Tag Archives: cuts

Danes make welfare a hot election issue as cracks show in Nordic model

92-year old Aase Blytsoe, who has dementia, sits in her apartment in Aarup, Denmark, May 28, 2019. REUTERS/Fabian Bimmer

By Jacob Gronholt-Pedersen

COPENHAGEN (Reuters) – The Nordic welfare model, long the envy of many across the world seeking an egalitarian utopia, is creaking.

Aging populations have led to politicians across the region chipping away at the generous cradle-to-grave welfare state for years. In Denmark, next week’s election could prove a turning point as frustrated voters say: No more.

Danes, like citizens of other Nordic nations, have largely been happy to shell out some of the highest taxes in the world, seeing them as a price worth paying for universal healthcare, education and elderly services.

However, spending cuts by successive governments to reduce the public deficit have led to more people paying out of their own pockets for what used to be free.

“We pay very high taxes in Denmark, and that’s alright. But in return, I think we can demand a certain service,” said pensioner Sonja Blytsoe.

Her 92-year old mother, who has dementia, was told by her local council in the central Danish town of Assens that the cleaning of her small apartment at a nursing home would be almost halved to 10 times a year.

Her mother, who lives off her state pension of 9,000 Danish crowns ($1,350) per month, could not afford to pay the roughly 1,000 crowns a month for a private cleaning firm, Blytsoe said.

In an illustration of the simmering public anger at such cuts, the council’s move sparked an outcry on social media that prompted the prime minister to comment on the case in parliament and the decision to be reversed.

The erosion of the welfare state has now become a defining issue in the June 5 general election in a country where people hand over an average 36% of their personal income to the state each month.

Opinion polls indicate Prime Minister Lars Lokke Rasmussen of the Liberal Party will lose power to Mette Frederiksen of the center-left Social Democratic Party.

Frederiksen’s Social Democrats have won popular support by pledging to increase public spending, making businesses and the wealthy pay more toward welfare services through higher taxes, and to partially roll back some recent pension reforms by allowing people who have worked 40 years to retire earlier.

However Rasmussen has accused his rival of being in “the business of selling dreams”.

“Either you’ll leave voters massively disappointed, or leave an enormous hole in the treasury,” he told Frederiksen about her pension plans during a TV debate earlier this year.

DANES GO PRIVATE

The Nordic model has been held up as the gold standard for welfare by many left-leaning politicians and activists globally.

It featured in the last U.S. presidential election campaign, for example, when Democratic candidate Bernie Sanders pointed to Denmark as a model for his vision of an ideal American future.

However the tough choices confronting Denmark are reflected across Nordic nations faced with a generation of baby-boomers creeping into retirement. Voters feeling a rising sense of insecurity are increasingly pressuring politicians to safeguard their cherished welfare model.

In Finland, the Social Democrats came out on top in an April election, for the first time in 20 years, after campaigning on tax hikes to meet the rising costs of welfare.

In Sweden, one of Europe’s richest countries, support for the nationalist Sweden Democrats surged in last year’s election on the back of fears over immigration and welfare.

Nordic countries still top other high-spending OECD countries like the United States, Germany and Japan for public spending per capita on social benefits targeted at the poor, the elder, disabled, sick or unemployed.

Denmark itself spends a higher proportion of its wealth on public welfare than most European countries, at 28% of GDP, behind only France, Belgium and Finland.

But many Danes are distressed at the way things are going following two decades of economic reforms.

Cuts to healthcare services, which include everything from free doctor appointments to cancer treatment, have led to the closure of a quarter of state hospitals in the past decade alone.

A recent survey showed that more than half of Danes don’t trust the public health service to offer the right treatment. As a consequence the proportion of the 5.7 million Danish population taking out private health insurance has jumped to 33% from 4% in 2003, according to trade organization Insurance & Pension Denmark.

Other cuts over the past 10 years have led to the closure of a fifth of state schools, while spending per person above 65 years on services such as care homes, cleaning and rehabilitation after illness has dropped by a quarter.

Since the early 2000s, governments have also pushed through unpopular measures to encourage people to work longer.

They include gradually increasing the retirement age to 73 – the highest in the world – in decades to come from 65 currently, phasing out early retirement benefits and cutting unemployment benefits to two years from four.

Click here for interactive graphics illustrating the pressures on the welfare model: https://tmsnrt.rs/2LYT6ME

SPENDING CONTEST

While the policies have generated economic growth averaging 1.6% since 2010 – above the EU average – and sound public finances, the election could mark a change of direction.

Frederiksen says she will increase public spending by 0.8% per year over the next five years – the equivalent of 37 billion Danish crowns in 2025 – to buttress welfare.

“The reason you can’t agree to spend the money needed to keep the current (welfare) level is that you want to set aside money for tax cuts,” she told Rasmussen during the TV debate.

Frederiksen is however bound by a 2012 law not to allow a public deficit of more than 0.5% of GDP, much stricter than EU rules setting the ceiling at 3%.

Her message about increased spending is nonetheless going down well with the public, along with a tougher stance on immigration which has also helped her win voters from the anti-immigration Danish People’s Party.

Rasmussen has argued that an acceptable level of welfare can be achieved in part by technological advances and letting more private players into areas like health and elderly care.

But this month, in a change of tack to address voters’ concerns, he announced a new plan to raise public spending by 0.65% a year – almost the same rate as the Social Democrats.

‘NOT ENOUGH PEOPLE’

With government debt at 49% of GDP, way below the OECD average of 111%, and a budget close to being balanced, there is room to raise welfare spending, according to economists.

However Jan Stoerup Nielsen at Nordea said certain election promises, such as those by both candidates to come up with 1,000-2,000 new nurses, were unrealistic at a time of record high employment of 2.77 million, or 97% of those able to work.

“The problem is that there’s not enough people,” he added. “There is not much politicians can do at the moment. You can say you want a thousand new nurses in the hospitals, but they are nowhere to be found,” he added.

He warned more public spending risked overheating the economy and hurting growth down the line if more people shifted from the private to public sector.

Pensioner Blytsoe said that when her mother’s services were curbed, she did her best to tidy up the apartment when she visited, but refused to do the regular cleaning previously offered by the state.

“If I did that, the municipality would’ve achieved their goal to cut costs and make us fill the gap.”

(Reporting by Jacob Gronholt-Pedersen; Editing by Pravin Char)

U.S. House gives final approval to tax bill, delivers victory to Trump

President Trump celebrates with Congressional Republican on the South Lawn of the White House.

By David Morgan and Amanda Becker

WASHINGTON (Reuters) – The Republican-controlled U.S. House of Representatives gave final approval on Wednesday to the biggest overhaul of the U.S. tax code in 30 years, sending a sweeping $1.5 trillion tax bill to President Donald Trump for his signature.

In sealing Trump’s first major legislative victory, Republicans steamrolled opposition from Democrats to pass a bill that slashes taxes for corporations and the wealthy while giving mixed, temporary tax relief to middle-class Americans.

The House approved the measure, 224-201, passing it for the second time in two days after a procedural foul-up forced another vote on Wednesday. The Senate had passed it 51-48 in the early hours of Wednesday.

“We are making America great again,” Trump said, echoing his campaign slogan at a White House celebration with Republican lawmakers. “Ultimately what does it mean? It means jobs, jobs, jobs.”

Trump, who emphasized a tax cut for middle-class Americans during his 2016 campaign, said at an earlier Cabinet meeting that lowering the corporate tax rate from 35 percent to 21 percent was “probably the biggest factor in this plan.”

It was uncertain when the bill would be signed. White House economic adviser Gary Cohn said the timing depended on whether automatic spending cuts triggered by the legislation could be waived. If so, the president will sign it before the end of the year, he said.

The administration expects the waiver to be included in a spending resolution Congress will pass later this week, a White House official told reporters.

BUSINESS FRIENDLY

In addition to cutting the U.S. corporate income tax rate to 21 percent, the debt-financed legislation gives other business owners a new 20 percent deduction on business income and reshapes how the government taxes multinational corporations along the lines the country’s largest businesses have recommended for years.

Millions of Americans would stop itemizing deductions under the bill, putting tax breaks that incentivize home ownership and charitable donations out of their reach, but also making tax returns somewhat simpler and shorter.

The bill keeps the present number of tax brackets but adjusts many of the rates and income levels for each one. The top tax rate for high earners is reduced. The estate tax on inheritances is changed so far fewer people will pay.

Once signed, taxpayers likely would see the first changes to their paycheck tax withholdings in February. Most households will not see the full effect of the tax plan on their income until they file their 2018 taxes in early 2019.

In two provisions added to secure needed Republican votes, the legislation also allows oil drilling in Alaska’s Arctic National Wildlife Refuge and removes a tax penalty under the Obamacare health law for Americans who do not obtain health insurance.

“We have essentially repealed Obamacare and we’ll come up with something that will be much better,” Trump said.

Democrats were united in opposition to the tax legislation, calling it a giveaway to the wealthy that will widen the income gap between rich and poor, while adding $1.5 trillion over the next decade to the $20 trillion national debt. Trump promised in 2016 he would eliminate the national debt as president.

“PILLAGING”

“Today the Republicans take their victory lap for successfully pillaging the American middle class to benefit the powerful and the privileged,” House Democratic leader Nancy Pelosi said.

Opinion polls show the tax bill is unpopular with the public and Democrats promised to make Republicans pay for their vote during next year’s congressional elections, when all 435 House seats and 34 of the 100 Senate seats will be up for grabs.

“Republicans will rue the day they passed this bill,” Senate Democratic leader Chuck Schumer told reporters. “We are going to continue hammering away about why this bill is so unpopular.”

U.S. House Speaker Paul Ryan defended the bill, saying support would grow for after it passes and Americans felt relief. “I think minds are going to change,” Ryan said on ABC’s “Good Morning America” television program.

A few Republicans, a party once defined by fiscal hawkishness, have protested the deficit-spending encompassed in the bill. But most voted for it anyway, saying it would help businesses and individuals while boosting an already expanding economy they see as not growing fast enough.

In the House, 12 Republicans voted against the tax bill. All but one, Walter Jones of North Carolina, were from the high-tax states of New York, New Jersey and California, which will be hit by the bill’s cap on deductions for state and local taxes.

Despite Trump administration promises that the tax overhaul would focus on the middle class and not cut taxes for the rich, the nonpartisan Tax Policy Center, a think tank in Washington, estimated middle-income households would see an average tax cut of $900 next year under the bill, while the wealthiest 1 percent of Americans would see an average cut of $51,000.

The House was forced to vote again after the Senate parliamentarian ruled three minor provisions violated arcane Senate rules. To proceed, the Senate deleted the three provisions and then approved the bill.

Because the House and Senate must approve the same legislation before Trump can sign it into law, the Senate’s late Tuesday vote sent the bill back to the House.

Graphic: Republican tax bill’s tax brackets and rates – http://tmsnrt.rs/2BJnrIV

Graphic: U.S. debt level since 1950 – http://reut.rs/2B3Yl3C

(Reporting by David Morgan and Amanda Becker; Additional reporting by Richard Cowan, Roberta Rampton, Gina Chon and Susan Heavey; Writing by John Whitesides; Editing by Jeffrey Benkoe and Bill Trott)