over the coming years, the returns on shares are expected to return to more ”normal” levels.
The proportion of business taxes has been increasing since the start of the 1990s which is partly due to a boom at the beginning of the 1990s and again in recent years.