Denmark’s planned tax increase could take a larger share of disposable income from working-class families and unemployed people than from highly paid executives, according to new calculations by the liberal think tank Cepos reported by DR. The measure is part of the tax reform proposed by Mette Frederiksen’s new four-party government, which intends to freeze several tax thresholds for two years to help finance reductions in VAT on food.
The government is not proposing a conventional increase in tax rates. Instead, it wants to keep a number of thresholds and allowances in the tax system fixed in nominal terms for two years. Since these would normally increase in line with wages and prices, the freeze would effectively increase the amount of tax paid by households as their nominal incomes rise.
The proposal appears in the political programme of the government, formed in June by Socialdemokratiet (S), Socialistisk Folkeparti (SF), Moderaterne (M) and Radikale Venstre (RV). The same programme promises to halve VAT on food and completely abolish it on fruit and vegetables.
Denmark’s tax increase affects incomes differently
According to the Cepos calculations reported by DR, a typical working family, such as a household including a preschool teacher or painter, would lose around 0.7 percent of its disposable income as a result of the threshold freeze.
A highly paid executive family would lose more money in absolute terms, but only around 0.4 percent of disposable income.
Mia Amalie Holstein, chief economist and deputy director at Cepos, said the difference was explained by the much higher income of executives, which makes the tax increase relatively smaller when measured as a proportion of the household budget.
The effect is not identical for every higher-income household. According to the calculations, some lower-paid executive families could lose as much as 1.1 percent of disposable income, partly because of the phase-out of family benefits.
The estimates have become politically sensitive because the government presents its wider tax reform as a way to both lower living costs and strengthen incentives to work. Its programme also includes abolishing the middle tax bracket and the highest additional income-tax bracket, changing taxation for major shareholders and modifying inheritance taxation.
The government wants to use the revenue to make food cheaper
The threshold freeze is only one component of the broader reform. The government says the revenue will help finance lower VAT on food, alongside other sources of funding.
Its programme promises to halve VAT on all food products and remove it entirely from fruit and vegetables. Denmark currently applies the standard VAT rate to food, unlike many other European countries.
The Ministry of Taxation and Growth (Skatte- og Vækstministeriet) confirmed in June that the government intends to halve food VAT and eliminate it on fruit and vegetables, and has held talks with retailers about ensuring that lower taxation translates into lower supermarket prices.
The complication is timing. According to the Ministry, the technical changes necessary for differentiated VAT mean that the new system cannot enter into force before 2028. It remains unclear whether the government could introduce the tax-threshold freeze earlier.
That possibility has opened a dispute over whether lower-income households could temporarily pay more tax before receiving the benefit of lower food prices.
Enhedslisten says low and middle incomes cannot pay more
The government is now facing pressure from Enhedslisten, one of its parliamentary support parties. Political spokesperson Pelle Dragsted told DR that the party will not support the measure unless tax reductions for people on low and ordinary incomes compensate for any increase.
“For Enhedslisten, it is an absolutely clear principle that we will not raise taxes for people with low and ordinary incomes. It will not happen, not even for a temporary period,” Dragsted said.
He added that if the threshold freeze is used as a financing mechanism, the money raised from lower-income households must be returned to them through larger tax reductions.
The position does not necessarily mean that Enhedslisten opposes the government’s overall food-tax policy. Dragsted has argued that the effects of the threshold freeze should be assessed together with the planned reduction in VAT, which would represent a larger share of spending for households on lower incomes.
SF defends the package but cannot guarantee the timing
SF, which joined Frederiksen’s government after the June election, has defended the proposal on similar grounds.
Tax and finance spokesperson Sofie Lippert called the threshold freeze a reasonable way of financing the VAT reduction and argued that working-class households should ultimately gain when both measures are considered together.
“It is financing for the VAT reduction on food,” Lippert told DR.
But she would not guarantee that the threshold freeze will only take effect once the lower VAT is in place. She said the intention of the government programme is for the measures to operate in parallel, while acknowledging that their exact order has not yet been settled.
Minister for Taxation and Growth (Skatte- og vækstminister) Jakob Engel-Schmidt of Moderaterne made a similar point shortly after taking office in June. He said there could be a temporary mismatch between measures while the new VAT system is being prepared, without committing to identical implementation dates.
The uncertainty is therefore becoming almost as politically important as the eventual distributional effect of the reform.
The complete tax package produces a different picture
The Cepos figures concern the threshold freeze when considered separately. Previous calculations by the think tank, also reported by DR, found that all of the household categories examined would ultimately have more disposable income once the government’s entire tax package was implemented.
A typical working family, for example, was estimated to receive around DKK 8,700 (€1,164) a year in net tax reductions under the complete package.
That distinction is central to the government’s defence. Its argument is that analysing the threshold freeze alone does not capture the effects of cheaper food and the other tax changes.
The political dispute, however, concerns both distribution and sequencing. If the tax increase begins before differentiated VAT can technically be introduced, lower and middle-income households could face a period in which the cost arrives before the compensation.
With the VAT changes not technically possible before 2028, negotiations over the implementation timetable will determine whether the government can keep together the two parts of its argument: raising revenue through the tax system while ensuring that households with ordinary incomes ultimately come out ahead.
