Home improvements subsidy, Denmark

About

Country: 
Denmark
Sectors: 
Construction and woodworking
Target Groups: 
otherworkers/suppliers

 

The law on subsidies for carrying out home improvements (Tilskud til forbedring af boliger) was in effect from 1991 to 1995. The actors involved in the implementation of the subsidy included the Danish Enterprise and Construction Authority, as well as construction and building companies registered for value-added tax (VAT). The primary objective was to strengthen employment in the building and construction industry and to reduce the incidence of undeclared work.

 

Background

The law on subsidies for carrying out home improvements (Tilskud til forbedring af boliger) was in effect from 1991 to 1995. At the outset, the subsidy covered 40% of wage costs and profits. However, materials to carry out repair work in the home were not subsidised. The maximum subsidy was set at DKK 7,000 per household (about €939 as at 29 January 2008); this subsequently increased to a maximum threshold of DKK 10,000 (€1,342). In 1994, the subsidy was discontinued, but with some payments running into 1995. Total expenditure as a result of this subsidy amounted to DKK 5.3 billion (€711 million).

The actors involved in the implementation of the subsidy included the Danish Enterprise and Construction Authority (originally Bygge- og Boligstyrelsen, but renamed Erhvervs- og Byggestyrelsen, EBST), an agency under the auspices of the Ministry of Economic and Business Affairs (Økonomi- og Erhvervsministeriet), as well as construction and building companies registered for value-added tax (VAT).

The initiative began in January 1991 and came to an end in 1994, although some payments were carried over to 1995. The main target groups of the home improvements subsidy included employers and employees within the building and construction industry on the supply side, and people living in houses and flats on the demand side.

Objectives

The subsidy had two primary objectives:

  • to strengthen employment in the building and construction industry, since the Danish economy was experiencing a downturn at the time of the subsidy’s introduction;
  • to reduce the incidence of undeclared work.

Specific measures

The description of the home improvement subsidy is based on that presented by the EBST (then Bygge- og Boligstyrelsen) in 1992.

This scheme is a wage and profits cost subsidy. All residents in Denmark could use the scheme in order to lower the costs of wages in connection with energy-saving improvements to homes – such as fitting new windows or solar energy systems – water-saving improvements, as well as improvements to roofs, walls, windows, bathrooms, toilets, kitchens and electric installations. The subsidy was only paid with respect to wage costs and profits; materials to complete these works were not subsidised. A maximum subsidy of DKK 7,000 (€939) was introduced for each household. The subsidy was paid directly to the household.

The rules pertaining to the subsidy changed in April 1993, with the size of the subsidy being increased to 50% of wages and profits – a maximum of DKK 10,000 (€1,342) per household. In 1994, the subsidy reverted to the original level of 40% of wages and profits – DKK 7,000 (€939). Subsequently, in the same year, the subsidy was discontinued, although payments for subsidies that had already been granted were carried over to 1995. Total expenditure on the subsidy during its period of validity amounted to DKK 5.3 billion (€711 million).

Evaluation and outcome

The evaluation of the subsidy presented in this case study is based on two sources:

  • the Economic Survey 1995 (‘Budgetredegørelse 1995’) carried out by the Ministry of Finance (Finansministeriet);
  • the report entitled ‘The shadow economy in Denmark 1994. Measurement and results’ published by the Rockwool Foundation Research Unit in 1995.

Achievement of objectives

Strengthening employment in the building and construction industry

As noted in the Economic Survey 1995, it is very difficult to measure the total effect on employment as a result of the subsidy. According to the survey, it is clear that the subsidy has contributed to strengthening employment in the building and construction industry. However, it remains difficult to estimate how many of the subsidised home improvements would have been carried out regardless of households receiving the subsidy. The Ministry of Finance considers that there is a higher chance for home improvement activities to be carried out regardless of the subsidy when the economy is in a period of economic boom. It is estimated that the employment effect of the subsidy has decreased with the beginning of the economic boom in Denmark after 1993. In 1995, according to the ministry, labour shortages emerged within the building and construction industry in certain areas of the country. Thus, the ministry argued that a continuation of the subsidy would enhance the risk of intensifying the shortage of labour in this sector of the economy.

Providing an incentive to move from undeclared work to regular work

Mogensen et al (1995) has carried out a survey of undeclared work for the period 1988–1994. On the basis of the analysis, the extent of undeclared work amounted to 2.7% of gross domestic product (GDP) in 1988–1989, rising to 4.2% of GDP in 1991 and then falling to 3% of GDP in 1993 and 3.1% of GDP in 1994 (Mogensen et al, 1995, pp. 27–31). As an explanation for this development, the authors of the report (p. 30) state the following:

Part of the fall may be due to measurement errors in the 1991 survey results, which were surprisingly high compared with those for 1988–1989; but even so it seems that part of the change in level reflects a real fall in these activities. One possible explanation of this fall may be the generally improved economic climate, and in particular the system of grants for home improvements mentioned earlier.

 

 

 

Obstacles and problems

 

 

 

As noted above, the subsidy for home improvements seemed to have a positive effect on employment in the building and construction industry and a positive effect in reducing undeclared work. However, according to the Ministry of Finance (1995), there is a high risk that such subsidies would be wasted because certain home improvement activities would have been carried out irrespective of the subsidy. In addition, when an economy is experiencing a boom, the continuation of the subsidy could lead to labour shortages in the subsidised industries.

 

 

 

Impact indicators

 

 

 

The costs involved in the implementation of the subsidy programme were summarised in the Ministry of Finance’s Economic Survey 1995 (see table).

 

 

 







Costs incurred due to subsidy, 1991–1995
 

1991

1992

1993

1994

1995

Total

Cost in DKK million (€)

146 (€19.5)

821(€110.1)

1,505 (€201.9)

2,132 (€286.1)

615 (€82.5)

5,300 (€711.2)

 

 

 

Source: Ministry of Finance, 1995, p. 241

 

 

 

Transferability

 

 

 

It is most likely that a subsidy towards home improvements can to some extent help combat undeclared work and create new jobs in other countries as in the Danish case. However, as mentioned above, two aspects must first be taken into account: the high risk that such subsidies could be wasted because some home improvement activities would have been carried out irrespective of the subsidy; and the possibility of labour shortages arising in the subsidised industries particularly when an economy is experiencing a boom period.

 

 

 

Contacts

 

 

 

Main organisation responsible: Danish Enterprise and Construction Authority

 

 

 

Website: www.ebst.dk

 

 

 

Bibliography

 

 

 

Bygge- og Boligstyrelsen [Danish Enterprise and Construction Authority], Tilskud til forbedring af boliger [Subsidy for improvements of buildings], Boligministeriet, March 1992.

 

 

 

Finansministeriet [Ministry of Finance], Budgetredegørelse 1995 [Economic Survey 1995], 1995.

 

 

 

Mogensen, G.V., Kvist, H.K., Körmendi, E. and Pedersen, S., The shadow economy in Denmark 1994: Measurement and results, Copenhagen, Rockwool Foundation Research Unit, 1995, pp. 21–22 and 30–31.

 

 

 

Søren Pedersen

 

 

 

Useful? Interesting? Tell us what you think. Hide comments

Add new comment