Home-Job Plan, Denmark
Since 1 June 2011 it has been possible to deduct expenses to craftsmen and domestic helpers with €2,000 (DKK 15,000) per member of the household over 18 years of age through a pilot project called Home-Job Plan. The project runs until the end of 2013. The expenses that it is possible to deduct include payment for cleaning, indoor/outdoor maintenance of the house, gardening and babysitting. The goal is threefold: to prevent undeclared work in homes, to create jobs in construction and to encourage house owners to install CO2-friendly energy solutions.
The Home-Job Plan, which is based on a bill in the Parliament, is implicitly related to the economic crisis that started in 2008. The bill implements the part of the Agreement of 18 May 2011 between the then government (Liberals and Conservatives), the Danish People’s Party and the Christian Democrats for a Home-Job Plan, which establishes a tax deduction for expenses paid for support and repairs at home.
Growing unemployment among the short-time educated and a tighter family economy combined with a traditionally high tax burden make up a clear risk that undeclared work increases significantly among self-employed one-person companies, micro and small companies in construction specialising in the repair and maintenance of houses. Thus, the drivers behind the bill were to prevent increased undeclared work or do-it-yourself work by offering a tax deduction for the user of home services. Furthermore, the short-term unemployed would find work in the micro and small companies that would be able to fill the order book. It also counted that a similar measure had been a success in Sweden.
The objectives of the measure, involving a tax deduction of 15% for each person of the household above 18 years of age for work done at home, is to prevent widespread, small-scale undeclared work in private homes made by bogus self-employed persons in, for instance, construction and paid by crisis-hidden family incomes; to promote new jobs and work for micro and small companies in the construction sector; and to encourage house owners to choose a green energy-saving solution, for instance, the installation of solar panels with support of the tax deduction of the work done (not including the materials).
The measure was implemented on 1 June 2011 and will run as a pilot project until the end of 2013. The housework covered by the tax deduction involves house cleaning, including windows; indoor and outdoor maintenance, including new installations; gardening; and babysitting, including bringing and picking up children from school.
According to the enclosed text of the bill, there is no accurate basis for evaluating the costs of introducing a deduction for home services. It is pointed out that a renovation pool of €200 million (DKK 1.5 billion), which was set up temporarily in 2009 as part of the so-called Spring Package 2.0, where it was possible to receive a grant of up to DKK 15,000 to cover the craftsmen’s wages, was emptied in a very short time.
After reflux and effects on labour supply, the borrowing requirement is estimated (with some uncertainty) as €134 million (DKK 1 billion) in 2011 and around €234 million (DKK 1.75 billion) in 2012 and 2013.
The measure is financed through cuts in the state sector – the Effective Administration scheme that involves every ministry cutting 5% of their expenses. Subsequently, 950 employees in ministries and agencies have been made redundant. The financing and also the Home-Job Plan itself met with strong criticism from some economists and part of the political opposition. The critics found that the measure would only favour those who would make changes in their homes anyway, i.e. the effect on undeclared work was very uncertain. Furthermore, it was criticised that the financing through cuts in another sector was very problematic.
The measure was passed by a majority in the Parliament. The social partners were not consulted in this case, which they normally would be in labour market issues. The measure is targeted especially at micro and small companies in construction, such as plumbing and heating, electricity and building. The expenses and the company involved are informed digitally by the buyer of the services to the tax authorities (called TAX) in a special template, who then deduct 15% of the amount in the yearly tax or fiscal income.
Outcome of evaluations: lessons and conclusions
Achievement of objectives
Based on the expectations, the pilot project has so far been a success. 270,000 people used the deduction in 2011 and by far most of the deducted wages took place in construction. The digital communication solution has worked in perfect order, according to TAX.
Furthermore, the initiative of a tax deduction for home services – also called the ‘craftsman deduction’ – was very well received by the trade association, the Danish Federation of Small and Medium-Sized Enterprises (Håndværksrådet, HVR), which is an important political interest organisation for small craftsman enterprises. Apart from regretting that the deduction of €2,000 is much lower than in Sweden, where it is €6,600, in a press release from August 2011 HVR praises the new initiative on behalf of the small companies. According to the association, a big advantage of it is that it is not a single pool, supplied on a first come, first served basis, but is an option the companies can take advantage of continuously.
In a press release from February 2012, the employer organisation, the Danish Construction Association (Dansk Byggeri), expressed great satisfaction with the measures and pointed out the positive influence on the decreased spreading of undeclared work (although without giving any precise numbers).
Obstacles and problems
The measure requires a well-functioning digital tax system, an administratively simple solution and a willingness of the public to use it. Red tape would probably be a severe obstacle for the measure to function in practice.
A special payment module secures, in one action, the payment of the service, the deduction on the tax return of the buyer and reporting the income on the financial statements of the person performing the work. The action involved for the buyer of these services resembles an ordinary payment transfer, and the system does the rest. According to TAX (press release 21 March 2012), the digital solution has been a significant success. Less than 1% of the citizens notified TAX of their deduction on special paper forms. TAX calls this a breakthrough for digital communication between citizens and the public. It is the target that all communication between citizens and the public is digital in 2015.
The administrative solution ensures that payment is perceived as simple and safe. The scheme is thus ‘self-monitoring’, because too high a deduction for the purchase will result in too high a tax on the person who does the work. The parties have concrete conflicting interests.
Precise indicators regarding employment factors, i.e. the number of workers and entrepreneurs involved, are not yet available.
According to TAX (March 2012), more than 270,000 people benefited from the scheme in 2011. On average, they reported deductions of approximately €1,315 (DKK 9,800) per person. In total, the deductions reported constitute approximately €362 million (DKK 2.7 billion). The tax value of those deductions is around €121 million (DKK 900 million).
TAX also notes that they have received more reports from citizens about undeclared work than ever.
A similar home service measure has been a success in Sweden and Finland and there are reasons to believe that it could be taken in all EU countries with certain national adaptations.
SKAT (the Danish tax authorities, TAX):
The Rockwool Fund:
The Danish Federation of Small and Medium-seized Enterprises (Håndværksrådet, HVR)
The Danish Construction Association (Dansk Byggeri)
At the time of writing (August 2012), the centre-left government, which came into office in September 2011, has proposed to cut the period of the pilot project to the end of 2012 instead of the end of 2013, as planned. The issue will be taken up during the coming negotiations about the national Budget. The Liberals are against. Also, the reaction from HVR has been sharp since this is clearly to the disadvantage of their members.
Hvidtfeldt, C., Jensen, B. and Larsen, C. (2010), Danskerne og det sorte arbejde. [Undeclared work and the Danes – the Rockwool Fund 2010], Syddansk Universitetsforlag, Rockwool Fund.
Skatteministeriet (2011), ‘Forslag til lov om ændring af lov om hjemmeservice’, available at https://www.retsinformation.dk/forms/R0710.aspx?id=137316.
Carsten Jørgensen, FAOS, University of Copenhagen