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The restoration package(Taxwatch (Tax news in english)) 

The Government has come to terms with its support party on an economic package that should involve a restoration of the public economics.
The overall aim is to reduce public expenditures with DKK 3 billion over the next 3 years.

This aim should be achieved by the below four main initiatives:

1) The operating expenses in the public sector must not increase over the next 3 years.
2) The automatic indexation of tax deductions and transfer income are suspended and are kept unchanged in DKK’ for the next 2 years.
3) The planned increase of the income bracket for top tax in 2011 will be postponed 2 years.
4) The public budgets will be reviewed in order to find arrangements that can be reduced or terminated    

For a family with two children where both spouses are working, the restoration package will according to our calculations have the following economic impact.

In 2011 the family’ excess expenses will be between DKK 2,000 and 10,300 depending on weather the married couple pay top tax or not. In 2012 the excess expenses will be between DKK 2,400 and 13,100 and in 2013 between DKK 3,000 and 16,700.

The excess expenses – which per month is between DKK 166 and 1,390 - is primarily caused by a combination of further tax and a reduction of the child support amount. For all 3 years the excess expenses will be between DKK 7,400 and 40,100.

In the above calculation, the possible effect of non indexation of the income brackets for share income and capital income are not taken into account. Likewise it is not taken into account that the rates for unemployment subscription and “afterwagecontribution” are kept unchanged in the same period. Also the effect of the limitation of deduction for professional subscriptions has not been taken into account.

Within each income group the excess expenses will “amount wise” be the same. In a family where both spouses earn DKK 40,000 per month the excess expenses due to the restoration package will be exactly the same as for a family where both spouses earn DKK 75,000 per month.

According to the restoration package the period where unemployment benefits can be obtained is reduced from 4 years to 2 years.

Questions regarding the above can be addressed to Hans-Henrik Nilausen at hhn@bdo.dk