On 9 May 2022 the IMF issued a report following discussions with Denmark under Article IV of the IMF’s articles of agreement.

The economic recovery is likely to continue in Denmark, with the lifting of restrictions introduced during the pandemic and a rebound in private spending and investment. Growth is projected to be around 3.2% in 2022 but decreasing to 1.5% in 2023, as lower demand from trading partners will reduce exports. There are continuing downside risks from the Ukraine war and sanctions, and from possible developments in the pandemic.

The report recommends that owing to the high leverage in mortgage borrowing by households there should be measures on housing supply and reforms to taxation. These should include a reduction in the deductibility of mortgage interest and a reform to property tax.

The IMF report considers that measures should be taken to improve the labour supply and to encourage more involvement of the young, low skilled and foreign-born people in the labour market. An increase in the labour supply is essential for long-term sustainability of the economy. The current pension reform defining indexation of the statutory retirement age to life expectancy is also important for maintaining the labour supply and this should be borne in mind by the government in reviewing the pension system.

The report considers that to further encourage people to participate in the labour market the high marginal tax rates should be lowered, and there should be adequate incentives for people to remain in the labour market instead of taking early retirement. Denmark could expand the “positive list” of skilled positions experiencing a labour shortage, to enable more skilled professionals to be recruited from outside the EU or EEA if necessary.

The report notes that Denmark is using the recovery from the pandemic as an opportunity to boost investment and productivity. The environmental and digital transition is a chance for increased investment and the report considers that green and digital public investment should be raised efficiently, in compliance with Denmark’s medium-term objectives.

The report welcomes the government proposals to strengthen carbon pricing but considers that other fiscal incentives are appropriate, including feebates (the use of fees and rebates to improve allocation of the costs of negative externalities). A speedy decision in relation to the carbon tax framework would encourage green investment by the private sector. The carbon tax revenues could be used to help the transition to a greener economy.

Further policies in support of growth could include support for entrepreneurship through adjustments to the taxation of start-up companies and high technology enterprises. The tax adjustments for these firms could include changes to the rules on carry-forward of tax losses and changes to dividend taxation. The introduction of an Allowance for Corporate Equity could also be considered. The tax incentives for research and development (R&D) should be maintained and relevant to a wide range of enterprises including small and medium enterprises (SMEs). The government should also promote more collaboration with business by universities.

The report considers that the regulation of pension funds should be reviewed so that investment incentives can be improved within the limits imposed by the requirements on exposure to risk. Denmark should also continue to implement measures for investment vehicles through which pension funds and public resources are invested in SMEs.