The Danish Experience

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by Knud Tholstrup, University of Bergen 1974

Sensational practical experience in taxation of land values was gained in Denmark in the years 1957-60 when the Danish Justice Party, promulgating land value taxation, free trade and equal rights, formed a so-called ‘land tax’ government, together with the Social Democrats (Labour) and the Radicals (Liberals). The three parties made an agreement based on the following:

1. Collection of land rent
2. Liberalisation of trade: including closing the Department of Supply and Import Control
3. A tax freeze

Although the Justice Party was the only member of the triumvirate of parties forming government to have agitated and worked for the introduction of land value taxation, the election programs of all three parties did include a land tax on the growth in land values.

Thus it was generally expected after formation of the government that some kind of land value taxation would be introduced – with the result that land speculation ceased immediately.

Legislation on taxation of increased land values was prepared, presented to parliament and passed with effect as from the new land value assessment of 1960.

Economic effects of the cessation of land speculation were astounding and aroused widespread attention. On the 2nd October, 1960, the New York Times editorialised:

Big Lesson From A Small Nation

Prior to the 1957 election, Denmark had a sizeable deficit on her balance of payments, was in considerable debt abroad, and burdened with a relatively high interest rate, high unemployment and an annual rate of inflation of approximately 5 per cent. Devaluation threatened.

Economic reaction

The following improvements took place in the next three and a half years (1957-60), contrary to what was occurring abroad:-

1. The big balance of payments deficit was turned into a surplus
2. Denmark’s total debts abroad amounting to 1,600 million kr. were reduced to one quarter of this, to about 400 million kroner
3. Interest rates, and rents in new housing, declined
4. Unemployment was soon replaced by virtual full employment, together with considerable increases in production and wages
5. Inflation was brought to a standstill
6. All wage increases were real wage increases- the highest ever in Denmark
7. There were no new taxes during the three and a half years
8. The Department of Supply was closed down. In 1960 all import restrictions were lifted and duties cut
9. There was a period of industrial peace, with no ‘strike’ activity

Public opinion polls run at the time showed the relationship between satisfied and dissatisfied voters, before, during and after the three-party government. “Undecided” answers have been omitted:-

Survey Results

  Satisfied voters Dissatisfied voters
Before 1957 25% 75%
1957/60 82% 18%
After 1960 20% 80%

Opposition

At the general elections in 1960, however, the opposition started a program directed solely against the smallest party in the triumvirate – the Justice Party’s nine-man group -and used the hitherto largest sum ever in any Danish election campaign, financed by land-owner associations and conservatives. With its limited financial resources, and lacking support from the daily press, the Justice Party could not withstand the attack. The party lost half its vote, and was unable to collect the numbers required for representation in parliament.

Agitation against land tax legislation continued after the election and the new, enfeebled government acceded – and in the face of strong pressure from land-owner associations promised that the new law would be repealed. This was carried out in 1964 before long term benefits of the reform could be secured.

As a result, the following took place:-

1. The current account surplus became a deficit
2. The deficit on the balance of payments 12 years later was 3-4 billion kroner
3. By 1976 debts abroad amounted to 20,000 million kroner, 50 times more than under the triumvirate
4. The effective rate of interest doubled
5. Land prices jumped sky-high. Denmark’s overall land price rose from 17 billion kroner at the assessment of 1960 to 67 billion in 1969
6. Rents in new housing by 1975 were six-fold those of The Justice Party’s period
7. The rate of inflation rose from barely 1 per cent to 5-7 per cent. It was 8.6 per cent in 1965, the year following repeal of the land tax law in 1964
8. Taxes began to escalate again

Significance

A comparison between the three periods, before, during and after the so-called “land tax government,” gives a clear picture of the importance of eliminating land speculation and unearned increment in land.

As there was no longer any unearned income – incomes only resulting from production – the balance between the purchasing power and amount of goods was restored. Inflation therefore came to a halt because it received no nourishment.

These exceptional developments in Denmark’s economy in the three periods mentioned demand the greatest attention – and should be the subject of intensive study by economists and laymen interested in the national economy. The practical experience should form the basis of revised political evaluation of the importance and strength of truly free enterprise and a freed up national economy.

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