Kent Petersen: Rethink payroll taxes and maintain Danish jobs
To get straight to the point, we can’t get away with not reviewing our fee and tax system, says President of Finansforbundet Kent Petersen.
Whether it is specific carbon taxes or more fundamental reforms of our tax system, we need to think smarter and more long-term.
That is why we need broad cooperation so that we have a stable foundation to act on, regardless of which political party is in power.
We have an inappropriate balance in some tax areas which can unnecessarily affect employment.
In the financial sector, the payroll tax is a clear example.
In short, the tax means that the sector must pay a tax to the state corresponding to 15.3 per cent of the total payroll costs.
Costs 5,000 to 10,000 jobs in Denmark
The problem is not that the sector needs to contribute to society.
The problem is that when the tax is placed on labour, companies can achieve significant savings by moving jobs abroad or replacing personal advice with digital solutions – solely because of the payroll tax.
Copenhagen Economics estimated years ago that the tax on its own costs 5,000 to 10,000 jobs in Denmark.
Whether we are at the lower or higher end of the estimate, it is not an insignificant loss of jobs and revenue for the state treasury, which would amount to around DKK 6 billion if we assume it is 10,000 jobs.
Fintech companies can be pressured to relocate
The financial companies are becoming more and more digital, which means that the geographical location of companies is becoming less critical.
The companies can offer digital solutions in Denmark but have the employees located in another country.
This way they can avoid taxes that are aimed at salary expenses.
We see several examples of Danish fintech companies where investors are pushing for a relocation just to save the 15.3 per cent in taxes.
We need to adapt our outdated thinking about taxes to a digital world in industries where you can move companies out of the country relatively easily.
The outlying areas are also affected
The payroll tax not only has an impact on a socio-economic macro level and on the fintech industry’s ability to create new jobs.
Fewer employees also has consequences for bank customers. Fewer employees means less time for advising.
The payroll tax also hits the smaller, local banks the hardest, because it is precisely those banks that have the highest need for labour through a local branch network.
In contrast, the large banks serve international customers via employees placed abroad.
What is payroll tax?
Companies that sell non-VAT goods or services - e.g. the financial sector - are subject to payroll tax.
In the financial sector, the payroll tax corresponds to 15.3 per cent of the total payroll costs.
A consequence of this is that the number of bank branches has halved since the turn of the millennium.
The closures have hit the outlying areas particularly hard, where the distance to a bank branch is getting farther and farther.
We need to have the courage to re-think things for the workplaces of the future
If Denmark is to continue to benefit from a strong financial sector, there is a need for new thinking.
And if Denmark is to really be part of the rapidly growing fintech sector, we need to support the companies - not put an extra tax on the workforce that will help develop the solutions of the future.
As a prosperous and thoroughly digitised society, we cannot miss the chance to support an industry that has huge potential for creating Danish jobs in the future, and at the same time we should not incorporate new rules that send jobs out.
Jobs should be kept within the country’s borders - there should be broad political agreement on this.
So now we just need the political action, which can hopefully be anchored to promote Danish jobs.
We are happy to play a role in the debate with proposals for what a more balanced tax system might look like.