Welfare state

Denmark has a broad-reaching welfare system, which ensures that all Danes receive tax-funded health care. Expenses to medicine is only partially funded and some non-vital medical treatments are not funded at all. Unlike many other European countries, an unemployment insurance requires a paying membership of a state recognized unemployment fund. Even though the funds are privately owned, a high percentage of their expenses are financed through the state tax-system. Not every Danish citizen or employee qualifies for a membership of an unemployment fund and membership benefits will be terminated after 2 or more years of unemployment. Unemployment funds does not pay benefits to sick members, they will be transferred to the municipal social support system instead. Denmark has a countrywide, but municipal administered social support system against poverty. All Danish citizens above 18 years of age can apply for some financial support, if they cannot sustain themselves or their family. Approval is by no means automatic and the extent of this system has generally been diminished over the last 30 years. After a newly implemented reform by 5. January 2015, sick people can receive some financial support throughout the extent of their illness and not just for the maximum of 1 year as previously. Their ability to work will be re-evaluated by the municipality after 5 months of illness. Denmark ranked the first in the European pensions barometer survey for the past two years. The lowest-income group before retirement from the age of 65 receive 120% of their pre-retirement income in pension and miscellaneous subsidies.

The worlds largest public sector (30% of the entire workforce on a full-time basis) is financed by the world's highest 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 37.4% to 63% progressively, levied on 4 out of 10 full-time employees. Such high rates mean that 1,010,000 Danes before the end of 2008 (44% of all full-time employees) will be paying a marginal income tax of 63% and a combined marginal tax of 70.9% resulting in warnings from organizations such as the OECD. TV2 (Denmark) reported in April 2008 that abolishing the middle- and top-level income tax brackets would amount to two (2) and one (1) percent of public sector revenue, respectively, which equals one and a half percent of GDP. The public sector as a whole had a budget surplus of 4.4% of GDP in 2007, but the tax cuts would increase private consumption and the labor shortage, thus, resulting in a deficit on the trade balance and pressure to increase wages even further. Proceeds from selling ones home are not taxed, as the marginal tax rate on capital income from housing savings is around 0 percent. A survey by Standard & Poor's found that the total debt secured by mortgages in Danish homes amounts to 89.8% of GDP, which is above the debt level in other EU countries (and the USA at 74.6% of GDP). Political agendas for increasing the labor supply has resulted in several reforms and financial cuts. Reforms were initiated with the abolishing of the labor market arrangement called efterløn (eng.:early retirement pay), at the present (end of 3rd quarter 2008) with more than 130,000 participants (60 years until 64 years of age). Participation in this scheme is also open for self-employed people (farmers, fishermen, lawyers, and so on). Several reforms of the rights of the unemployed have followed up, partially inspired by the Danish Economic Council. Halving the time unemployment benefits can be received from four to two years has recently been implemented for example. This particular reform resulted in more than 50.000 unemployed people dropping out of the social benefit system. The majority were not qualified for the municipal administered social support system either. This situation has caused a lot of debate and political conflict in Denmark recently and the current government has attempted several short term solutions. There is no political mandate at the moment to roll back the reforms however.

Taxation and employment

With a GDP of 1,642,215 million DKK and revenue from taxes and ownership at 803,693 million DKK (2006), 49.07% of GDP, it is of extreme importance what happens in the tax-financed part of the economy. According to newly revised statistics, Denmark had the world's highest tax level in 2005 and 2006, when tax revenue collected amounted to 50.7% and 49.1% of GDP respectively and held this position 1970-74 and 1993-95. These figures do not include income from ownership. In 2013, the combined tax revenues collected (Danish: samlede indtægter fra skatter og afgifter) amounted to 47.9% of GDP.