A Paradigm Shift in Danish Politics

The phrase "paradigm shift" is so commonly used by political wonks and journalists that it is sometimes difficult to know what it precisely means. Along with parties needing to "re-engage with core voters" and "appraising the old settlement" it is one of the phrases trotted out to explain particular events. Yet, there is only one way to describe what has happened in Danish politics in recent weeks - there really has been a paradigm shift.

The Last Decade

Since the centre right coalition of the Liberals and the Conservatives came into power in 2001, Danish politics has been fairly predictable. Taxes were frozen, public sector spending slowly but steadily increased, there was a budget surplus each year and (save for a little traditional tinkering around the edges) the traditional Danish public sector systems were maintained. There was the occasional small giveaway but, most importantly, there should be very few losers from the country's fiscal policy. This could all be done as the economy was expanding, first steadily in the early part of the decade and then at a roaring pace in the middle of the decade.

And these fiscal policies proved popular. So popular, in fact, that the Social Democrats needed to launch their own version of the tax freeze to stand a chance against the government. The upshot of all this was that traditional fiscal issues became secondary election issues ,with voters focusing instead on what can be described as value issues. Top of this list was immigration and assimilation with the centre right government adopting tight controls with the aim to restrict the number of non EU-migrants. The Social Democrats argued against these for some times, until they realised that they were risking their core working class vote - and then it became simply an issue of who could propose the toughest but fairest policy.

So what were the issues being fervently discussed? Well, a substantial amount of one of the main election debates in 2007 on Danmarks Radio (the public service broadcaster) was allocated to conditions for the transportation of animals. Now, your author is as keen on our furry friends being treated respectfully as the next person, but the fact that this was explored in such detail shows the consensus on "tax and spend" issues which traditionally dominate elections. And when these issues were discussed, you found yourself hunting for a cigarette paper to put between most of the parties' policies.

The Effect of the Downturn

This consensus could carry on as long as tough decisions could be avoided. And tough decisions could be avoided as long as the economy kept growing and an increasingly large cake could be cut amongst all parts of society. However, and as other European countries are finding out, when the cake doesn't grow tough decisions need to be made about how the cake is to be split.

The economic downturn hit Denmark hard. Firstly, the country had an asset and debt bubble similar to that which caused the crisis in other countries. Prices for flats in Copenhagen almost trebled in the decade from 1997 to 2007, but have since fallen sharply. Household debt is high and likely to be a brake on growth in the short to medium term. Secondly, as a small, open and export driven economy, Denmark was always going to be hit by the worldwide downturn, particularly given the problems that major export markets like the United States, the United Kingdom, Germany and Sweden have suffered.

The effect of the downturn can also be seen in the state of the public finances, which changed quickly from a healthy surplus to a significant deficit. The 2010 expected figures show an expected deficit of around 5.5% of GDP - impressive only when compared to certain other countries. Denmark has worked hard to pay down its national debt in recent years and even the most recent figures show this at well under 40% of GDP. Having worked so hard to pay down the debt, though, it would be irresponsible to let it simply balloon - and in any event, nobody wants to be carrying excessive budget deficit given investors' current sovereign debt concerns and willingness to test vulnerable countries.

Were The Right People Hit?

Thus it was no surprise when the government announced its plans to limit spending which have now taken concrete shape following discussions with its support party, the Danish People's Party. The government have made great stock about the fact that every taxpayer will have to pay their share. Tax allowances (which generally increase in line with inflation) have been frozen for two years. The significant increase in the top tax threshold planned for 2011 has been postponed for three years.

The above measures would hit the wealthy in particular but other measures hit the less well off. The period where extra unemployment insurance is available will be cut from four to two years and child benefit will be capped per family, meaning significant reductions for those with more than three children.

The trade unions are unsurprisingly dissatisfied, saying that they prefer the centre left's proposed solution of extending the standard working week by one hour and introducing an extra top rate on those earning more than 1 million Kroner (around 135,000 Euros) a year. Overall, the whole debate has proved that subsidies and benefits are easy to grant but very difficult to take away with parties arguing their corner with impressive vigour.

With the next election due in a maximum of 18 months time, the debate on who should pay the price for the cuts will run and run. After nearly a decade of consensus and a dearth of tough fiscal decisions to be made, Danish politics has fundamentally changed. The topic of who pays for, and benefits from, the welfare state is well and truly back on the agenda and with it the classic left-right dividing lines (which had seemed to disappear) have resurfaced. Expect our furry friends to play a far less prominent role in next year's election debates.