Wednesday

8th Jul 2020

Coronavirus

Denmark: How a 'high-tax' state responds to coronavirus

  • Prime minister Mette Frederiksen. Denmark's salary package is just one out of many swift decisions taken by the government over the past weeks (Photo: Nordic Council of Ministers)

A week ago (Sunday 15 March), Danish companies could breath a small sigh of relief, as prime minister Mette Frederiksen announced a new economic help package.

The package was negotiated between the government and social partners in a record time of just 24 hours.

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  • Family hotel Dania in Silkeborg is empty due to the coronavirus measures. (Photo: Mie Olsen)

It offers to cover 75 percent of employee salaries in businesses under budget pressure from the Covid-19 pandemic. For staff paid by the hour, the maximum coverage is 90 percent.

"Hold back the walking papers [redundancy notices]", appealed Frederiksen during the press conference. Her initiative aims at avoiding mass firings in times of income uncertainty, where especially the hospitality industry, the export sector and trade markets suffer.

On Friday 13 March, Danish schools officially closed and most public-sector workers were sent home for a two-week period.

Four days later, the police prohibited public gatherings with more than 10 persons and ordered all restaurants, cafes and hairdressers to shut down until the end of the month.

Not surprisingly, that has been quite a blow for independent business owners in terms of their customer base.

Trying to keep staff on

One of them is Henrik Jørgensen, a successful restaurateur from Silkeborg. His family owns Hotel Dania, Hotel Himmelbjerget and the restaurant Underhuset. They are currently experiencing a near-total collapse in revenue due to the forced closures.

Jørgensen believes the government help to be vital for the survival of small businesses in times, where Danes stay home to prevent a national spreading of Covid-19.

"We sent all our staff home on the new compensation package, where we get 75 percent of their salary including benefits covered by the state," he says.

The only other alternative had been to un-employ his staff temporarily and leave them with their designated unemployment benefits [called "dagpenge" in Denmark] - an option that would obscure the cooperative relationship between owner and staff, as the latter would not be legally obliged to come back upon re-opening.

As part of the new package, everyone contributes to maintaining existing contracts. While the state pays three-quarters, Henrik provides the last 25 percent of the salary. In return, each of his around 30 employees give up five paid vacation days.

"It is important to support our workers. Now, they remain permanently on stand-by, until the wheels start turning again. A valuable way of showing, that we stand together," he explains.

The state's salary compensation runs from March to June, and the target group is companies, who have to lower their work force with 30 percent or fire more than 50 persons.

The monthly payment cap is set to 23,000 DKK [€3,077] for regular employees and 26,000 for the hourly-paid.

'Force Majeure': so many unknowns

Denmark's salary package is just one out of many swift decisions taken by the government over the past weeks.

On Thursday (19 March), all parties spanning from the Liberal Alliance on the right to the Red-Green Alliance on the left agreed to spend a potential three-digit billon amount to steer Denmark through the costs of the corona-lockdown.

That includes financial help to freelancers and students, compensation for fixed expenses such as rent and easier access to state-guaranteed loans.

Yet, the political speed seemingly comes at a cost of judicial and administrative transparency. Allan Nielsen, manager for Forenede Hotelservice who cleans hotels all over the country, still awaits the final details of the proposal.

"We are very much affected, and our active staff has been reduced to 85-90 percent. The current 'force majeure' [unforseen circumstances] lasts until 29 March. While the salary package is very attractive for us, we still need to calculate the pros and cons, once it is finalised," he says.

In his view, there is no doubt that the administrative burden for the public sector in the wake of these packages is going to be huge.

However, Denmark is privileged to have a pro-active government. "They are doing an amazing job addressing our challenges. It is encouraging to see our democracy working in unity," Nielsen notes.

Short-term vs Long-term

Currently, the public finances of the Danish welfare state are in good condition, according to economist Lars Christensen. In that light, the modest boost offered through the help package is insufficient, he believes.

"We need to separate between a fix of the immediate issues and supporting the economy at large. The salary package is all about the former. The government hasn't initiated any fiscal stimulus. I believe it should in order to create trust amongst consumers and investors that this crisis won´t be long-term," he says.

Specifically, Christensen suggests to increase the purchasing power of each individual Dane by releasing frozen holiday allowances and issuing a check for 1,000 DKK per month until the country experiences two quarters of production growth.

He projects that the corona virus can cost Danish society a GDP drop of six percent.

According to a recent survey by the organisation SMVdanmark, more than two-thirds of small companies (up to 20 employees) risk bankruptcy within the next 10 weeks.

The organisation criticises the current government plan for not allowing people to work while receiving compensatory salaries and for not covering 100 percent for stores on forced closure.

Jørgensen remains optimistic. To him, the help package sends a strong symbolic signal. "It creates positivity and a national community feeling of being able to cope with this crisis collectively," he says.

As of writing, the current number of infected people in Denmark is 1396 with 13 fatalities, according to the Statens Serum Institut.

Author bio

Mie Olsen is a Danish freelance journalist and writer specialising in EU-affairs, climate stories and macroeconomic reporting.

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