The tax freeze

Kristian Jensen

Minister for taxation

The tax freeze

• Comprehensive and clearly defined

• No taxes or excise duties can be raised

• Only a few, well-defined exceptions – and the taxpayers get their money back by matching tax cuts

What they predicted:

• Run out of money

• Growing popular dissatisfaction

What happened?

• Record budget surpluses

• Single most popular policy, supported by all major parties

Why so successful?

• Strong economy, not tax hikes, is the key to sound government finances

• The tax freeze as a credible commitment

The tax freeze

• the benefits clearly outweigh the costs  

• the cost is having not to raise taxes

A plan for further tax cuts:

The two constraints

• Fiscal sustainability

• Avoid “overheating”

The constraints

Business cycle considerations not necessarily the most binding constraint:

• Tax cuts reduce excess demand, if capacity effect exceeds demand effect

• Fiscal sustainability requirement: kr 1 per kr 1 tax cut

• Business cycle requirement: øre 50 per kr 1 tax cut

Tax cuts

• its about freedom of choice

Economic freedom

• it is not only about taxes