Economy

Denmark has a small, open and flexible economy. The service sector makes up the vast amount of the employment and economy. Its industrialised market economy depends on imported raw materials and foreign trade. Within the European Union, Denmark advocates a liberal trade policy. Its standard of living is among the highest in the world, and the Danes devote 0.8% of GNI to foreign aid. Denmark is self-sufficient in energy - producing oil, natural gas, wind- and bio-energy. Its principal exports are machinery, instruments and food products.

From 1982, a centre-right government corrected accumulated economic imbalances, mainly inflation and balance-of-payments deficits, but lost power in 1993 to a Social Democratic coalition government led by Poul Nyrup Rasmussen, which remained in office following the March 1998 election. During the governments of Poul Nyrup Rasmussen, there was a drastic fall in official unemployment, which peaked at 13.8% in January 1994 (386,186 persons), falling to 3.6% in May 2007. This is the lowest level in more than 30 years, making up 99,600 persons. Average annual growth rates are now 2-3.5%. In November 2001, a centre-right government led by Anders Fogh Rasmussen won the election on maintaining the current tax level, improving efficiency in the public administration and decreasing the number of immigrants and asylum seekers.

Economy - Overview

This thoroughly modern market economy features high-tech agriculture, up-to-date small-scale and corporate industry, extensive government welfare measures, comfortable living standards, and high dependence on foreign trade. Denmark is a net exporter of food. The centre-left coalition government concentrated on reducing the unemployment rate and turning the budget deficit into a surplus, as well as following the previous government's policies of maintaining low inflation and a current account surplus. The coalition also committed itself to maintaining a stable currency. The coalition lowered marginal income tax rates while maintaining overall tax revenues; boosted industrial competitiveness through labour market and tax reforms; increased research and development funds; and improved welfare services for the neediest while increasing public sector efficiency by cutting "red tape".

From 1 January 2007, the new centre-right government streamlined the public sector extensively by decreasing the number of administrative units drastically in the different tiers of government, i.e. in the number of court circuits, police districts, tax districts, reshuffling tasks among the three government levels and abolished the counties, thereby reducing the number of local and regional politicians by almost half.

Denmark chose not to join the 11 other European Union members who launched the Euro on 1 January 1999. Especially from 2006, economists and political pundits have expressed concern that the lack of skilled labour will result in higher pay increases and an overheating of the economy, which would repeat the boom-and-bust cycle in 1986, when government introduced a tax reform and restricted the private loan market because of a record balance-of-payments deficit. As a consequence, the trade balance showed a surplus in 1987, and the balance-of-payments in 1990 (first surplus since 1963). They have remained in surplus since, except for the balance of payments in 1998.

The Danish Model

For the past three years (2004-2006) the Danish economy has been surprisingly strong - surplus on the national budget is 98.5 billion DKK for 2006 (6% of the GDP). The government is using most of this surplus to reduce the national debt. At the end of March 2006, a report from the Danish (Central) National Bank said that foreign assets owned by companies or individuals from Denmark were now worth more than the Danish foreign debt, effectively nullifying the foreign debt.

Welfare State

Danes are proud of their highly developed welfare safety net, which ensures that all Danes receive free health care and need not fear real poverty. Over the past 20 years, however, the number of Danes living on transfer payments has grown to about 1 million working-age persons (roughly 20% of the population), and the system is beginning to show strains. Health care and care for the elderly particularly have suffered, and the need for welfare reform is increasingly discussed because of the coming sharp decline in the ratio of workers to retirees. More than one-quarter of the labour force is employed in the public sector. Thus 61% of the adult population in Denmark is either dependent on transfer payments, i.e. entitlement benefits, or is employed by government at central, regional or local level (2005). However, as of May 2007 only 3.6% (99,600) of Danes are officially unemployed.

The large public sector is financed by high taxes. A Value added tax of 25% is levied on the sale of most goods and services (including groceries). The income tax in Denmark ranges from 9%-44% for ultra-low to low-income families to 44%-62% progressively for middle class families. 850,000 Danes (31% of everyone employed and 44% of all full-time employees) pay a marginal income tax of 62%. The number of Danes paying a marginal income tax of 62% in 2006 is expected to be 925,000.

Labour

Relationships between unions and employers are cooperative: unions have a day-to-day role in managing the workplace, and their representatives sit on most companies' board of directors. Rules on work schedules and pay are negotiated between unions and employers, with minimal government involvement. The unemployment rate May 2007 was 3.6%, for a total of 99,600 persons. The number of unemployed is forecast at 65,000 in 2015.

Because of the present high demand for but lacking supply of skilled labour, especially regarding factory, transport, building and construction jobs, in addition to hospital nurses and physicians, the annual average working hours have risen, especially compared with the economic downturn 1987 - 1993.