Tuesday, December 16, 2008

Danes pay hefty taxes to enjoy welfare system

Dec 13, 2008

THOUGH the Danes love their welfare system, it is not free of flaws.

Two downsides plague the system: the high cost of maintaining it and the labour shortage it has created.

Danes pay high taxes to enjoy their welfare state. A worker can pay anything between 43 and 63 per cent of his personal income - those who earn more, pay more.

Total government spending makes up nearly half of the country's gross domestic product, compared to 15 per cent in Singapore. Yet no political party in Denmark has succeeded in pushing for lower taxes and lower welfare spending.

The bottom line seems to be that the egalitarian Danes value the status quo of free health care and education for all, not to mention heavily subsidised childcare and elder-care services.

While many are satisfied with the quality of welfare, there are those who feel the high tax rates need to be trimmed to give people the incentive to work more. This would help meet the economy's need for workers.

Around 40 per cent of postal sales assistant Anita Selnoe's monthly income goes to the taxman. The 27-year-old has a two-year-old son and her partner is a wafer fabrication plant technician.

However, she says: 'I wouldn't mind paying more (taxes) if it meant better health care and schools for my kid.

'And not just for me; those who are less well off should get the same benefits as everyone else.'

Neuroscientist Irene Klaerke Mikkelsen, 36, feels the same way. About half her monthly income goes into paying taxes, but she is 'guaranteed a high standard of day care, education and health care, which saves us a lot of worry about having to find the right insurance companies', she says.

The cost of subsidised day care for her two-year-old daughter and five-year-old son is an affordable 2,805 Danish kroner (S$746). Her husband is an economist, and as a family with young children, they receive an allowance of 7,000 kroner every three months.

The mix of high taxes and high welfare means Danish society has a broad middle class and few people who swim in wealth or struggle in poverty.

But the Danish 'flexicurity' system, while successful in creating jobs and keeping unemployment low, has not been able to stem the labour shortage, says Mr Villy Hovard Pedersen, the Education Ministry's director-general of adult vocational training.

Two factors can be blamed for it.

One, the huge public sector sucks up a lot of labour that would otherwise be in the private sector.

Two, Denmark has not been able to attract foreigners to fill the gap.

Singapore sociologist Ooi Can Seng, who has been working in Denmark for 11 years, says integrating into the largely homogenous society is tough. Also, mastery of the Danish language is a must in order to fit in, he adds.

Expatriates may also be put off by the high taxes as they will not be able to reap the full benefits of the welfare system from living a few years in Denmark.

Various measures to ease the shortage are being studied.

They include giving people incentives to work longer instead of opting to go on a pension scheme at the age of 60, and shortening the time many Danes take to complete their tertiary education. Typically, they take a year or two off to travel or start a family before going to university.

Labour economists like Cecilie Dohlmann Weatherall also believe unemployment insurance should be lowered in cases where it is higher than the working wage, like for some single mothers.

The issue of integrating foreigners is a thorny one too, whether it is foreign professionals or low-skilled immigrants from Turkey and the Middle East doing such jobs as cleaning, taxi driving and being shop assistants.

Associate Professor Ooi, of the Copenhagen Business School, observes that 'people here have just four or five close friends. Their friendships are formed when they are in school, and after that, the doors are closed'.

Their reserve can be traced, to some extent, to a Danish culture of self-reliance instilled from young.

But more importantly, the welfare state reduces the need to cultivate interdependent relationships because 'if you can't help yourself, the state will help you', says Prof Ooi.

The government assumes roles that are primarily the responsibility of the family in other countries, such as childcare and care of the elderly.

This may account for an interesting paradox about life in Denmark: Surveys show that Danes have high levels of happiness and contentment, but the country's suicide rate is among the highest in Europe.

Prof Ooi blames it on growing old in the long, harsh Nordic winters.

'With people who are old and infirm, when they are facing winter depression and their friends are no longer around, they may take their own lives.'


[Every culture creates or evolves its own solution. Some solution takes time to be established but once established, it becomes the norm and the value of the culture. And practices become entrenched and hard to change or dislodge. The test of any culture or value is how it adapts to changing circumstances. It is the same test for any organism - adapt or die. ]

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