The Organisation of Economic Cooperation and Development (OECD) says that Denmark’s economy is still vulnerable, competitiveness has deteriorated over the past decade and reforms are needed to foster growth, but the Danish economy also has some strengths.

In its Economic Survey on Denmark, the OECD says that the economy has so far been recovering only slowly and unevenly from the unwinding of a “massive domestic property boom and the global crisis” that erupted in 2007/2008 and suggests that income tax, and particularly the marginal tax rate should be relaxed and property tax increased when the property market stabilises.

“The main challenge is to secure the necessary space for policies to cope with potential further adverse shocks by sticking to the current plans and to bring about strong, sustainable and greener growth,” the OECD says.

The organisation says that Denmark’s main challenge is deteriorating competitiveness, which in turn is slowing growth and job creation.

The OECD recommends that the government introduce reforms to reduce income tax, and in particular top-end tax, in order to get more Danes to work more.

Although the international economic crisis poses new risks for Denmark, the OECD says that the Danish economy also has strengths, saying that fiscal policy is ‘relatively healthy’.

The organisation praises Denmark for having begun reforms of the early retirement scheme and the pensionable age, as well as the government’s kick-start to create more jobs. But the OECD says more is needed and suggests that public expenditure for health and education should be streamlined and that the government could consider more stringent budget requirements if local government fails to keep to budget.

While the OECD does see benefits in Denmark’s green growth policies, it raises a warning flag on costs.

“Denmark’s green growth ambitions might translate into new sources of growth, but energy and climate change policies need to be reviewed to achieve better results at low cost,” the OECD says.

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