Employers demand tax cuts

Collective bargaining outcomes and the government intervention to settle the major industrial dispute in spring 1998 have led to a level of company-level pay increases which is damaging to Danish competitiveness, according to the Danish Employers' Confederation (DA). Therefore, in November 1998 DA called on the government to introduce tax cuts to improve the situation of companies.

According to the Danish Employers' Confederation (Dansk Arbejdsgiverforening, DA), Danish competitiveness is suffering. As a result of the outcomes of the 1998 collective bargaining round, and the Government intervention to settle the widespread industrial dispute in the spring (DK9807178F), the rate of pay increases has been rising. DA's latest pay statistics show that wages and salaries increased by an average of 4.6% from the third quarter of 1997 to the third quarter of 1998 - a rise in the rate of pay increases of half a percentage point in the past six months.

"Denmark is on the wrong course," stated DA's managing director, Jørn Neergaard Larsen, in November 1998, and there is an acute need to remedy this situation. DA proposes the introduction of a tax reduction to improve the financial situation of companies, as the only quick method of halting the deterioration of competitiveness. DA thus proposes that the government reform the "labour market contributions" which are paid by both employees and employers. If employers were not obliged to pay their share of 0.6% of the wage bill, this would result in a total reduction in the amount payable by the companies to the Treasury of DKK 3.8 billion.

Mr Larsen referred to the pledge previously made by the government that the employers' labour market contribution would be scrapped completely or partially if the competitiveness of companies deteriorated. "We have been in this situation for the past three years," said the DA managing director.

The employers believe that the Government is partly to blame for the deterioration in competitiveness, by taking too long to introduce the new labour market reform (DK9810187F) and by failing to take initiatives such as limiting access to passive welfare schemes. According to DA, the Government's failure to take any such initiatives has contributed to the labour shortage which is the most direct cause of the increasing pressure on wages and salaries.

The Government's explanation for the high pay increases is that companies have been too compliant and have agreed excessively high local pay increases. Jan Kæraa, the chief economist of the Danish Federation of Trade Unions (Landsorganisationen i Danmark, LO), shares this view. He states that the companies have apparently felt that there was room for pay increases. LO is, moreover, of the opinion that the rate of pay increases has now peaked. Therefore, it will not support DA's proposal for tax reductions for companies. "This proposal comes as a surprise and is not currently on the political agenda," says Mr Kæraa.

Within the above-mentioned average pay increase of 4.6% per annum, the DA pay statistics show an annual pay increase for blue-collar workers of 4.9%, whereas the pay of white-collar workers increased by 4.3%.