Recovery underway in Denmark, but reforms needed to maintain high living standards and ensure sustainability of social welfare system.

Denmark’s economic prospects are improving, but further reforms are needed to maintain the country’s high living standards and ensure the well-being of all citizens, according to a new report from the OECD.

The latest Economic Survey of Denmark points out that Danish growth has been weak in recent years, causing it to lose ground to its regional peers during the global recession and since. The Survey recognises reforms that have been launched to boost productivity and economic growth, but says more can still be done to boost competition and improve skills across the workforce.

The Survey points out that Denmark’s household debt is among the highest in the OECD. Given today’s expansive monetary policy, it recommends that steps be immediately taken to mitigate the risk of a new bubble in the housing market.

Macroprudential policy tools that address the inter-connectedness of the financial sector and tax policies that eliminate biases in favour of housing and credit can both play a role in limiting wider financial sector risks, the Survey said.

The Survey discusses new policies and strategies for ensuring the sustainability of Denmark’s “flexicurity model,” which combines efficiency-enhancing market forces with high-quality public services and an encompassing social net. It notes that social protection is high, but expensive.

Removing obstacles to employment for all benefit recipients with some capacity for work would make growth more inclusive and improve long-term sustainability of the welfare system. This can include combined benefit and tax reform, to “make work pay” for unemployed workers who return to the labour force, as  well as pension system reforms that provide greater incentives for older workers to stay in the labour force.

Tighter monitoring of work requirements for social assistance recipients, limiting disability pension payments to those with a permanent incapacity to work and boosting the efficiency of the delivery of social services will also improve sustainability.

Read the full report: www.oecd.org
 

Source: www.oecd.org/newsroom

Graphics: OECD Economic Survey of Denmark 2016