Denmark - Politics, government, and taxation

Queen Margarethe II is officially the head of state, but actual power resides in the prime minister and his or her cabinet (called "the government" in Denmark and virtually all other parliamentary systems, and similar to a U.S. "administration") and the Folketing (the parliament). The Queen formally appoints the prime minister and the cabinet, but this appointment is always the result of behind-the-scenes maneuvering and coalition-building after a general election. The prime minister is accountable to the Folketing for his or her actions. Most ministers have their own ministries, (such as the Ministry of Finance or the Ministry of the Environment), but some individual ministers may be selected without being assigned to a specific ministry. Legislation is created cooperatively by the Folketing and the government. Proposals for laws are considered twice in the Folketing, and if approved, must then be approved by the Queen and the government. The Queen is not independent from the government in approving legislation, but rather acts under its advice.

The Folketing has 179 seats; members are elected by proportional representation (voters elect parties rather than individuals, that receive a number of seats in the legislature proportional to the percentage of votes received). This system encourages the proliferation of political parties that may form coalitions not only to form governments, but to pass legislation in the Folketing. The prime minister can call an election at any time in the hopes of gaining more seats for the ruling coalition. And as in virtually all parliamentary systems, new elections may be called if there is a vote of no confidence in the Folketing, although this has not happened since 1909. The minimum level of popular support necessary for a party to be represented in the Folketing is 2 percent (corresponding to 3 or 4 seats), and 2 seats each are reserved for representatives from the Faroe Islands and Greenland.

Like much of Scandinavia, Denmark has a good record on women's representation in government and politics at both the local and national levels. In the government in the year 2000, 35 percent of cabinet ministers were women, as were 37 percent of the Folketing (compared with the United States in 2000, where women were 41.4 percent of the cabinet but only 12 percent of Congress).

Since 1973, there have been 10 major political parties. Underlying all but the most extreme right wing of the parties is the Nordic emphasis on the importance of economic equality, ensured by strong social welfare programs. The issue of whether or how to join the European Community has been important to all the parties over the past 20 years, but does not divide them according to traditional "right-left" alignments.

The parties in the government in 2001 were elected in March 1998. The ruling coalition is comprised of the Social Democratic Party (65 seats), the Socialist People's Party (13 seats), the Radical Liberal Party (7 seats), and the Unity Party (5 seats); in the opposition are the Liberal Party (43 seats), the Conservative Party (17 seats), the Danish People's Party (13 seats), the Center Democratic Party (8 seats), the Christian People's Party (4 seats), and the Progress Party (4 seats).

The Social Democrats and Socialist People's Party do not wish Denmark to rely solely on market forces to organize the economy, and place a priority on equalizing income distribution and living standards. Trade unions are especially associated with the Social Democrats. The Radical Liberals (Det Radikale Venstre) are to the right of Social Democrats, and want to curb public spending, lower income tax rates for high earners, and reduce benefits for the unemployed. The Unity Party or Unity List is an alliance of far-leftist and environmental groups, to the left of the Social Democrats.

The Conservative Party (CP) has been generally gaining in popularity since the mid-1970s, although its peak was in the 1980s. Representing especially the interests of business and property owners, the Conservatives emphasize the rights of ownership while trying to reduce power of trade unions. While still supporting a welfare state, the CP wants to limit public spending on social programs, but increase spending on defense. The CP is fairly pro-European integration. The Liberal Party (Venstre) is close to but more extreme than the conservatives in wishing to reduce government spending and power, and are strongly pro-European integration. The Danish People's Party (DPP) is a nationalist party for ethnic Danes, against immigration and suspicious of refugees. They are strongly anti-European integration, although they support free trade and market-based agricultural policy. The DPP are for social welfare programs, but only for Danish citizens, and also support abolishing or greatly reducing property, inheritance, and other taxes. The Center Democratic Party wants fewer taxes, especially for individuals. They do support social welfare programs and are also pro-Europe. The Christian People's Party (CPP) was formed in response to the late-1960s legalization of abortion laws and lessening of restrictions on pornography, both of which they oppose. They want to decentralize political decisions, avoid special interests, and emphasize protecting the environment and quality of life. They have historically had a small share of popular vote, usually just above the 2 percent threshold required for representation in the Folketing. The Progress Party (PP) was founded in 1990, an extreme right-wing party with a reputation for unruliness. Their main platform is to abolish income taxes and greatly reduce government spending, and to restrict immigration. Against joining the European Union, their arguments often alienate more tolerant Danes, while some of their leaders and members have espoused more explicitly racist attitudes. Many of the other parties are reluctant to form a coalition with them.

In 1997, the public sector employed around a quarter of the workforce, and provided health care, welfare, social security, education, and administration of the government. Government-owned businesses are also still important to the economy, although there has been increasing privatization in recent years. Recently privatized businesses include a life insurance company (now totally private), the national telecommunications company TeleDanmark (totally private), Copenhagen Airport (now 49 percent private), and the computer services company Datacentralen, 75 percent of which was sold to the U.S.-based Computer Sciences Corp. The large Postal Service and Danish State Railroads companies have also been turned into private companies, although the government actually owns these firms. Some other public services such as sanitation, cleaning, and catering to public institutions are also being privatized.

The value-added tax (VAT) is the main source of government revenue, accounting for over one-quarter of total revenue in 1998. At 25 percent, it is one of the highest VAT rates in the world. Income tax is also high. In 1999, the marginal income tax rate was 40 percent for taxable incomes up to $21,500, while the highest bracket was about 60 percent for taxable incomes of more than $37,000. In 2001, 40 percent of all Danes in full-time employment were in the highest tax bracket. The Danish government, fearing an economic slowdown, is beginning to shift its tax burden somewhat away from individual incomes. "Green taxes" on pollution and to enforce environmental regulations are expected to make up some of the difference, and are already generating significant revenues; in 1995 over 8 percent of tax revenue came from environmentally-related taxes (over 2 percent of GDP). In the same year in the United States, only 4 percent of tax revenues came from environmentally-related taxes (less than 1 percent of GDP).

Even though most Danes must give almost half of their salaries to the government as income tax, they get most of it back in the form of free, high-quality health care, education, and transfer payments . For example, in 1996, 47 percent of the DKr386 billion collected by the national government was returned to the public in the form of transfer payments such as unemployment and sickness benefits, old-age pensions and housing subsidies. Some 60 percent of all government revenues from taxes in 1996 were spent on the health service, while transfer payments accounted for 40 percent of total public revenues (22 percent of GDP).

At 32 percent, corporate taxes are high. Denmark plans to reduce them to 26 percent by 2002. However, contrary to many economists' predictions, Denmark's high corporate tax rate has not discouraged foreign investment. In a surprising situation that suggests that there must be multiple reasons why foreign companies choose to invest, Denmark in 1997 showed an increase in foreign investment that was an amazing 308 percent—al-most 10 times that of the European Union as a whole.

The Danish currency is pegged in a fixed exchange rate with the euro, so interest rates nearly always follow the European Central Bank. This relationship changed slightly after the referendum in 2000 when the Danes narrowly voted to reject the last stage of the EMU and keep their own separate currency. After the referendum, the Danish national bank raised its interest rates, which encouraged people to borrow less (since interest on loans was higher), and thus reduced the amount of money in circulation. As money became scarcer, its value increased, and the bank prevented the krone from devaluation . However, the krone has never been allowed to fluctuate beyond the level allowed by the exchange rate mechanism (ERM).

Denmark was the first country to establish a Ministry for the Environment, in 1972. Danes spend more per capita on environmental protection than most nations in the world. This has also inspired the development of a local industry of pollution control equipment, which is now a significant international force. This environmental focus has also affected the Danes' relation to European integration. Many have feared that joining the European Union (EU) would require them to lower their standards of environmental protection in order to remain in line with the other EU nations. Other than environmental protection laws, there are few regulatory controls on the economy.