Economy of Denmark

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 center-left coalition government (1993–2001) 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 labor market and tax reforms, increased research and development funds. The availability and duration of unemployment benefit has been restricted to four years and because of rapidly rising prices on housing this has led to an increase in poverty from below 4% in 1995 to 5% in 2006 according to the Danish Economic Council [3]. Despite these cuts, the part of the public sector in Denmark which buys goods and services from the private sector and provides the public sector administration and direct service to the public - nursing institutions for the young or old, hospitals, schools, police, and so on. - has risen from 25.5% of GDP during the former government to 26% today and is projected to be at 26.5% in 2015 if current policies continue [4].

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.

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. Denmark has an unemployment insurance system called the A-kasse (arbejdsløshedskasse). This system requires a paying membership of a state recognized unemployment fund. Most of these funds are managed by trade unions, and a high percentage of their expenses are financed through the state tax-system. Members of an A-kasse are not obliged to be members of a trade union. 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. A person that is not member of an A-kasse, can not receive unemployment benefits. Unemployment funds does not pay benefits to sick members, they will be transferred to a municipal social support system instead. Denmark has a countrywide, but municipal administered social support system against poverty, securing that qualified citizens has a minimum income of living. 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 meant that 1,010,000 Danes before the end of 2008 (44% of all full-time employees) were paying a marginal income tax of 63% and a combined marginal tax of 70.9% resulting in warnings from organisations 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 was also open for self-employed people (farmers, fishermen, lawyers, and so on). Several reforms of the rights of the unemployed has followed up, partially inspired by the Danish Economic Council. Halving the time unemployment benefits can be received from four to two years and making it twice as hard to regain this right, has recently been implemented for example. Contrary to the official intention, this particular reform resulted in more than 50,000 unemployed people dropping out of the social benefit system within the first year and 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 in recent years. The Cabinets of Helle Thorning-Schmidt attempted several short term solutions, but there were no political mandate to roll back the reforms. From 2015, a large majority of the population and a new found broad political alliance now suggests a partial roll back, but nothing has been effectuated yet.

Taxation

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 also held this position 1970-74 and 1993-95. These figures do not include income from ownership. In 2013, the total tax revenues collected (Danish:samlede indtægter fra skatter og afgifter) amounted to 47.9% of GDP.

Budgets

The overall surpluses after operating and capital expenditure in the whole public sector for the years 2004-2008: (million DKK) 27,327; 77,362; 79,937; 75,560 ('07 preliminary); 69,140 ('08 estimate). The public sector debt-liabilities still outstanding 1 January 2008 in accordance with the Eurostat EMU-debt numbers (gross debt) are 440.9 billion DKK (26.0% of GDP). In spite of falling surpluses this debt is expected to fall until 2015. As of 2008 there is no net debt in the public sector as a whole, but instead net assets of 43 billion DKK. The central government is determined to pay off the debt as fast as possible, avoiding the temptation to increase spending which might overheat the economy (increase wages and eventually prices drastically) because of a short supply of skilled labor and in the end require financial austerity measures to cool off the economy. Reporting on the record low unemployment numbers of under 50,000 persons in April 2008 published 9.30 am 29 May by Statistics Denmark, TV2 (Denmark), at 10 pm, with comments from Nordea Bank's (Denmark) chief economist Helge Pedersen, and DR2 (Danish Broadcasting Corporation), at 10.30 pm stressed the danger of overheating the economy and keeping public sector spending in check or otherwise risk economical-political measures. Being surprised at how low unemployment was, Helge Pedersen said (TV2) that compared with previous periods with such a low unemployment rate, a trade deficit was avoided mainly because of the oil export.

The EMU-gross debt was 730 billion DKK at the end of 1993, 80.1% of GDP. During the four-year period 2004-2007 the public sector EMU-gross debt fell from 43.8% (641.9 billion DKK) to 26.0% (440.9 billion DKK) of GDP. The budget surpluses were (in billion DKK) 1.9% (27.2), 5.0% (77.4), 4.8% (79.3), and 4.4% (74.6) of GDP, respectively.

Employment

Public sector employment (full-time and part-time) has been relatively steady at more than 800,000 a year this first decade, making up around 38% of total full-time (28% of full-time and part-time) employment, whereas private sector employment has risen by over 300,000 since the 1990s to slightly over 2 million in 2007 (full-time and part-time). With the information based partly on payments to the Arbejdsmarkedets Tillægspension pension fund of all employees and insured but unemployed members of an unemployment fund in Denmark, full-time employment is calculated at over 2.3 million persons in the third quarter of 2007. The increase in the fourth quarter of 2007 from a year ago in the number of employed persons was 1.0% and the amount of hours worked was 2.9% higher.

The share of employees leaving jobs every year (for a new job, retirement or unemployment (unempl.:15% of job leavers)) in the private sector is around 30% (of 1.25 million), at more than 300,000 - a level also observed in the U.K. and U.S.- but much higher than in continental Europe, where the corresponding figure is around 10%, and in Sweden. This attrition can be very costly, with new and old employees requiring half a year to return to old productivity levels, but with attrition bringing the number of people that have to be fired down. Productivity increased at an average of 2.3% a year in 2004, 2005 and 2006, recently being revised upward from an average of just 0.9% and previously with a too high employment level estimated. The upward revision is good, because a high wage economy like Denmark's with very few valuable natural resources needs to be highly productive, or efficient, and innovative to compete with other countries for a market share in the global economy. However, according to OECD, the distortions imposed by a combined marginal tax wedge of 70% (60% income tax plus 25% VAT, not counting elevated excise duties on certain goods) are hurting productivity and in turn the country's competitiveness.

Public sector reform

To gain synergies through economies of scale (critical mass) (greater professional and financial sustainability) and big item discounts and to offer a wider array of services closer to the public (be a one-stop place of access to the public sector not unlike the unitary councils), it was deemed necessary to merge the municipalities and other administrative entities in the public sector. This would also help alleviate the financial problems of depopulation due to limited job opportunities, high unemployment and aging and make introduction of new information technology more affordable With the tax burden at around half of GDP, a survey July 2008 found that 81% of Danes are of the opinion that the public sector can deliver more service for the same money, harnessing the advantages of the recent reform. Mainly from 1 January 2007, the new center-right government streamlined the public sector extensively by decreasing the number of administrative units drastically in the different tiers of government, that is, in the number of city court circuits (from 82 to 24), police districts (from 54 to 12), tax districts (before 2007 the responsibility of the municipalities;after that part of the central government Ministry of Taxation), reshuffling tasks among the three government levels and abolished the counties in Kommunalreformen ("The Municipal Reform" of 2007), thereby reducing the number of local and regional politicians by almost half to 2,522 (municipal councillors) (council elections November 2005;reduced in the 2009 elections to 2,468;in 2013 to 2,444) (1978: 4,735;1998: 4,685; reduced somewhat in council elections November 2001 (Bornholm)) and 205 (regional councillors) (1998: 374) respectively. Before 1970 (a previous reform in effect from 1 April that year) the number of councillors (both categories) was around 11,000 in around 1,000 parish municipalities (sognekommuner), being supervised by their county, and market city municipalities (købstadskommuner), the latter numbering 86 (including Bornholm whose county as an exception supervised the county's 6 market city municipalities (of 22 in total)) and not being part of a county but being supervised by the Interior Ministry. This distinction (having independent municipalities not being under county supervision) ending (except for Copenhagen, Frederiksberg and Bornholm (2003–06)) with the reform of 1970, the term municipality (kommune) replaced the previous two terms, which are now never used except for historical purposes. The number of municipalities had been reduced when during the period from April 1962 to 1966 398 municipalities merged to form 118 voluntarily. The number of municipalities was the highest in 1965, at 1345 - with more than 13,000 councillors - of which 88 were market city municipalities, including Copenhagen and Frederiksberg, and 1257 were parish municipalities . Many of the 275 municipalities after 1 April 1974 built large city halls to consolidate the administration, thus, changing the cityscape of Denmark. It also consolidated other municipal enterprises and the purchase of goods and services from the private sector, as will some of the present 98 municipalities over time.TV2(Denmark) reported 24 September 2007, that SKI, a mutual purchasing service company for central government, regions, and municipalities, made purchases of 140 billion DKK (almost 9% of GDP) of goods and services in bulk every year, prompting private sector companies to complain over razorthin profit margins and that for instance innovative (but expensive) products and energy efficiency sometimes were better than a very low price.

Agriculture

Denmark is home to various types of agricultural production. Within animal husbandry, it includes dairy and beef cattle, pigs, poultry and fur animals – primarily mink, all sectors with a major export. Regarding vegetable production, Denmark is a leading producer of grass-, clover- and horticultural seeds.

The Danish agricultural industry is characterized by freehold and family ownership but due to structural development farms have become fewer and larger. With modern trade patterns the profitability increasingly depends on global market trends. The arable land in Denmark is approximately 2,646,000 hectares, and the number of farms approximately 40,000, out of which approximately one third is owned by full-time farmers.

The agriculture is intensive with 64 per cent of the land area being used for production. This equals production of food for 15 million people. The value of Danish agricultural export, including the agribusiness sector, has risen steadily in recent years and accounted for 16 billion Euros in 2011. The agriculture and food sector as a whole represents 20 per cent of total Danish commodity exports.

Animal production

The tendency towards fewer and larger farms has been accompanied by an increase in animal production, using fewer resources per produced unit.

The number of dairy farmers has reduced to about 3,800 with an average herd size of 150 cows. The milk quota is 1,142 tonnes. Danish dairy farmers are among the largest and most modern producers in Europe. More than half of the cows live in new loose-housing systems. Export of dairy products accounts for more than 20 per cent of the total Danish agricultural export. The total number of cattle in 2011 was approximately 1.5 million. Of these, 565,000 were dairy cows and 99,000 were suckler cows. The yearly number of slaughtering of beef cattle is around 550,000.

For more than 100 years the production of pigs and pig meat has been a major source of income in Denmark. The Danish pig industry is among the world’s leaders in areas such as breeding, quality, food safety, animal welfare and traceability creating the basis for Denmark being among the world’s largest pig meat exporters. Approximately 90 per cent of the production is exported. This accounts for almost half of all agricultural exports and for more than 5 per cent of Denmark’s total exports. About 4,200 farmers produce 28 million pigs annually. Of these, 20.9 million are slaughtered in Denmark.

Fur animal production on an industrial scale started in the 1930s in Denmark. Denmark is now the world’s largest producer of mink furs, with 1,400 mink farmers fostering 17.2 million mink and producing around 14 million furs of the highest quality every year. Approximately 98 per cent of the skins sold at Kopenhagen Fur Auction are exported. Fur ranks as Danish agriculture’s third largest export article, at more than DKK 7 billion annually. The number of farms peaked in the late 1980s at more than 5,000 farms, but the number has declined steadily since, as individual farms grew in size. Danish mink farmers claims their business to be sustainable, feeding the mink food industry waste and using all parts of the dead animal as meat, bone meal and biofuel. Special attention is given to the welfare of the mink, and regular “Open Farm” arrangements are made for the general public. Mink thrive in, but are not a native to Denmark, and it is considered an invasive species. American Mink is now widespread in Denmark and continues to cause problems for the native wildlife, in particular waterfowl. Denmark also has a small production of fox, chinchilla and rabbit furs.

Two hundred professional producers are responsible for the Danish egg production, which was 66 million kg in 2011. Chickens for slaughter are often produced in units with 40,000 broilers. In 2012, 100 million chickens were slaughtered. In the minor productions of poultry, 13 million ducks, 1.4 million geese and 5.0 million turkeys were slaughtered in 2012.

Organic production

Organic farming and production has increased dramatically in Denmark in the last 25 years and continues to expand with more than a quadrupling of exports since 2006. In 2012 the export of organic products reached DK 1.2 billion, a 12.3% increase from 2011. This figure should be seen in the context of a DK 360 billion global market for organic products and a total export from the Danish food and agriculture sector at DK 148 billion that same year. The import of organic products has always been higher than the exports though and reached DK 1.5 billion in 2012. 7% of the cultivated land is now categorized as organically farmed and 10% for the dairy industry as of 2008. Denmark has a high consumption of organic products per capita compared to other European countries, only surpassed by Switzerland. In 2011 Denmark surpassed Switzerland with the highest retail consumption share for organic products in the world. In 2012 the share was at 7.8%, accounting for a total of DK 5.5 billion.

Organic farming and production is officially a target and focus area for the Danish government in its ambition to effect a so-called green transition (Danish: Den Grønne Omstilling). In this respect it is the official goal of the government to double the area used for organic farming in the country from 2011 to 2020. The rise and increase of organic production has been driven by a plethora of activist groups and NGOs in all levels of production and consumption since the 1970s, a number of governmental institutions and subsidies.

Tourism

Tourism is a major economical and job contributor in Denmark and it constitutes a growth sector.

Transport

Significant investment has been made in building road and rail links between Copenhagen and Malmö, Sweden (the Øresund Bridge), and between Zealand and Funen (the Great Belt Fixed Link). The Copenhagen Malmö Port was also formed between the two cities as the common port for the cities of both nations.

The main railway operator is Danske Statsbaner (Danish State Railways) for passenger services and DB Schenker Rail for freight trains. The railway tracks are maintained by Banedanmark. Copenhagen has a small Metro system, the Copenhagen Metro and the greater Copenhagen area has an extensive electrified suburban railway network, the S-train.

Private vehicles are increasingly used as a means of transport. Because of the high registration tax (180%) and VAT (25%), and the world's highest income tax rate, new cars are very expensive. The purpose of the tax is to discourage car ownership. Whether a smaller fleet of aging cars is better than a larger fleet of modern cars is a matter for debate, however as the car fleet has increased by 45% over the last 30 years the effect of high taxation on the fleet size seems small. The motorway network now covers 1,111 km

In 2007, an attempt was made by the government to favour environmentally friendly cars by slightly reducing taxes on high mileage vehicles. However, this has had little effect, and in 2008 Denmark experienced an increase in the import of fuel inefficient old cars (mostly older than 10 years), primarily from Germany as their costs including taxes keeps these cars within the budget of many Danes.

Denmark is in a strong position in terms of integrating fluctuating and unpredictable energy sources such as wind power in the grid. It is this knowledge that Denmark now aims to exploit in the transport sector by focusing on intelligent battery systems (V2G) and plug-in vehicles.

Energy

Denmark has changed its energy consumption from 99% fossil fuels (92% oil (all imported) and 7% coal) and 1% biofuels in 1972 to 73% fossil fuels (37% oil (all domestic), 18% coal and 18% natural gas (all domestic)) and 27% renewables (largely biofuels) in 2015. The goal is a full independence of fossil fuels by 2050. This drastic change was initially inspired largely by the discovery of Danish oil and gas reserves in the North Sea in 1972 and the 1973 oil crisis. The course took a giant leap forward in 1984, when the Danish North Sea oil and gas fields, developed by native industry in close cooperation with the state, started major productions. In 1997, Denmark became self-sufficient with energy and the overall CO2 emission from the energy sector began to fall by 1996. Wind energy contribution to the total energy consumption has risen from 1% in 1997 to 5% in 2015.

Since 2000, Denmark has increased Gross National Product (GNP) and at the same time decreased energy consumption. Since 1972, the overall energy consumption has dropped by 6%, even though the GNP has doubled in the same period. Denmark had the 6th best energy security in the world in 2014. Denmark has had relatively high energy taxation to encourage careful use of energy since the oil crises in the 1970s, and Danish industry has adapted to this and gained a competitive edge. The so-called "green taxes" have been broadly criticised partly for being higher than in other nations, but also for being more of a tool for gathering government revenue than a method of promoting "greener" behaviour.

Denmark has low electricity costs (including costs for cleaner energy) in EU, but general taxes (11.7 billion DKK in 2015) increase the price to the highest in Europe. As of 2015, Denmark has no environment tax on electricity.

Denmark is a long time leader in wind energy and a prominent exporter of Vestas and Siemens wind turbines, and as of May 2011 Denmark derives 3.1% of its gross domestic product from renewable (clean) energy technology and energy efficiency, or around €6.5 billion ($9.4 billion). It has integrated fluctuating and less predictable energy sources such as wind power into the grid, and wind produced the equivalent of 42% of Denmark's total electricity consumption in 2015. When viewed in the context of overall energy consumption, wind only accounts for 5%.

Energinet.dk is the Danish national transmission system operator for electricity and natural gas. The electricity grids of western Denmark and eastern Denmark were not connected until 2010, when the 600MW Great Belt Power Link went into operation.

Cogeneration plants are the norm in Denmark, usually with district heating which serves 1.6 million households.

Waste-to-energy incinerators produce heating. Vestforbrænding in Glostrup Municipality operates Denmark's largest incinerator, supplying heating equivalent to the consumption in over 50,000 households. Amager Bakke is an example of a new incinerator being built.

Oil and Natural Gas

Denmark has considerable sources of oil and natural gas in the North Sea and ranks as number 39 in the world among net exporters of crude oil. Esbjerg is Denmark's main city for the oil and gas industry, this is because of its ideal location close to the North Sea, which is where most of Denmark's oil and gas deposits are found. Companies like Maersk Oil, Ramboll, Stimwell Services, ABB, Schlumberger, COWI and Atkins all have offshore related activities in the city. Denmark could have large oil and gas reserves near the Faroe Islands and in Greenland.

Greenland and the Faroe Islands

Greenland suffered negative economic growth in the early 1990s, but since 1993 the economy has improved. A tight fiscal policy by the Greenland Home Rule Government since the late 1980s helped create a low inflation rate and surpluses in the public budget, but at the cost of rising foreign debt in the Home Rule Government's commercial entities. Since 1990, Greenland has registered a foreign trade deficit.

Following the closure of Greenland's last lead and zinc mine in 1989, Greenland's economy is solely dependent on the fishing and tourism and financial transfers from the Danish central government. Despite resumption of several interesting hydrocarbon and mineral exploration activities, it will take several years before production will begin. Greenland's shrimp fishery is by far the largest source of income, since cod catches have dropped to historically low levels. Greenland also has a prominent whaling industry, Greenlandic Inuit whalers catch around 175 whales per year, making them the third largest hunt in the world after Japan and Norway, though their take is small compared to those nations, who annually averaged around 730 and 590 whales respectively in 1998–2007. The IWC treats the west and east coasts of Greenland as two separate population areas and sets separate quotas for each coast. The far more densely populated west coast accounts for over 90 percent of the catch. In a typical year around 150 minke and 10 fin whales are taken from west coast waters and around 10 minkes are from east coast waters. Since the fishing industry is in decline including whaling, tourism is the only sector offering any near-term potential, and even this is limited due to the short season and high costs. The public sector plays a dominant role in Greenland's economy. Grants from mainland Denmark and EU fisheries payments make up about one-half of the home-rule government's revenues. Recently, Greenland has seen interest from other countries due to the possibilities of large amounts of natural resources, which include: coal, iron ore, lead, zinc, molybdenum, diamonds, gold, platinum, niobium, tantalite, uranium, fish, seals, whales, hydropower, possible oil and gas.

The Faroe Islands also depend almost entirely on fisheries, salmon farming, tourism and related exports. Without Danish Government bailouts in 1992 and 1993, the Faroese economy would have gone bankrupt. Since 1995, the Faroese economy has seen a noticeable upturn, but remains extremely vulnerable. Recent off-shore oil finds close to the Faroese area give hope for Faroese deposits, too, which may form the basis for an economic rebound over the longer term. Like Greenland, the Faroe Islands are also known for its whale hunting, around 950 long-finned pilot whales (Globicephala melaena) are caught each year, mainly during the summer. This should be seen in the context of an estimated local pilot whale population of more than 100,000. Other species are not hunted, though occasionally Atlantic white-sided dolphin can be found among the pilot whales. The Faroese whale slaughter has recently been under attack by the media because of the way it is generally perceived. The whale hunting is not a commercial industry, of no significance to the economy other than the fact that the Faroes need to import less meat from other animals because people get meat for free from the pilot whales, and the whales are for local consumption only.

Neither Greenland nor the Faroe Islands are members of the European Union. Greenland left the European Economic Community in 1986 and the Faroe Islands declined membership in 1973, when Denmark joined.

GDP

Table showing selected PPP GDPs and growth - 2002 to 2007 est.:

Major companies

Denmark has fostered and is home to many multi-national companies. Many of the largest are interdisciplinary with business, and sometimes research activities, in several fields. The most notable companies include:

Many of the largest food producers are also engaged in biotechnology and research. Notable companies dedicated to the pharmaceutical and biotechnology sector, includes:

Notable international corporations present in Denmark includes:

Cooperatives

Denmark has a long tradition for cooperative production and trade on a large scale. The most notable cooperative societies today includes the agricultural society of Dansk Landbrugs Grovvareselskab (DLG), dairy producer Arla Foods and the retail business FDB. Fællesforeningen for Danmarks Brugsforeninger (FDB) was founded in 1896 and has around 1.6 million members in Denmark.

The cooperative structure also extends to both the housing and banking sector. Arbejdernes Landsbank, founded in 1919, is the largest bank cooperative and it is currently the 7th largest bank in the country. Arbejdernes Andelsboligforening Århus (AAB Århus) is the largest individual housing cooperative in Denmark, with 23,000 homes in Aarhus alone, and the municipality of Copenhagen holds a total of 153 housing cooperatives.