The Danish prime minister’s flagship plan for a wealth tax risks strangling growth and betrays a “lack of understanding” of how the economy works, the head of one of the country’s largest industrial firms has warned.
Mette Frederiksen, who is seeking to cling on to power at a snap election on Tuesday, has rebranded herself as a crusader against inequality and pledged to levy 0.5 per cent on any net wealth of more than 25 million kroner (£2.9 million). The measure would affect about 20,000 of the most affluent Danes.
The proposal has shaken up the truce between labour and capital that had long prevailed in Denmark and injected a note of class war into the broadly consensual approach that politicians had previously taken to balancing the interests of the rich and the hard-up.
It has also drawn unusually sharp criticism from business leaders and the boss of the prominent wind turbine manufacturer, Vestas, has threatened to leave the country if the policy is enacted.
Denmark already has one of the world’s highest tax burdens, at 45 per cent of GDP, with a marginal income tax rate of 60.5 per cent for the highest earners.
Kim Fausing, the chief executive of Danfoss, Denmark’s biggest privately held industrial firm, said he was “very astonished” that Frederiksen and her Social Democratic party had broached the idea of an additional wealth tax.
Kim FausingTimes photographer James Glossop
He said the step would force business owners to pull money out of their companies, choking off the kind of investments which the family foundation that owns Danfoss had used to renovate the area around the firm’s headquarters in southeastern Denmark, funding the local airport and an electronic engineering college.
“I think it shows a complete lack of understanding of how national economies work,” Fausing told The Times. “Obviously [inequality] is something you need to monitor and be aware of and make sure the gap doesn’t get too big. But then to turn around and say, ‘Instead of creating wealth and making the cake bigger for everyone, now we’re just going to tax it’ — it’s the worst thing you can do, because it puts a limit on the engine of wealth creation.”
Denmark had a wealth tax from 1903 to 1997 under a delicately calibrated system of compromises struck between the unions and business owners from the end of the 19th century. It was gradually watered down and eventually abolished in an effort to simplify the tax code.
Lately, however, the unions have been lobbying for a revival of the policy. Damoun Ashournia, the chief economist at the FH trade union congress, said Denmark’s wealth inequality had risen sharply in recent years, particularly as asset prices inflated after the pandemic.
Campaign posters, for the upcoming elections, in Copenhagentom little/Reuters
“That challenges the social cohesion in the Danish welfare state,” he said. “We know the welfare state is built on mutual trust and that is challenged by the increase in inequality.”
In her annual New Year’s address to the nation, Frederiksen said “something was going wrong when people get rich just by living in the right place” and vowed to restore conditions where “few have too much and even fewer have too little”.
Her party initially floated the idea of a tax on valuable residential properties but switched to a wealth tax when it transpired that the house tax proposal went down badly with middle-class voters.
Rune Moller Stahl, a lecturer at Copenhagen Business School and a former economic policy adviser to the left-wing Red-Green Alliance party, said the gambit was intended to stem the loss of Social Democratic voters to the left.
“The original premise of what you might call the Frederiksen doctrine was basically left on economics and right on immigration and cultural issues, in order to win back traditional working-class voters. In that way, it’s sort of going back to what it used to be,” he said.
“I think [the wealth tax policy] might signal an end to the very strong consensus that we’ve seen across the labour-capital relationship since the late Eighties.”
The surge in oil and gas prices resulting from the war in Iran has also cast an economic shadow over the campaign. While Denmark has decarbonised its electricity sector more than most European countries, it still derives nearly half of its total energy consumption from fossil fuel products and is facing a burst of inflation.
Fausing, whose company is a leading manufacturer of energy efficiency equipment, said the crisis had underscored the need for Europe to push for “energy independence”, with more renewables and electrification, after a period in which western politics had shifted sharply against net zero.
Frederiksen speaks alongside Lars Lokke Rasmussen, the Danish foreign minister, of the Moderates, at a public discussion on March 20MADS CLAUS RASMUSSEN/EPA
He also said a wave of deindustrialisation was already rolling across the continent, in large part because of high energy prices and excessive bureaucracy.
“I’m not writing Europe off in any way,” he said. “I think we have it all. But we are having a hard time getting back the entrepreneurial spirit in Europe that we actually had when we built this economy [in the first place].”
The latest opinion poll, by YouGov, suggested Frederiksen’s Social Democrats are likely to remain comfortably the largest party but will suffer their worst result in more than 120 years, on about 21 per cent of the vote.