Danes Overhaul Generous Welfare State

April 29, 2013

More than a year ago, a political stunt by a Danish politician revealed the lavish quality of life for Danish welfare recipients. A liberal member of parliament convinced a political opponent to visit a single mother of two on welfare to see how difficult it was. The revelation, that the woman was living better than many full-time workers, has led the Danes to rethink their welfare system, says the New York Times.

  • The 36-year-old single mother of two, nicknamed Carina, had been on welfare since she was 16 and was receiving about $2,700 a month.
  • The story of Carina helped tip the scales of the political debate about whether the Danish welfare state had become too generous.
  • To avoid undermining the country's work ethic, Denmark has been overhauling entitlements with little political opposition.

Denmark, a country with an aging population and high unemployment, has like the rest of Europe suffered from a depressed economy. The result has been a low labor force participation rate as many university students, young pensioners or welfare recipients rely on government aid.

  • The reforms have opened the eyes of many unemployed who no longer expect the generous subsidies that have made the Danish population "the happiest in the world."
  • Denmark has one of the highest marginal income tax rates in the world, with the top bracket of 56.5 percent kicking in on incomes more than about $80,000.
  • The high tax rates allow the country to provide free health care, free university and hefty payouts to every citizen.
  • Parents receive quarterly checks for childcare and the elderly get free maid service under the current system.

Demographic changes and the generous benefits have led the Danes to tinker with corporate tax rates, consider new public sector investments and begin efforts to wean citizens off government benefits.

  • Only 47 percent of the total population worked in 2012 and many of those who did worked short hours with all the perks, including an unofficial $20 an hour minimum wage.
  • Only three of Denmark's 98 municipalities will have a majority of residents working in 2013, suggesting that the current welfare state cannot continue forever.

The government has already reduced various early retirement plans and plans to cut subsidies for students, reduce the welfare rolls by cutting grants and stricter reviews and eliminate disability payments in favor of rehabilitation.

Source: Suzanne Daley, "Danes Rethink a Welfare State Ample to a Fault," New York Times, April 20, 2013.

 

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