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Top rate of tax hitting many full-time employees – also in the future

Employees have to earn more and more before they hit the top tax bracket. A recent survey nonetheless shows that one in four full-time employees in Denmark will be paying the top rate of tax by 2022. According to the Confederation of Danish Industry, the top rate of tax weakens employees’ willingness to undertake further training and go that extra mile at work.
Even after the increase of the higher rate tax bracket in 2022, 67% of full-time employees who have a PhD will be paying top rate tax.

Publiceret: 04.01.2017
Af Peter G. H. Madsen mail

The top tax bracket is continuously being raised which means that employees have to earn a little bit more each year before they become higher rate taxpayers.

The continuous increase of the marginal rate of tax will continue until 2022 when only those earning more than DKK 531,000 (in 2016 prices) will be paying the highest rate of tax.

But, according to calculations completed by the Confederation of Danish Industry on the basis of data provided by Statistics Denmark, although the top rate of tax is skyrocketing, the future will see many higher rate taxpayers among those working on a full-time basis.

Where currently almost one in three full-time employees pays the top rate of tax, their share of higher rate tax payers will fall to one in four (24.5%) by 2022.

Deputy Director at the Confederation of Danish Industry Kent Damsgaard believes that these figures show that the tax reform in 2012 has not significantly changed the problems inherent in the top rate tax.

“The top rate of tax makes it less attractive to go that extra mile at work. This is a problem at a time when about one in three businesses is experiencing a shortage of labour,” he says.

Top rate of tax hitting graduates



According to calculations published by the Confederation of Danish Industry, the higher rate of tax particularly hits those who opt for university-level education.

By 2022, it is believed that 10% of full-time employees who have only completed lower secondary school will be paying the higher rate of tax while more than half of those working full-time who have university-level education will be higher rate tax payers.

Even after the increase of the higher rate tax bracket in 2022, 67% of full-time employees who have a PhD will be paying top rate tax.

The Confederation of Danish Industry’s calculations also show that it is particularly those groups of skilled workers who are expected to be most in demand who will be paying the higher rate of tax.

“In short, we are taxing the type of labour that we want to attract more of,” points out Deputy Director Kent Damsgaard.

“If Danish businesses are to do well in the international marketplace, it is vital that they are able to attract and retain talented employees. And, everything else being equal, this will become more difficult when employees have to pay the higher rate of tax as it reduces the benefits of working in Denmark,” he says and adds:

“The result may be that Danish businesses move their operations abroad where they may find it easier to attract the skills and the expertise they need.” 

Fewer to pay higher rate tax


A survey conducted by the Confederation of Danish Industry in 2016 highlights this problem. Of the 437 businesses responding to the survey, 41% stated that the higher rate of tax –‘to a high degree’ or ‘to some degree’ – reduced their incentive to locate other high-salary activities in Denmark.

In its 2025 plan, the Confederation of Danish Industry therefore also recommends that the higher rate of tax should be abolished completely.

According to the Confederation of Danish Industry, this would increase the labour supply by the equivalent of almost 16,000 full-time employees, and prosperity would rise by DKK 20 billion measured by gross domestic product (GDP). 

The Confederation of Danish Industry ‘s recommendations are in line with the Danish government’s plans for the higher rate of tax.

The Danish government’s programme states that the Danish government intends to put forward proposals ‘that significantly reduce the number of Danes paying the higher rate of tax’.

If Danish businesses are to do well in the international marketplace, it is vital that they are able to attract and retain talented employees. And, everything else being equal, this will become more difficult when employees have to pay the higher rate of tax as it reduces the benefits of working in Denmark.
DEPUTY DIRECTOR AT THE CONFEDERATION OF DANISH INDUSTRY KENT DAMSGAARD
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PUBLISHED: 1/4/2017 LAST MODIFIED: 1/4/2017