Economic Development in Denmark Before and During the World War/Recent Fiscal Measures

Recent Fiscal Measures

The measures instituted to help the lower classes of the population out of all these difficulties could not have been carried through, of course, without imposing great burdens on the state and municipalities. The result is a very great increase in taxes and an enormous growth of the public debt, as well as a deficit in the national budget which it may be very difficult in the future to make good. Danish legislators, like those of all countries, have had to use all their wits to create new sources of revenue. It would be too much of an undertaking to go through all their legislation, but a few outstanding features may be mentioned.

During the nineteenth century the income tax was a municipal assessment; only under certain extraordinary circumstances did it become a state tax. Originally the principle on which it was based was that of a proportionally equal tax for all. In the early part of the century (1810) a tax of 4) per cent. per annum was established on all incomes, with a deduction or exemption of 320 kroner ($86) applying to every income. Later on the exemption was somewhat enlarged. An act of February 19, 1861, relating to taxes in Copenhagen, fixed the same percentage upon all incomes exceeding 2,400 kroner ($643); smaller incomes were taxed on a decreasing scale, and those below 800 kroner ($214) were exempted altogether. Orthodox economists in the middle of the last century considered such taxation just; some, indeed, maintained that the rich ought to pay proportionately less, because they caused the treasury less trouble. Even such men as John Stuart Mill would not hear of a progressive income tax; and the famous English Income Tax, which has been a model for similar taxation outside the boundaries of the United Kingdom, was not so constructed as easily to admit of a sliding scale. The modern trend of thought is obviously that the individual does not stand as an isolated member of society who receives a service from the state and pays for it, but is a member of an organism who, according to his power, contributes to a common purpose.

It would be extremely interesting to follow more closely this change of opinion which is the basis of the transition to the modern system, with its progressive rates applying especially to persons with very large incomes. Simultaneously with this change of opinion we find in many places, step by step with the advance of socialistic ideas, the centre of gravity removing from indirect to direct taxation. In Denmark this is seen in the Customs Act of 1908, which is one of the few liberal customs acts we now have. The real transition began in 1903, with a change in the entire fiscal system by levying an income and property tax for the state (after the deduction of a certain small untaxable income) of 13 per mille on the lowest income and 25 per mille on the highest, the increase to stop only at 100,000 kroner. The property tax was fixed at 0.6 per mille on the value of the property.

These taxes became the starting-point for the later legislation. In 1909, on account of the Defence Acts, income and property taxes were raised, and three years later they were raised again, when the property tax ranged from 14 to 50 per mille, i.e. double the maximum of 1903. The income tax now ranges from 0.67 to 1.25 per mille.

The same principles were applied to inheritance taxes. The act of 1861 provided a progressive rate according to the relationship of the heirs but without regard to the size of the estate. This was changed in 1908, and the tax now had a moderate progression. It was considerably increased in 1915. During the war the rapidity of legislation gave people little time to consider the various proposals that were submitted. Principles went by the board. It was all-important to discover sources for direct or indirect taxes. No originality could be displayed, the given models were followed and money was taken wherever it could be found. To this extent there was something to go by, as the war circumstances had created unprecedented fortunes and incomes, on which the state naturally had its eye. Indirectly, taxation was imposed by an act of 1915 introducing a stamp-tax on the transfer of bonds, the so-called Exchange Act which was increased in 1916 and made to yield several millions; directly, by various acts increasing the tax on incomes and property. The rates were raised in 1915, further an extraordinary provisional income tax law was passed providing that the taxpayer should pay, besides his usual income-tax, a considerable tax on the amount by which his present profits exceeded his average profits for the three preceding years. In 1916 the law was amended so that the Excess Profits Tax for very great incomes rose as high as 25 per cent. The following year a provisional supplement was added to the income and property tax applying to incomes of over 6,000 kroner and fortunes over 20,000 kroner at a rapidly progressive rate.

Besides these there was a series of indirect taxes. The remarkably low duty on gin had been raised in 1912, and in 1917 it was raised again. In the same year an additional duty was also imposed on wine, and a tax was imposed on cigars and cigarillos, and an increased tax on cigarettes. That the municipalities also devised new plans for taxation can occasion no surprise. Finally, the autumn of 1918 brought a long list of proposals for the establishment of new taxes and the increase of the old taxes, in order to enable the government to make both ends meet. Outside of all this we have further the measures mentioned above, as the duty on the export of cattle, a duty which had its special purpose.

On the whole the outstanding feature of the modern system of taxation in Denmark lies in a certain principle of equivalence; as in the age of mercantilism, several duties were used to cover special expenses. A duty was imposed upon the Life Insurance Companies for their control, another upon the Savings Banks to cover their control, another for censorship of theatres determined in the licences, and still another for inspection of boilers, etc. An act of 1916 provided that the shipping trade should contribute toward the supplies of the country, partly in tonnage, which through the Council of Freight should be procured as cheaply as possible, and partly in money, a sum of 11,000,000 kroner being imposed in proportion to the taxable incomes of the companies.