Why Danes Appreciate the High Danish Income Tax Rate

12th June 2020

Among many things, Denmark is known for being an expensive country in which its residents pay a high rate of income tax. However, it’s also known as being the home of some of the world’s happiest people. According to the UN’s annual World Happiness Report, Denmark is always among the top spots of the world’s happiest places. So why are the people who get taxed the most so happy? We explore why Danes actually appreciate the high Danish income tax rate.

The Danish Income Tax Rate

In Denmark, residents pay multiple taxes to the state and their municipality. Combined, the average Dane pays tax at a rate of around 45%. This led to Denmark having the highest share of taxes related to income and wealth, at 28.9% of GDP in 2019.

Why the Income Tax Rate in Denmark is Accepted by Danes

Despite being asked to pay one of the highest rates of income tax in the world, the Danish are in general a happy people. There are many reasons why this could be, but one is thought to be because of how the welfare state works in Denmark.

Danish taxes are put towards an extensive social security network so that every resident is well-provided for at all times of life. Services from education right through to retirement are subsidized.

How Danish taxes are spent

The Danish government has long been committed to investing in the quality of life of its people. This means the residents know that their tax money is being spent on valuable resources, and consider their payments as an investment in society. There are a wealth of the benefits available to Danes because of the country’s welfare system.

Education

Denmark has an enviable education system in which tuition is free – including at university. This means individuals can explore their preferred career path and interests, without having to worry about mounds of debt at the end. Ultimately, this results in a well-educated society in which residents feel valued and fulfilled, having been able to choose their own path.

Student grants

Not only is education itself free, but each university student is also given around $900 per month from the state. This is to help pay for student life and expenses such as accommodation, food, and other bills.

danish students

Parental leave

In Denmark, new parents can enjoy up to 52 weeks of paid leave when they have a child. The mother is entitled to four weeks prior to the birth, and 14 weeks afterwards. The father is entitled to two weeks following the birth, and then an additional 32 weeks can be split between both parents.  In Denmark, family life is greatly valued, and therefore the state seeks to make it easier for parents to be with their children as much as possible.

Annual leave

Most Danish employees enjoy a generous yearly holiday allowance of five weeks. This allows workers to spend time with their families and/or take multiple trips abroad.

The Danish annual leave policy ensures that residents have plenty of time away from the responsibilities of work, during which they can rest or take time for personal activities. There is a big focus in Denmark on bettering oneself, whether this is with sport and fitness, family time, cultural activities or something else.

Health care

Denmark’s Health Law is centred on the goal of achieving universal access to healthcare.  The principle is to provide free and equal healthcare to all, with the cost of the majority of services being paid for through the welfare system, via taxes.

Knowing that medical care and costs are taken care of by the state puts Danish citizens at ease because it means they won’t find themselves with an unaffordable health bill after treatments and care.

Subsidized childcare

Danish parents are asked to pay around 30% of nursery fees for their children, with the remainder of the cost being financed by the state. By offering low childcare fees, parents are free to return to work as soon as they wish after having a baby, without needing to worry about paying for childcare.

Childcare costs are a considerable cause of stress for parents in other countries, who often need to debate between the financial advantages of returning to work or that of not paying high nursery fees.

danish childcare

Pensions & Elderly Care

When citizens reach retirement age, the welfare state provides them with a generous pension. For over 65s, this works out to around 8,000 krone per month ($783) before tax. As well as this, those who don’t have an additional pension or any other income also receive additional benefits such as lower prices for medicine and lower tax rates.

Anyone aged over 65 who has been widowed is regularly assessed to see if they require extra help, and those aged over 80 are entitled to home visits. Knowing that such support is available after retirement is another reason why Danes are not afflicted with stress and worry as they get older.

 

In Denmark, it is widely considered that the vast benefits afforded by the welfare system greatly outweigh the high Danish taxes. The fact that every individual knows that they will be taken care of in various ways throughout their lives makes it far easier to pay an average of 45% tax. Learn more about tax laws and other employment considerations in Denmark, or about the interesting tax laws of Norway.