REPORT FROM THE COMMISSION Denmark Report prepared in accordance with Article 126(3) of the Treaty
Date: 2015-11-16
Institutions: Directorate-General for Economic and Financial Affairs, European Commission
Subjects: Denmark, budget deficit, budgetary control, budgetary equilibrium, economic stabilisation, macroeconomics, public debt, stability pact, structural adjustment

EN 

   EN 

   EUROPEAN COMMISSION  Brussels, 16.11.2015  COM(2015) 801 final   REPORT FROM THE COMMISSION Denmark  Report prepared in accordance with Article 126(3) of the Treaty  
 
 
REPORT FROM THE COMMISSION 

Denmark 

Report prepared in accordance with Article 126(3) of the Treaty 

1. 

INTRODUCTION 

Article 126 of the Treaty on the Functioning of the European Union (TFEU) lays down the 
excessive deficit procedure (EDP). This procedure is further specified in Council Regulation 
(EC) No 1467/97 “on speeding up and clarifying the implementation of the excessive deficit 
procedure”1, which is part of the Stability and Growth Pact (SGP). 

According  to  Article  126(2)  TFEU,  the  Commission  has  to  monitor  compliance  with 
budgetary discipline on the basis of two criteria, namely: (a) whether the ratio of the planned 
or actual government deficit to gross domestic product (GDP) exceeds the reference value of 
3%  (unless  either  the  ratio  has  declined  substantially  and  continuously  and  reached  a  level 
that comes close to the reference value; or, alternatively, the excess over the reference value 
is only exceptional and temporary and the ratio remains close to the reference value); and (b) 
whether the ratio of government debt to GDP exceeds the reference value of 60% (unless the 
ratio is sufficiently diminishing and approaching the reference value at a satisfactory pace). 

Article 126(3) TFEU stipulates that, if a Member State does not fulfil the requirements under 
one or both of the above criteria, the Commission has to prepare a report. This report also has 
to  “take  into  account  whether  the  government  deficit  exceeds  government  investment 
expenditure  and  take  into  account  all  other  relevant  factors,  including  the  medium-term 
economic and budgetary position of the Member State”. 

This  report,  which  represents  the  first  step  in  the  EDP,  analyses  the  question  of  Denmark's 
compliance  with  the  deficit  criterion  of  the  Treaty,  with  due  regard  to  the  economic 
background and other relevant factors.  

Data  notified  by  the  Danish  statistical  authorities  on  13  October  20152  and  subsequently 
validated by Eurostat3 show that the general government budget balance in Denmark reached 
a surplus of 1.5% of GDP in 2014, while the general government gross debt stood at 45.1% 
of  GDP.  According  to  the  notification  by  the  Danish  authorities,  the  budget  balance  is 
planned to reach a deficit of 3.3% of GDP in 2015, thus exceeding the 3%-of-GDP reference 
value  in  the  Treaty,  while  the  debt-to-GDP  ratio  is  planned  to  decline  to  39.8%,  below  the 
60%-of-GDP  reference  value  in  the  Treaty  (see  Table  1).  The  draft  budget  bill  from  the 
Danish government, published on 29 September 2015, estimates a deficit of 3.0% of GDP in 

1  OJ L 209, 2.8.1997, p. 6. The report also takes into account the “Specifications on the implementation of the 
Stability  and  Growth  Pact  and  guidelines  on  the  format  and  content  of  stability  and  convergence 
programmes”, endorsed by the ECOFIN Council of 3 September 2012, available at: 
http://ec.europa.eu/economy_finance/economic_governance/sgp/legal_texts/index_en.htm . 

2  According  to  Council  Regulation  (EC)  No  479/2009,  Member  States  have  to  report  to  the  Commission, 
twice  a  year,  their  planned  and  actual  government  deficit  and  debt  levels.  The  most  recent  notification  of 
Denmark can be found at: 
http://epp.eurostat.ec.europa.eu/portal/page/portal/government_finance_statistics/excessive_deficit/edp_notif
ication_tables. 

3  Eurostat news release No 186/2015 of 21 October 2015. 

2 

 
 
 
                                                 
 
 
2015.  According  to  the  draft  budget,  the  deficit  is  expected  to  decline  to  2.8%  of  GDP  in 
2016, while the debt-to-GDP ratio is expected at 38.9% in 2016. 

This  is  confirmed  by  the  Commission  2015  autumn  forecast  which  projects  the  general 
government  deficit  at  3.3%  of  GDP  in  2015  and  2.5%  of  GDP  in  2016,  and  general 
government gross debt at 39.3% of GDP in 2016. 

Table 1. General government deficit or/and gross debt (% of GDP) 

The  planned  figure  for  the  2015  deficit  in  the  EDP  notification  by  the  Danish  authorities 
provides  prima  facie  evidence  on  the  existence  of  an  excessive  deficit  in  Denmark  in  the 
sense of the Treaty and the SGP, before however considering all factors as set out below.  

The Commission has therefore prepared the following report to comprehensively assess the 
excess of the deficit over 3% of GDP, in order to examine whether the reference value in the 
Treaty is complied with after all relevant factors have been considered. Section 2 of the report 
examines  the  deficit  criterion.  Section  3  examines  the  debt  developments.  Section  4  deals 
with  relevant  factors.  The  report  takes  into  account  the  Commission  2015  autumn  forecast 
released on 5 November 2015.  

2. 

DEFICIT CRITERION  

In  2015,  according  to  the  data  notified  by  the  Danish  statistical  authorities  to  Eurostat,  the 
general  government  deficit  is  planned  to  reach  3.3%  of  GDP,  against  a  surplus  of  1.5%  of 
GDP in 2014. The latest offical forecast from the Danish government, in the draft budget bill, 
points  to  a  deficit  of  3.0%  of  GDP  in  2015.  While  in  excess  of  3%  of  GDP,  the  planned 
deficit in 2015, according to the October 2015 EDP notification, is expected to remain close 
to the Treaty reference value. 

The  estimated  excess  over  the  3%-of-GDP  reference  value in  the  Treaty  can  be  considered 
exceptional.  In  particular,  It  results  from  an  unusual  event  outside  the  control  of  the 
government  in  the  sense  of  the  SGP,  notably  being  due  to  extraordinary  losses  related  to 
technical  errors  in  an  automatic  tax  collection  system,  EFI  (Et  Fælles  Inddrivelsessystem), 
which has resulted in an extraordinary depreciation of arrears in the period 2013-2015. On 7 
September 2015, the Danish tax authorities decided to suspend the automatic collection of tax 
arrears, due to legal concerns raised by the government's legal advisor (Kammeradvokaten). 
The government's legal advisor points out that the technical errors in the EFI-system not only 
have let tax arrears expire, but have in some cases also led to collection of arrears, where they 
had in fact already expired. The losses related to these errors, which were not foreseen by the 

3 

201420162017COMCOMOctober 2015 EDP notificationCOMCOMDeficit criterionGeneral government balance-3.6-1.31.5-3.3-3.3-2.5-1.7General government gross debt45.645.045.140.239.839.338.3Change in structural balance0.0-0.20.6-2.3n.a.-1.4-1.0Required MLSAn.r.n.r.n.r.n.r.n.r.n.r.n.r.Debt criterionSource: Commission services, and Commission 2016 autumn forecast, Excessive Deficit Procedure (EDP) notification for Denmark, October 2015201220132015 
 
 
Danish government, amount to an estimated 5 bn DKK in each of the  three years (0.3% of 
GDP). As no official estimate of the losses was known at the time of publication of the draft 
fiscal  bill  on  29  September  2015,  these  losses  have  not  been  included  in  the  latest  forecast 
from  the  Danish  government.  The  difference  of  0.3%  of  GDP  between  the  government's 
September  estimate  of  the  general  government  deficit  in  2015  and  the  October  2015  EDP 
notification is therefore fully explained by this issue. 

In sum, the planned general government deficit is close to the 3% of GDP and the expected 
excess over the reference value is exceptional and temporary in the sense of the Treaty and 
the  SGP.  In  particular,  the  budgetary  projections  as  provided  by  the  Commission  2015 
autumn forecast indicate that the deficit will fall below the reference value in the Treaty in 
2016. The deficit is still expected to remain below the reference value in 2017. This analysis 
suggests  that,  after  consideration  of  the  above  factors,  the  deficit  criterion  in  the  Treaty 
should be considered as currently complied with. 

3. 

DEBT DEVELOPMENTS 

The general government gross debt has generally been on a downward path over the last 20 
years.  However,  the  debt-to-GDP  ratio  increased  significantly  during  the  financial  crisis, 
from  a  level  of  27.3%  in  2007  to  46.4%  in  2011.  Since  2011,  the  debt-to-GDP  ratio  has 
continued  decreasing  moderately,  reaching  45.1%  by  the  end  of  2014  (-1.3%.  of  GDP 
compared  to  2011).  The  main  drivers  for  the  decrease  in  this  period  were  stock-flow 
adjustments and the positive primary budget balance in 2014 (see Table 2). 

The general government gross debt is expected to decline sharply, by around 5% of GDP, in 
2015.  The  decline  should  be  viewed  in  light  of  the  temporary  suspension  of  issuance  of 
Danish  government  bonds  as  from  the  end  of  January  2015  until  the  beginning  of  October 
2015. This extraordinary fiscal policy measure was taken in order to alleviate the appreciation 
pressure on the Danish krone, which arose in the beginning of the year, following the Swiss 
national bank's decision in mid-January 2015 to abandon its currency cap vis-à-vis the euro. 
The  central  government's  account  at  the  Danish  National  Bank  has  been  used  to  cover  the 
financing requirement in 2015. 

4 

 
 
 
Table 2: Debt dynamics 

4. 

RELEVANT FACTORS  

Article  126(3)  TFEU  establishes  that  the  Commission  report  “shall  also  take  into  account 
whether  the  government  deficit  exceeds  government  investment  expenditure  and  take  into 
account  all  other  relevant  factors,  including  the  medium-term  economic  and  budgetary 
position of the Member State”. These factors are further clarified in Article 2(3) of Council 
Regulation  (EC)  No  1467/97,  which  also  specifies  that  “any  other  factors  which,  in  the 
opinion  of  the  Member  State  concerned,  are  relevant  in  order  to  comprehensively  assess 
compliance with the deficit and debt criteria and which the Member State has put forward to 
the Council and to the Commission” need to be given due consideration.  

As  the  debt-to-GDP  ratio  is  below  the  Treaty  reference  value,  the  relevant  factors  shall  be 
taken  into  account  in  all  the  steps  leading  to  a  decision  on  the  existence  of  an  excessive 
deficit even if the excess over the 3%-of-GDP reference value is neither close nor temporary 
(as per Article 2(4) of Council Regulation (EC) No 1467/97). 

In view of the above provisions, the following subsections consider in turn (1) the medium-
term  economic  position;  (2)  the  medium-term  budgetary  position  (including  public 
investment);  (3)  the  developments  in  the  medium-term  government  debt  position,  its 
dynamics and sustainability; (4) other factors put forward by the Member State; and (5) other 
factors considered relevant by the Commission. 

5 

20122013201420162017COMCOMCOMCOMOctober 2015 EDP notificationCOMCOMGovernment gross debt ratio 45.645.045.140.239.839.338.3Change in debt ratio b (1 = 2+3+4)-0.8-0.50.1-5.0n.a.-0.9-1.0Contributions:• Primary balance (2)1.8-0.5-3.11.8n.a.1.20.5• “Snowball” effect (3)1.01.30.70.2n.a.-0.1-0.1of which:     Interest expenditure1.81.71.51.5n.a.1.21.2Real GDP growth0.30.2-0.5-0.7n.a.-0.8-0.7Inflation (GDP deflator)-1.1-0.7-0.3-0.6n.a.-0.6-0.6• Stock-flow adjustment (4)-3.6-1.32.4-6.9n.a.-2.0-1.4of which:Cash/accruals differenceNet accumulation of financial as.Valuation effect & residualNotes:Source: Eurostat and Commission 2015 autumn forecast,  Excessive Deficit Procedure (EDP) notification for Denmark, October 2015a In percent of GDP.b The change in the gross debt ratio can be decomposed as follows:where t is a time subscript; D, PD, Y and SF are the stock of government debt, the primary deficit, nominal GDP and the stock-flow adjustment respectively, and i and y represent the average cost of debt and nominal GDP growth. The term in parentheses represents the “snow-ball” effect, measuring the combined effect of interest expenditure and economic growth on the debt ratio.2015tttttttttttttYSFyyiYDYPDYDYD1*1111 
 
 
4.1.  Medium-term economic position 

Cyclical conditions and potential growth  

The  Danish  economy  has  experienced  a  rather  slow  recovery  from  the  global  economic 
recession in 2008-2009. GDP dropped sharply during the crisis, by 7.4% from the 4th quarter 
of 2007 to the 2nd quarter of 2009. The downturn was exercabated by an overheating of the 
economy in the years leading up to the crisis, with the bursting of a housing bubble leading to 
consolidation efforts among Danish households and subdued domestic demand. The legacy of 
the crisis has dragged out the recovery of the Danish economy, and GDP was still 3% below 
pre-crisis  levels  in  the  2nd  quarter  of  2015.  According  to  the  Commission  2015  autumn 
forecast, the recovery of the Danish economy has gathered speed lately and GDP growth is 
expected to pick-up from 1.1% in 2014 to 1.6% in 2015 and 2.0% in 2016.  

The potential GDP growth rate is also estimated to be picking-up in the years 2014-2017 after 
having reached a trough of 0.3% in 2012-2013. In 2015, the potential growth rate is estimated 
at 0.7% and is expected to increase to 1.1% by 2017, driven by positive contributions from 
labour  and increased,  but  still low,  contributions  from  capital  accumulation  and total  factor 
productivity. Despite the expected pick-up over the forecast horizon, the potential growth rate 
remains  at  a  low  level  from  a  historical  perspective.  The  historical  average  of  the  potential 
GDP growth rate (since 1966) is 2.0%, but the growth rate has been on a downward path over 
the whole period. The output gap is estimated at -2.8% of real potential GDP in 2015. As real 
GDP growth is expected to be higher than potential over the forecast horizon, the output gap 
is set to narrow to -1.2% of real potential GDP by 2017. 

Table 3: Macroeconomic and budgetary developmentsa 

6 

 20122013201420162017COMCOMCOMCOMOctober 2015 EDP notificationCOMCOMReal GDP (% change)-0.7-0.51.11.6n.a.2.01.8GDP deflator (% change)2.51.50.81.4n.a.1.51.6Potential GDP (% change) 0.30.30.50.7n.a.1.01.1Output gap (% of potential GDP)-3.4-4.2-3.6-2.8n.a.-1.9-1.2General government gross debt45.645.045.140.239.839.338.3General government balance-3.6-1.31.5-3.3-3.3-2.5-1.7Primary balance-1.80.53.1-1.8n.a.-1.2-0.5One-off and other temporary measures-1.51.53.20.8n.a.0.10.0Government gross fixed capital formation3.93.73.93.7n.a.3.53.4Cyclically-adjusted balance-1.51.33.8-1.5n.a.-1.3-1.0Cyclically-adjusted primary balance0.43.15.30.0n.a.-0.10.2Structural balance b0.0-0.20.6-2.3n.a.-1.4-1.0Structural primary balance1.91.62.1-0.8n.a.-0.10.2Notes:a In percent of GDP unless specified otherwise.b Cyclically-adjusted balance excluding one-off and other temporary measures.2015Source: Commission 2015 winter forecast (COM),  Excessive Deficit Procedure (EDP) notification for Denmark, October 2015 
 
 
Recent structural reforms 

Denmark  does  not  experience  excessive  macroeconomic  imbalances4.  In  the  2014  In-Depth 
Review (IDR) for Denmark, made in the context of the Macroeconomic Imbalance Procedure 
(MIP),  the  Commission  concluded  that  the  risks  stemming  from  losses  of  export  market 
shares  and  the  high  private  sector  debt  seemed  more  contained  than  in  previous  years.  The 
assessment  was  done  in  the  light  of  improving  competitiveness,  adjustment  on  the  housing 
market and stability of the financial sector. 

In  the  2015  Country  Report,  the  Commission  concluded  that  Denmark  had  made  some 
progress  in  addressing  the  2014  country-specific  recommendations  (CSRs).  Substantial 
progress was  made  in  continuing  to pursue a  prudent  fiscal policy in  the  medium term and 
preserving  a  sound  fiscal  position.  Some  progress  was  made  in  the  area  of  labour  market 
reforms,  with  measures  taken  to  improve  the  employability  of  people  at  the  margins  of  the 
labour  market,  enhance  educational  outcomes  and  their  link  to  the  labour  market.  In 
particular, significant structural reforms were implemented over the last few years affecting 
the unemployment benefit system, the subsidised employment system, active labour market 
policies  and  education.  Limited  progress  was  made  to  increase  competition  in  the 
domestically-oriented services sector. In the retail sector, the strict planning law ‒ both with 
regards to size and location of retail establishments ‒ remains an obstacle to competition. The 
construction sector is affected by restrictive authorisation and certification schemes. 

Following  the  assessment  above,  on  13  May  2015,  Denmark  received  two  CSRs:  to  avoid 
deviating  from  the  medium-term  objective  (MTO)  in  2016  and  to  enhance  productivity,  in 
particular in the domestically-oriented services sector, including in the retail and construction 
sectors. 

4.2.  Medium-term budgetary position 

Headline, structural balance and adjustment towards the MTO  

The  general  government  budget  balance  has  been  volatile  in  recent  years.  After  posting  a 
deficit of 1.3% of GDP in 2013, the budget balance turned into a surplus of 1.5% of GDP in 
2014. The budget balance is expected to turn negative again in 2015, with a forecast deficit of 
3.3% of GDP. This volatility should be seen in light of a one-off revenue measure regarding a 
restructuring  of  taxation  of  existing  capital  pension  savings.  This  fiscal  policy  measure, 
which  took  effect  in  2013,  has  raised  extraordinary  revenues  of  1.5%  of  GDP  in  2013  and 
3.2%  of  GDP  in  2014.  The  revenues  coming  from  this  measure  are  expected  to  be 
significantly lower in 2015, at 0.8% of GDP. As the measure expires by the end of 2015, no 
extra revenues are expected after this year. 

In  addition,  according  to  the  Commission  2015  autumn  forecast,  the  general  government 
budget balance in 2015 is expected to be negatively impacted by an expected drop in volatile 
revenue items, such as revenues from North Sea oil and gas activities and from the pension 
yield tax. This drop contributes to a temporary increase in the general government deficit. 

Based on the relevant vintages of the Commission forecasts, Denmark is found to be in very 
bad times in 2015. Therefore, also taking into account that the general government gross debt 
is below 60% of GDP, Denmark is exempted from making any fiscal effort in 2015.  

4   See Commission Communication COM(2015) 85. 

7 

 
 
                                                 
In 2015, from a position well above the MTO (set at -0.5% of GDP), the structural balance is 
forecast to deteriorate to a structural deficit of 2.3% of GDP, pointing to a risk of significant 
deviation  from  the  MTO  (gap  of  -1.1%  of  GDP).  However,  over  2014  and  2015  taken 
together,  there  is  no  deviation  on  the  structural  balance  pillar.  The  expenditure  benchmark 
pillar points to a risk of some deviation (gap of -0.3% of GDP) in 2015, while it is compliant 
(gap of +0.9% of GDP) in 2014 and 2015 taken together. In such situations, the Commission 
conducts what is known as an overall assessment. Government revenues in Denmark consist 
of very volatile components, such as revenues from oil and gas exploration in the North Sea 
and pension yield  taxes. This  revenue volatility is  fully reflected  in  the development  of the 
structural  balance.  As  the  deterioration  of  the  structural  balance  is  related  to  the  volatile 
revenue items, the expenditure benchmark is arguably a better indicator of the fiscal effort at 
the current juncture. However, a revenue measure related to capital pension taxation has an 
impact  on  the  profile  of  expenditure  growth  net  of  discretionary  revenue  measures  (net 
expenditure  growth)  in  the  years  2013-2016.  The  effects  from  this  measure,  which  is 
expected  to  raise  revenues  mainly  in  2013  and  2014,  is  phasing  out  in  the  years  2015  and 
2016.  The  pick-up  of  net  expenditure  growth  in  2015  and  2016  can,  therefore,  be  seen  as 
reflecting the significant drop in net expenditure in 2013. However, the Danish authorities did 
not  increase  expenditure  by  the  amount  that  would  have  been  permitted  by  the  additional 
revenue measure in these years. Filtering this temporary effect out of the calculations, there 
would  be  no  deviation  from  the  expenditure  benchmark.  Therefore,  the  overall  assessment 
points to a risk of some deviation from the MTO in 2015.  

In 2016, the structural balance is forecast to improve by 0.9% of GDP, resulting in a positive 
gap of 0.9% of GDP to the requirement, whereas the expenditure benchmark points to a risk 
of some deviation (gap of -0.3% of GDP). However, over the years of 2015 and 2016 taken 
together, the structural balance pillar points to a risk of some deviation (average annual gap 
of  -0.1%  of  GDP),  while  the  expenditure  benchmark  pillar  points  to  a  risk  of  significant 
deviation (average annual gap of -0.3% of GDP). This, again, calls for an overall assessment. 
As in 2015, the further phasing out of the capital pension measure in 2016 affects the profile 
of  net  expenditure  growth.  If  this  temporary  measure  was  filtered  out,  the  net  expenditure 
growth  in  2016  would  not  deviate  from  the  benchmark,  neither  in  2016  nor  over  2015  and 
2016 taken together. Therefore, the overall assessment points to a risk of some deviation from 
the MTO in 2015 and 2016 taken together. 

There  are  sizable  differences  between  the  Commission's  and  the  Danish  government's 
estimates of the structural balance. These are due to methodological differences and can to a 
large extent be explained by the treatment of volatile revenue components. In the estimate of 
the structural balance, the Danish government corrects for temporary fluctuations of revenue 
items  that  are,  in  their  view,  not  closely  related  to  the  economic  cycle.  Examples  of  such 
revenue items are revenues from North Sea oil and gas activities and the pension yield tax. 
The  Danish  government  estimates  a  structural  level  for  these  revenue  items,  and  any 
deviation  from  this  structural  level  will  not  affect  the  structural  balance.  According  to  the 
updated  medium-term  projection  presented  by  the  government  on  29  September  2015,  the 
revenues from these items are expected to be have been 1.0% of GDP above their structural 
level in 2014, and 1.2% of GDP below their structural level in both 2015 and 2016. Due to 
the  above-mentioned  methodological  differences,  this  low  level  of  revenues  in  2015-2016 
does not affect the Danish government's estimate of the structural balance, while it has a full 
impact on the Commission forecast  This explains the major part of the difference between 
the  Commissions'  and  the  Danish  government's  estimate  of  the  structural  balance  in  2015-

8 

 
 
2016.  In  2015,  another  source  of  divergence  relates  to  the  fact  that  the  extraordinary 
depreciation of tax arrears associated with the EFI case has not been classified as a one-off 
measure by the Commission, while it is considered a one-off by the Danish government. 

According to the latest estimates from the Danish government (from 29 September 2015), the 
structural  balance  is  estimated  at  -0.9%  of  GDP  in  both  2014  and  2015.  In  both  years,  the 
estimated structural balances were within the -0.5% limit of the national Budget Law at the 
time of publication of the draft budget, but have later been revised downwards. The revisions 
do  not  reflect  new  fiscal  policy  measures,  as  the  Budget  Law  prohibits  the  government  to 
introduce new policy measures after the publication of the draft budget that leads to a breach 
of the -0.5% of GDP limit. The structural balance in 2016 is estimated at -0.4% of GDP and 
is forecast to improve gradually, before reaching balance in 2020. 

Public investment 

During the crisis, public investments were used actively by the Danish authorities to support 
the economy. Public investments rose from an average level of 2.8% of GDP in  the period 
2000-2007  to  3.7%  in  2011-2014.  The  corresponding  numbers  for  the  EU-15  average  are 
3.0% of GDP in the period 2000-2007 and 2.9% of GDP in 2011-2014. Public investments in 
Denmark  are  expected  to  normalise  at  a  high  level  in  the  forecast  years.  The  public 
investment  level  is  thus  projected  to  decline  from  3.7%  of  GDP  in  2015  to  3.4%  in  2017. 
Throughout the period, the public investment-to-GDP ratio is expected to exceed the general 
government deficit-to-GDP ratio.  

4.3.  Medium-term government debt position 

According to the 2015 Ageing Report published on 12 May 2015, general government gross 
debt in Denmark is expected to decline from 45% of GDP at the end of 2014 to 31% in 2025, 
remaining  well  below  the  60%-of-GDP  reference  value  in  the  Treaty.  The  report  includes 
long-term  budgetary  projections  of  age-related  expenditure  such  as  pension,  health  care, 
long-term care, education and unemployment benefits.  

Moreover,  the  Ageing  Report  finds  that  Denmark  appears  to  face  low  fiscal  sustainability 
risks.  The  medium-term  sustainability  gap  is  at  -2.6%  of  GDP,  indicating  low  risks  in  the 
medium-term.  Also,  Denmark  appears  to  face  low  risks  in  the  long  term.  The  long-term 
sustainability gap, i.e. the adjustment effort needed to ensure that the debt-to-GDP ratio is not 
on an ever-increasing path, is estimated at 1.4% of GDP. 

4.4. 

Other factors considered relevant by the Commission 

The fiscal framework in Denmark has been reformed in recent years. The Danish authorities 
publish  medium-term  budgetary  strategies  that  apply  to  all  levels  of  government.  As 
Denmark has ratified the Treaty on Stability, Cooperation and Governance (TSCG) and opted 
to apply its Article 14.5 of the TSCG, it is bound by the substance of the TSCG, including its 
Fiscal  Compact. The fiscal framework  in  Denmark consists of the Budget  Law, a  medium-
term  budgetary  strategy  (currently  up  to  2020),  as  well  as  the  SGP.  The  basic  budgetary 
principle of the framework targets fiscal sustainability and achieving a structural balance or 
surplus in 2020.  

The 2012 Budget Law transposed the provisions of the TSCG, including the introduction of a 
balanced  budget  rule  in  strutural  terms,  with  a  correction  mechanism  and  independent 
monitoring. Thus, at the time the budget bill proposal is presented in August every year, the 
structural  balance in the following year may not exceed the MTO of  -0.5%  of GDP. In the 

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period after the presentation of the budget bill proposal, political decisions may not be made 
that lead to a breach of the MTO. If the projections point to a significant deviation from the 
MTO – i.e. a structural deficit of 1.0% of GDP – a correction mechanism will be triggered. 

The fiscal objectives are supported by binding, multiannual expenditure ceilings, which apply 
for  all  three  levels  of  governance  and  cover  around  ¾  of  all  public  expenditures.  Together 
with the draft budget bill presented in September 2015, the government presented a proposal 
for  revised  expenditure  ceilings  for  2015-2018,  as  well  as  new  ceilings  for  2019.  The  new 
proposals  are  based  on  an  updated  medium-term  projection.  The  expenditure  ceilings  are 
supported by sanctions mechanisms, which take effect if the ceilings are not adhered to. The 
expenditure ceilings came into effect in 2014 and have arguably been successful in improving 
budgetary discipline. 

An independent fiscal institution monitors compliance with national fiscal rules in Denmark 
and  produces  macroeconomic  forecasts.  The  Danish  Economic  Council  (DORS)  has  been 
designated ‘fiscal watchdog’, monitoring the long-term sustainability of public finances and 
the  general  balance  of  public  finances  in  the  medium-term.  More  specifically,  DORS 
evaluates and monitors whether fiscal policy complies with the Danish Budget Law, assesses 
the  general  government  expenditure  ceiling  and  their  compatibility  with  fiscal  targets,  and 
checks  that  the  budgets  and  actual  accounts  for  the  general  government  comply  with  the 
expenditure  ceilings.  In  addition,  DORS  publishes  biannual  forecasts  on  the  state  of  the 
Danish economy and public finances. 

4.5. 

Other factors put forward by the Member State 

On  3  November  2015,  the  Danish  government  sent  a  letter  with  relevant  factors  in 
accordance  with  Article  2(3)  of  Council  Regulation  (EC)  No  1467/97.  The  letter  confirms 
that  the  estimate  of  a  general  government  deficit  of  3.3%  of  GDP  in  2015  provided  to 
Eurostat in the context of the October 2015 EDP notification  is in line with the Ministry of 
Finance’s current estimate for 2015. 

The Ministry of Finance stresses that it is a priority for the Danish government to continue to 
comply with the SGP and that the expected excess over the reference value in 2015 is not due 
to deficit-increasing discretionary fiscal measures. The authorities argue that the excess over 
the  reference  value  in  2015  can  be  considered  to  be  exceptional  and  temporary,  while  the 
deficit also remains close to the reference value, in the sense of the SGP, concluding that the 
requirements  in  Article  126.2(a)  of  the  Treaty  are  fulfilled.  This  is  in  line  with  the 
Commission's assessment. 

In the letter, the Danish government presents the following relevant factors: 

In  the  October  2015  EDP  notification,  the  estimated  general  government  deficit  for  2015 
includes  a  technical  one-off  measure  due  to  an  extraordinary  depreciation  of  tax  arrears 
which increase the deficit in 2013, 2014 and 2015 by 0.3% of GDP in each year. The excess 
over the reference value can thus be fully explained by this technical factor. 

In the period up to 2020, the headline balance is set to improve further primarily due to the 
economic cycle, but also due to a structural improvement. First, the deficit in 2015 and 2016 
is i.a. negatively influenced by fluctuations in the revenues from the pensions yield tax and 
North  Sea  revenues.  Second,  the  budget  proposal  for  2016  implies  a  discretionary 
improvement of DKK 5 bn (approximately 0.25% of GDP) in order to reduce the structural 
deficit. Thus, based on the Danish Ministry of Finance’s methodology, the structural balance 

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is  estimated  at  -0.4%  of  GDP  in  2016  and  improving  gradually  towards  the  target  of 
structural balance in 2020.  

Denmark has a history of strong public finances with actual and structural balances close to 
balance  or  in  surplus  and  low  gross  debt.  The  sustainability  of  public  finances  has  been 
ensured  through  a  number  of  reforms  in  recent  years  (resulting  in  a  positive  national 
sustainability indicator estimated at 0.2% of GDP and a “low” sustainability risk based on the 
S0, S1 and  S2 indicators according to  the Commission’s Debt  Sustainability Monitor). The 
gross debt ratio is expected to decline slightly from 39% of GDP in 2016 to 35% of GDP in 
2020 – maintaining a wide margin to the 60% reference value of the Treaty. 

Denmark  has  a  good  track  record  of  compliance  with  the  preventive  arm  of  the  SGP.  In 
addition,  the  MTO  of  -0.5%  of  GDP  chosen  by  Denmark  is  more  ambitious  than  the 
minimum required MTO.  

Danish fiscal policy is planned within the strong framework of the Danish Budget Law, EU-
requirements and the medium-term plan towards 2020, the requirements of which are set out 
by  the  Danish  Budget  Law.  Any  negative  deviation  from  the  limit  must  be  corrected  fully 
already in the year following the deviation, no matter the size. Binding expenditure ceilings 
for  all  levels  of  government  underpin  that  the  overall  targets  for  fiscal  policy  are  met.  The 
fiscal  framework  contributes  to  a  high  level  of  confidence  in  the  Danish  economy  and  is 
relfected in a high credit rating (AAA).  

5. 

CONCLUSIONS 

The general government deficit in Denmark is planned to reach 3.3% of GDP in 2015, which 
is above but close to the 3%-of-GDP reference value in the Treaty. The estimated excess over 
the  Treaty  reference  value  can  be  qualified  as  exceptional  in  the  sense  of  the  SGP. 
Furthermore,  it  can  be  considered  temporary.  This  suggests  that  the  deficit  criterion  of  the 
Treaty is fulfilled.  

This report also examined the relevant factors. Overall, the analysis suggests that the deficit 
criterion as defined in the Treaty and in Regulation (EC) No 1467/97 should be considered as 
currently  complied  with,  while  the  general  government  gross  debt  remains  well  below  the 
60%-of-GDP reference value. 

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