Denmark’s National Reform Programme European Social Conference, Brussels 19 th. and 20 th. September 2011 Ole Meldgaard, EAPN Denmark.

Denmark’s National Reform Programme

European Social Conference, Brussels 19th. and 20th. September 2011Ole Meldgaard, EAPN Denmark

1- Objective of the Danish NRP

To identify key structural reforms with significant macroeconomic effects to ensure sustainable and growth promoting policies and reforms which enable the consolidation of public finances and support a higher level of growth and employment

2 - Five headline targets of NRP (I)

Denmark shall:

• be among the 10 richest countries in the world by 2020 measured in GDP pr. capita

• have a total labour supply among the 10 best countries in the world

• be among the most innovative countries in the world

2 - Five headline targets of NRP (II)

• ensure sustainable growth

• be among the three most energy efficient countries in the world

3 - Targets for employment, education, poverty and social inclusion (I)

• 80 per cent structural employment rate for the age group 20 - 64

• Less than 10 per cent school drop out rates of the population aged 18 – 24

3 - Targets for employment, education, poverty and social inclusion (II)

• At least 40 per cent of the population aged 30 – 34 having completed tertiary or equivalent education

• Reducing the number of people in households with low work intensity

4 - Key challenges ahead for Danish economy (I)

• To strengthen growth prospects by increased labour supply and higher productivity growth and competitiveness

• To strengthen public finances that has weakened considerably in connection with the financial crisis. A large government surpluses in 2008 (3.2 per cent of GDP) have turned into a significant deficit around 70 billion DKK (2.7 per cent of GDP) because of fiscal loosening, Gross government debt 44 per cent of GDP compared to 87 per cent in the Euro-zone

4 - Key challenges ahead for Danish economy (II)

• Weak productivity growth. Although employment has increased, the growth in prosperity was 1999 – 2009 second lowest among OECD countries widening the gap to the most productive countries, partial explanations: many with weak LM experiences entered the LM 1993 – 2008, weak innovative performances, weak competition in service and construction industries, lending difficulties for small and medium-seized companies

4 - Key challenges ahead for Danish economy (III)

• As a small open economy Denmark is sensitive to interest rate changes and vulnerable to financial turmoil

• Economic stability is dependent on international confidence in the financial sector in Denmark

• To introduce a new spending management system based on binding spending ceilings for the central government, municipalities and regions

4 - Key challenges ahead for Danish economy (IV)

• Demographic pressures on employment and public finances, the generations of retiring will be larger than those entering the labour market, labour supply is reduced by 65.000 fulltime persons and 225.000 more on old age pension by 2020 – answers: LM reforms, tax reforms, retirement reform, faster studies (median age at entry in higher education 22.1 years in Denmark compared to 21.1 years in Norway and 19.8 years in the Netherlands)

• Without reforms: decreasing structural employment and continuing low growth, around 1 per cent per year

5 - Scenarios for public finances

• No reforms to strengthen government revenue and if real public consumption grows as in the past 30 years: 2.5 per cent deficit of GDP in 2020 and 6.5 per cent in 2030.

• The annual increase in government consumption is reduced by half compared to the past 30 years: a public deficit of 1.25 per cent of GDP in 2020 and 2.5 per cent in 2030

6 - 2020 goals on public finances

• To ensure structural balance on public finances

• To ensure fiscal sustainability and reduce the risk of conflicting with the 3 per cent GDP limit of EU Stability and Growth Pact

7 - Fiscal consolidation agreement in Parliament

• 90 per cent of the fiscal expansion in 2009 and 2010 is pulled back.

• Stable public spending until 2013

• Labour market reforms to strengthen labour supply

8 – Employment (I)

• From 1998 to 2008 employment frequency has increased from 76.9 per cent to 79.9 per cent - and dropping to 77.8 per cent in 2009 for 20 – 64 aged

• The percentage of men aged 15 – 29 has increased from 74.1 in 1998 to 74.7 in 2008 and dropping to 68.8 in 2009 – women 68.8 per cent in 1998 to 70.9 per cent in 2008 and dropping to 68.5 in 2009

8 – Employment (II)

• For aged 55 – 59 the percentage of employed men has increased from 75.6 in 1998 to 84.3 in 2008 and dropping to 82.6 in 2009 – for women from 59.6 in 1998 to 74.5 in 2008 and 74.4 in 2009

• For aged 60 plus the percentage of men has increased from 39.7 in 1998 to 45.8 in 2009, for women from 21.1 to 27.3

• Unemployment and long term unemployment are relative low and employment quite high

8 – Employment (III)• Unemployment 3.3 per cent in 2008, 2010 7.4

per cent. 300.000 unemployed in 1996, to 100.000 in 2008, today 150.000 unemployed. 50.000 long term unemployed from 150.000 in 1996, almost no long term unemployed in 2008

• Wage costs increase faster than abroad although productivity growth has not followed

• Wage competitiveness has deteriorated since 2000 compared in particular to Germany. Manufacturing industry wage costs are higher than in most OECD countries harming competitiveness

8 – Employment (IV)

• Wage setting is agreed collectively between the social partners on the labour market and at company level

• However surplus on current account as a result of improved terms of trade and oil and gas production reducing net energy imports

• Labour supply is reduced by 66.000 people towards 2020, the population grows by 150.000 people, from 2010 to 2020 225.000 more people on old age pension

9 - Employment targets and

strategies(I)• Strengthening of labour supply and employment

• Target - 80 per cent structural employment for the age group 20 – 64 by 2020, now 76.1 per cent

• Strategies – Reforms to strengthen incentives to work and measures to integrating vulnerable groups, including young people, elderly, ethnic minorities (Danish language training, company apprenticeships and employment subsidies) and disabled persons

9 - Employment targets and strategies(II)

• A fall in the average study period

• Ensuring the attachment to the labour market for as many people as possible during the crisis

• Adjustment to the flexicurity model, increasing flexibility and increasing assistance to people under notice

9 - Employment targets and strategies(III)

• Prolonging working life, more people must work more and longer; employment rate for 60 – 64 years is 40 per cent

• Reform of old age pension system

10 - Labour market reforms (I)

• 2002 the level of social assistance is reduced after 6 months for married couples, a general ceiling for the amount of social assistance

• 2005 repeated activation every 6 months for social assistance recipients with problems besides unemployment – a spouse which has not had a job within the last two years with a minimum of 300 hours ordinary work loses entitlement to social assistance

10 - Labour market reforms (II)

• 2006 Agreement to ensure that a higher life expectancy postpones pension age – eligible age for voluntary early retirement is gradually increased from 60 to 62 years of age during the period 2019 – 2022

• 2008 The right to incapacity benefits in combination with work, improved opportunities for pensioners to work, tax deduction for 64 olds in employment

10 - Labour market reforms (III)

• 2009 Focus on bringing down absence due to sickness

• 2009 Tax reform with lower marginal tax rates, lowering the upper marginal income tax rate and increasing the threshold for paying upper marginal tax – postponed for 3 years

10 - Labour market reforms (IV)• 2010 Action plan on long term unemployment,

education and improving of skills in reading, writing and arithmetic, job specific re-qualification

• 2010 Unemployment benefit reform reducing the benefit period from 4 years within the last 6 years to 2 years within the last 3 years

• 2010 Increased focus on enterprises based on-the-job training with higher state reimbursement rate (50 per cent) compared to other guidance and qualification upgrading (30 per cent), a common ceiling on operating expenses for self chosen education

10 - Labour market reforms (V)• 2010 Encouraging young people to finish studies

faster

• 2010 Disability pension reform, people under the age of 40 shall not be eligible for disability pension, instead support to with a view to their further development, support to finding a job

• 2011 Agreement on advancing part of the 2006 reform raising early retirement age from 2014 and public pension age from 2019, voluntary early retirement scheme is abolished totally for people under 45 years in 2010, transition arrangements for 45 plus years

11 - Education targets (I)

• Reduce the school dropout rate to 10 per cent for 18 -24 year olds

• Increase the percentage of 30 – 34 year olds having completed a tertiary education to at least 40 per cent

• By 2015 at least 95 per cent of all young people have completed an upper secondary education and at least 50 per cent have completed a higher education

11 - Education targets (II)

• Targets for the primary and lower secondary school system: 1) All children must be able to read by the end of 2nd. Grade, 2) What 9th. grade pupils can to today, they must be able to do in 8th. grade tomorrow, 3) Fewer pupils in special needs education, 4) Recruitment of teachers among the best students, 5) Introduction based on scientific knowledge, not habit, 6) Pupils, parents and school board must, to a larger extent, contribute to the Folkeskole’s development, 7) Clear objectives and transparency with regard to results to minimise the need for controlling in detail

12 - Target for social inclusion (I)

• Aiming at maintaining the position in Europe with the lowest income inequality and which are best at creating equal opportunities for everyone in year 2020

• A firm affiliation to the labour market is the best safeguard against poverty and social exclusion

• Target: Reducing the number of people in households with low work intensity by 22.000 towards 2020

12 - Target for social inclusion (II)

• 2008 app 347.000 Danes lived in households with low work intensity, 60 per cent of these are students, recipients of anticipatory pension or children – 8.5 per cent of households of people aged 0 – 59, not students

• Strategies to reach the target: the welfare and employment system: guidance and qualification, on-the-job training and employment with subsidies, training places for young people, to ensure a greater number of residents in Ghetto areas finds employment, initiatives towards young single mothers

12 - Target for social inclusion (III)

• 2.5 pages in the NRP; half page in the Commissions report

• No mentioning of poverty

• No mention of child poverty and other sub-objectives

13 - Poverty in Denmark (I)

• At-risk-of-poverty (13.1 per cent) or exclusion rate 17.4 per cent (Eu 23.1 per cent) of total population (60per cent of median income)

• Immigrants and descendants 41.3 per cent

• Materiel deprivation 2.3 per cent

13 - Poverty in Denmark (II)

• In-work-poverty 5.9 per cent of persons employed

• Risk-of-poverty for children 13.9 per cent

• Risk-of-poverty for elderly 20 per cent

13 - Poverty in Denmark (III)

• 234.000 poor people in Denmark (50 percent of median income), increased by 55 per cent since 2002

• Long-term poor (3 year and more) has increased by 62 per cent since 2002

13 - Poverty in Denmark (IV)

• Long-term poor children increased by 65 per cent since 2002, 14.600 children

• In ghettoes in the big cities 20 – 25 per cent are poor (ghettoes characterised by immigrants, unemployment), number of poor in ghettoes increased by 60 – 80 per cent since 2002

14 – Participation (I)

• A contact committee is set up with members of ministries and organisations, including organisations representing social dimension

• No participation from civil society, poverty organisations or social partners in drafting the NRP

14 – Participation (II)

• Ministerial process only

• No local collaboration

• Two days to respond on the NRP

• No public debate about NRP

15 - Reaction of the EU, recommendations (I)

• Implement fiscal consolidation measures in 2011, 2012 and 2013

• Strengthen expenditure control with spending ceiling for local, regional and central government

15 - Reaction of the EU, recommendations (II)

• Phase out the early retirement pension scheme

• No recommendation on poverty and exclusion