Denmark to spend way out of economic crisis

Denmark’s new centre-left government has opted to spend and work its way out of the economic crisis in sharp contrast to the austerity models that have emerged in many other European countries.

Helle Thorning-Schmidt, who took over as prime minister on Monday, said her government would kickstart Denmark’s sluggish economy by spending 10 billion Kroner ($1.7-billion) on upgrading roads, railways and bicycle paths. This war chest will also fund renovations of council housing blocks and environment-friendly upgrades to private dwellings.

Such measures, she said, would create “many new jobs” which would in turn replenish state coffers via income tax receipts.

“We are very proud of our economic plan. We believe it will get us through the crisis and ensure the future of the welfare state,” she said as she unveiled the new coalition’s program for government.

Further initiatives towards the creation of at least 135,000 new jobs by 2020 include temporary tax credits for companies that invest in new machinery or technology. Income tax reductions, unspecified in the coalition agreement but described as “significant”, will be implemented following consultations with trade unions and employers.

Denmark is currently the worst performing Scandinavian economy, with unemployment running at 6.2 per cent and a budget deficit projected to reach 4.6 per cent of gross domestic product next year.

While the new government’s crisis management programme is broadly expansive, some elements of the outgoing centre-right administration’s plans will remain, notably the winding down of a costly early retirement scheme. This was kept at the insistence of one of Ms. Thorning-Schmidt’s new coalition partners, although retaining the scheme had been a central plank of her campaign ahead of the Sept. 15 election.

In other areas, policy departures will be substantial. Chief among these will be immigration policy where the government will roll back much of the immigration curtailment measures imposed over a decade by the centre-right and its far-right ally. The immigration ministry will be abolished and its functions spread among other the justice, social welfare and employment ministries.

A special low-rate subsistence allowance for immigrants will be scrapped, caps on unemployment pay will be eased, and tough rules for family reunifications will be relaxed.

In the same vein, the previous government’s plans to dot Denmark’s borders with permanent customs control points will be shelved. This measure caused consternation in Brussels earlier this year with several European Union countries slamming it as a clear breach of freedom of movement regulations.

The new government is a three-party coalition comprising Helle Thorning-Schmidt’s Social Democrats plus the Socialist People’s Party and the centrist Social Liberals.

While it does not enjoy a parliamentary majority it will be able to rely – most of the time – on parliamentary backing from the far-left Red-Green Alliance.

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