Caroline Klein
Jarmila Botev
OECD Economic Surveys: Denmark 2026
Abstract
Denmark’s economy has run at two speeds since 2022, with GDP growth mainly driven by large exporting firms, primarily in the pharmaceutical sector. Growth in domestic demand has been subdued but is expected to gradually strengthen as the effects of past shocks recede and fiscal policy eases. Geopolitical tensions and rising trade barriers have clouded trade prospects and exposure to sector-specific shocks poses macroeconomic risks. Denmark is in a good position to weather turbulences and structural transitions thanks to a sound fiscal position, a resilient labour market and a supportive business environment. Structural reforms can help successfully adapt to changing trade patterns and boost productivity growth in the domestic economy. In the medium to long term, population ageing, climate change, and rising spending on defence will increase pressures on the public finances. Prioritising spending and achieving efficiency gains would help to preserve the Danish welfare model while maintaining low public debt.
1.1.1. Economic growth has been driven by a few large exporting firms with sluggish growth of domestic demand
Denmark’s real GDP growth has been broadly in line with the OECD since the 2020 pandemic, with a substantial difference between the strong growth of very large multinational firms and a prolonged period of weakness in domestic demand. Exports and buoyant activity in the pharmaceutical industry have been the main drivers of GDP growth (Figure 1.1). Output in the pharmaceutical industry has more than doubled since 2020 following the global commercialisation of new anti-obesity medicines and the sector accounted for more than half of the 3.5% GDP growth in 2024. However, domestic demand has been sluggish since 2022 due to higher prices, interest rates, and a correction of the housing market. A modest recovery in domestic demand has been underway since 2024. After a drop in the first quarter of this year, GDP growth has rebounded in the following two quarters, reflecting export volatility, while weakness in investment and consumption persisted.
Note: In Panel A, “Nordics” include Iceland, Finland, Norway, and Sweden. Real GDP excluding pharmaceutical sectors are based on value-added data provided by Statistics Denmark. In Panel B, OECD calculations based on Eurostat and Statistics Denmark. Data on exports never crossing the Danish border in volume at 2020 prices are estimated. Contributions of other exports including exports of goods crossing the Danish border and services are calculated as residuals from the contributions of total exports of goods and services to real GDP growth.
Source: OECD (2026), OECD Economic Outlook: Statistics and Projections (database); and Statistics Denmark.
Trade growth has been sustained by strong exports produced outside of Danish borders and recorded in the Danish national accounts (Figure 1.2). By contrast, growth of exports produced within Denmark has been subdued, broadly aligned with other European countries. Gas fields in the North Sea resumed operation in 2024 after maintenance, leading to a gradual increase of energy exports as production capacity recovered. However, in the first half of 2025, exports declined amid high volatility in the pharmaceutical sector, while exports in other sectors proved resilient to rising trade barriers. Exports to the United States, Denmark’s second largest export market, have been volatile and dropped by around 20% in the first half of 2025, mostly driven by exports produced abroad. New US tariffs on EU goods are expected to have a limited direct impact on Danish exports overall. The United States account for around 20% of goods exports, but about two thirds are produced outside of Danish borders. At the same time, some sectors, notably machinery, textile, food, and electronic equipment, have been affected. Lower foreign demand and rising costs transmitted via supply value chains have worsened export prospects.
Note: In Panel B, trade shares based on exports from the OECD Balanced International Merchandise Trade dataset (2025 November edition).
Source: Statistics Denmark; and OECD calculations.
The growing dependence on a limited number of sectors and dominant firms has heightened the economy's vulnerability to sector-specific shocks. The largest Danish companies have accounted for an increasing share of the output, investment, and R&D spending (Box 1.1). The failure, worsening performance or relocation of any of them would have major repercussions on Denmark’s economic outlook, notably on value added, intangible investment, and corporate tax revenues. At the same time, due to their relatively high capital intensity and significant operations abroad, the largest firms are less integrated into domestic production structures, which tends to mitigate their impact on the business cycle (Hviid et al., 2025).
Many of the large exporting firms engage in contract manufacturing, often located in or near the export markets they serve: while the foreign sales under these arrangements is recorded as exports in the Danish national accounts, the actual production activity takes place overseas. Thus, despite strong output growth, large firms—particularly in the pharmaceutical sector—have not generated proportional domestic spillovers in terms of employment or wage growth. The industry's limited integration with domestic suppliers and other firms contributes to relatively low production and employment multipliers. Another important feature is that most of these largest firms, including in the pharmaceutical sector, are owned by industrial foundations (Box 1.1). With their long-term focus in making pay-outs, they smooth the flow of spending entering the Danish economy from foreign activities, likely reducing pressures on domestic demand.
Large multinational firms
The five largest Danish companies account on average for around 2% of GDP each. Nearly half of investment between 2020 and 2022, along with 35% of total intangible assets, came from the 25 largest firms, whose share in GDP increased from 9% in 2019 to 13% in 2023 (Hviid et al., 2025). The share of the pharmaceutical industry – whose output and employment are concentrated in a single firm - in Denmark’s GDP increased by 5 percentage points to 9%, accounting for approximately 40% of total GDP growth since 2019. Spending on R&D from this sector reached DKK 13.2 bn in 2023, around 25% of Danish firms’ R&D expenses. Between 2019 and 2024, pharmaceutical employment rose by 71%, the sector accounted for 8% of total employment growth (25% from 2022 to 2024), and average employee’s earnings increased less than in manufacturing overall.
Industrial foundations
Industrial foundations are non-profit entities holding controlling stakes in business corporations. They have typically been established by entrepreneurs seeking to ensure long-term corporate oversight and provide philanthropic support. Foundations are governed by a self-appointing board whose members’ compensation is disconnected from company profits and that cannot be replaced by outsiders. The foundation ownership model can offer advantages, such as protection against hostile takeovers, retention of productive assets within the national territory, and reinvestment of profits into the enterprise or public interest causes.
While international comparison is limited by data availability, estimates suggest foundations play a much greater economic role in Denmark compared to most other OECD countries (Feldthusen, 2023). In 2022, the 1291 foundation-owned companies accounted for around a quarter of total value added and one in ten private employees. They partly own and control the largest multinational firms in the pharmaceutical, shipping, brewing, toy and machinery sectors. The 20% of largest foundation-owned companies account for around 90% of total value added of this group of firms. Foundation-owned companies spent almost DKK 38 billion on R&D in 2022 (1.3% of GDP).
Foundations draw down on their income and assets based on their long-term prospects to support research and philanthropic activities. This serves to smooth the rate at which fluctuations in profits and valuations are spent. The amounts of grants from industrial foundations almost tripled from 2016 to 2023 to reach DKK 15 billion (0.5% of GDP). Foundations benefit from tax deductions on charitable activities and reserves for public-benefit purposes from their taxable income.
Source: Sanders and Thomsen (2023) https://fondenesvidenscenter.dk/viden/fondes-erhvervsaktivitet-i-danmark-2022/
1.1.2. Domestic demand has been weak
Despite robust international sector performance, domestic demand has been weak (Figure 1.1). Like in other European countries, high inflation and subsequent increases in interest rates dampened domestic activity in 2022-23. Inflation rose sharply from 2021 as global supply shocks drove up energy, food, and import prices, then spilling over in core inflation. Inflationary pressures eased at the end of 2022 as supply conditions and energy prices normalised and restrictive monetary policy contributed to curbing demand further. After peaking at 10% in October 2022, inflation fell faster than in the euro area (Figure 1.3, Panel A). Energy and food account for a relatively low share of the consumption basket and pass-through from energy commodity prices to consumer prices has been relatively rapid. Evidence also suggests that international competition puts downward pressure on Denmark’s relatively high prices (Jensen, 2025). After falling below 1%, inflation stabilised through 2024 and in the first half of 2025 at around 1.5% on the back of fading negative contributions from energy prices and sticky service-sector inflation. Core inflation was around 1.7% in the first half of 2025, above the pre-pandemic average of 0.8% (2018-19), reflecting stronger real wage growth. Inflation has strengthened to over 2% since July partly due to rising food prices.
Despite lower inflation and a relatively robust recovery of household purchasing power (Figure 1.3, Panel A and B), private consumption growth has been modest. The adjustment of nominal wages to higher prices has taken time and Denmark’s system of indexation of social benefits that consists in indexing benefits to private wage growth with a two-year lag, leads to a delayed passthrough. Real income growth has been unequal and significantly weaker for lower income groups who have a higher propensity to consume and are more sensitive to higher food and energy prices (Figure 1.3, Panel C). Low consumer confidence and relatively high perceived inflation also played a role. In the third quarter of 2025, food and heat energy prices were more than 30% higher than before the 2022 inflationary shock respectively. Social benefits’ indexation and tax measures boosted households purchasing power in 2025 and should continue doing so in 2026, sustaining private consumption recovery.
The weakening of the housing market in 2022-23 has weighed on domestic demand, although it was much less pronounced than in other Nordic countries. Housing investment has recovered relatively fast with house sales broadly aligned with their pre-pandemic levels (Figure 1.4). House prices have increased in all regions, supported by falling interest rates and income growth, but the rise was significantly more pronounced in Copenhagen and in Zealand, again reducing affordability in main cities (see Chapter 4).
Note: In Panel A, data are based on harmonised consumer price index. Core inflation refers to all items excluding food, energy, tobacco, and alcohol. In Panel B, data refer to households and non-profit institutions serving households. In Panel C, OECD calculations based on estimates provided by the Danish Ministry of Finance. Estimates for 2025 are the monthly averages from January to August.
Source: OECD (2025), OECD Economic Outlook: Statistics and Projections (database); OECD Household indicators dashboard; Eurostat; Statistics Denmark; and Danish Ministry of Finance.
Note: “Nordics” include Finland, Norway, and Sweden.
Source: OECD (2025), OECD Analytical house prices indicators; and OECD National and Regional House Price Indices.
While relatively low cost of capital, favourable company valuations and firms’ profitability have been supportive, other factors including heightened uncertainty, changing corporate behaviours and shifts in investment patterns weighed on business investment in 2024. High corporate savings in large firms have been increasingly used for dividend payments and buybacks of own shares, from less than 10% of gross value added in 2005 to more than 25% in 2023 (Andersen et al., 2024). In addition, relatively low growth in the domestic economy, tightening credit conditions and high debt servicing costs have reduced smaller firms’ capacity to invest. Total interest expenses more than doubled for over half of companies between 2022 and 2024. Investment has been particularly weak in buildings and machinery, only partly compensated by patent purchases.
1.1.3. Pressures in the labour market have diminished
Employment has remained on a continuous increasing trend, in line with the OECD average (Figure 1.5, Panel A), the number of people in employment reached record levels, but labour market pressures have eased. Employment has increased in almost all sectors of the economy since 2022. Employment growth in the manufacturing sector has been mostly driven by the largest internationally focussed firms, with two firms almost entirely driving employment growth from 2022 to early 2025, while employment has remained broadly flat in the rest of the sector on average (DI, 2025). Recruitments in the public sector and support service activities sustained the positive employment trend, while job creation has been weaker in construction and other services, such as trade and real estate. Fewer firms report recruitment difficulties and plan to recruit. The unemployment rate increased only modestly to 6.5% in the first half of 2025, up from 5.9% a year earlier (ILO definition), reflecting the labour market has remained resilient.
Weak demand in the domestic economy, strong labour supply, due to increased participation of older and foreign-born workers, as well as large international recruitments, and constructive wage negotiations have limited upward pressures on wages. The wage bargaining system in the private sector is flexible, characterised by general sector-level agreements with substantial room for firm-level negotiations. Nevertheless, wage growth has been broadly in line with collective agreements and below the OECD average (Figure 1.5, Panel B). Real wages reached their 2021 level in 2024 in the private sector before slowing toward year-end. Public sector wages have accelerated since mid-2024 after lagging behind. The latest collective agreements in the private sector covering March 2025 to March 2028 foresee annual wage growth of around 3.5% and only moderate rises in unit labour costs.
Note: In Panel B, the nominal and real wage rates refer to nominal and real wages (2021 PPP USD) divided by the number of dependent employments. The real wage is calculated by deflating the nominal wage using the consumer price index. The OECD aggregates are calculated based on 28 countries where data are available up to 2025Q2.
Source: OECD (2025), OECD Economic Outlook: Statistics and Projections (database).
1.1.4. Monetary conditions have eased
Monetary policy has remained broadly in line with the euro area under Denmark’s longstanding currency peg. Danmarks Nationalbank policy rate increased by 420 basis points from June 2022 to September 2024, reaching 3.6% at its peak (Figure 1.6, Panel A). Monetary policy has eased since, but financial conditions have remained tight relative to history, with interest rates more than 200 basis point above the pre-monetary tightening period. To maintain the peg, the central bank widened the spread to the ECB by 30 basis points in 2023, which is unusually wide. The persistent negative yield spread reflects underlying appreciation pressure on the krone due to the large current account surplus. Denmark’s current account surplus, partly driven by the profits of a small number of internationally active firms and net foreign assets generates large capital inflows (Danmarks Nationalbank, 2025b). The fixed exchange rate regime has been in place since 1982, initially against the Deutsche Mark and from 1999 against the euro and was maintained after the 2000 referendum rejecting euro adoption. It has contributed to macroeconomic stability by avoiding exchange rate appreciation relative to the euro, limiting currency risk, and related hedging costs. Overall, monetary policy has been appropriate as business cycles in the Danish domestic economy and the euro area have been broadly aligned.
Note: In Panel C, OECD calculations based on data on monthly outstanding loans and annualised quarterly GDP.
Source: Bank for International Settlements (2025), Monthly central bank policy rates; and Statistics Denmark.
Easing financing conditions have contributed to credit demand recovery. Following policy rate cuts, interest rates on new loans have dropped significantly (Figure 1.6, Panel B). Pass-through of policy rates to mortgage rates has been faster in Denmark than in the euro area due to shorter interest rate fixation periods and the mortgage loan system among others (Bovin et al., 2024). Loans to households have recovered and are growing above pre-pandemic levels (Figure 1.6, Panel C and D). Lower interest rates will offer refinancing opportunity, potentially supporting consumption by DKK 8 bn (0.6% of private consumption, Danmarks Nationalbank, 2025a). Credit to businesses has been relatively robust over the past five years, mostly driven by large firms investing abroad (Figure 1.6, Panel C and D).
1.1.5. Fiscal policy is becoming more supportive
Fiscal policy has been prudent since the pandemic, with persistent government surpluses and a mildly restrictive stance from 2021 to 2024. Government balance improvements since 2021 have been mostly driven by strong tax revenues (Figure 1.7). Employment growth and rising profits of international firms boosted personal and corporate income taxes. Rising equity wealth also increased revenues from the taxation of shares and pension yields. Public expenditure growth has remained moderate, with public investment undershooting government targets. The government balance is projected to deteriorate sharply in 2025 and 2026 from strong surpluses (Figure 1.7), following policy changes and the expected decline in corporate and share tax revenues in percent of GDP. Plans to increase defence spending above 3% of GDP (including the “Acceleration Fund” of DKK 50 bn) and large increases in local governments’ budget will lift public expenditure. The phase-in of the personal income tax reform in 2025-26, that comprises an increase in the deductible wage income (“employment allowance”) and a split of the top tax bracket into three brackets with progressive tax rates, the reintroduction of tax deduction for home improvement services, significant cuts to the electricity tax and the abolishment of duties on chocolate, sugar and coffee will also boost household purchasing power.
With the planned easing in 2025 and 2026, fiscal policy remains consistent with the government objective to gradually move the fiscal balance from current surpluses to -0.5% of GDP by 2030. The fiscal impulse from defence spending will likely be limited due the high import content of defence equipment and of military support to Ukraine. It will nevertheless depend on the precise allocation of resources, which remains to be defined. Given that domestic demand has been subdued and is expected to recover only gradually over the next two years and that pressures on production capacities are projected to remain low, the fiscal stance is appropriate. Further tightening should be envisaged in the short term should domestic economic activity or fiscal stimulus from defence spending prove stronger than expected.
Recent decisions to increase State participation in Københavns Lufthavne A/S – the company operating Denmark’s main international airport - and to participate in a rights issue by Ørsted – the largest Danish energy company and global offshore wind developer - by DKK 32 and DKK 30 billion respectively (around 2% of GDP in total) do not affect government balance nor public debt but entail some risks of future capital losses. State ownership can be justified for companies operating infrastructure that is critical for the functioning of the economy or that play an essential role to meet policy objectives, such as climate change mitigation or energy security. The rationale for State participation should nevertheless be subject to regular reviews and alternatives then considered.
Note: The shaded area indicates OECD projections.
Source: OECD (2025), OECD Economic Outlook: Statistics and Projections (database).
1.1.6. Growth is set to decelerate amidst heightened geopolitical tensions
GDP growth is projected to decelerate from 2.4% in 2025 to 2% in 2026 and 1.8% in 2027 close to potential (Table 1.1). The pharmaceutical sector will continue to drive GDP growth, but its contribution will fade over the next two years. Foreign demand for other sectors’ exports will weaken at the end of 2025 and in the first half of 2026 due to the impact of rising global trade barriers. Despite some progress in trade agreements, high uncertainty will weigh on business investment and consumer confidence. Employment growth will slow further, and wage growth is expected to moderate in line with collective agreements. Fiscal policy will support the economy with tax cuts directed to households and private consumption will strengthen on the back of rising household purchasing power. Planned tax measures will reduce electricity, food and book prices. As a result, inflation will drop to 1.1% in 2026. Wage moderation will keep inflation below 2% across 2027.
Annual percentage change, volume (2020 prices)
1. Contributions to changes in real GDP, actual amount in the first column.
2. Consumer price index excluding food and energy.
Source: OECD (2026), OECD Economic Outlook : Statistics and Projections (database).
The main risks to the outlook stem from international developments. Denmark’s strong integration in global value chains increases its exposure to rising trade barriers. The share of foreign value added in Denmark’s exports is among the highest in the OECD, reaching almost 35% (25% in the EU). Further escalation of trade conflicts and increased trade fragmentation would affect Denmark more than the euro area average country, notably in the short run, as Denmark trades more with countries outside of the EU Single Market (Branner et al., 2024).
Despite having diversified trade partners and products (Figure 1.8), economic prospects significantly rely on a few large exporting firms that face business-specific risks. Growth in the pharmaceutical sector may exceed market expectations. At the same time, it is specialised in a relatively narrow range of drugs and increasing competition in the anti-obesity and diabetes medicines market, new tariffs on pharmaceuticals and price negotiations in the US make significant price and margins cuts a risk. Prospects in the international maritime sector are highly uncertain, depending on trade policy developments and geopolitical tensions that affect trade routes (Box 1.2). Uncertainty on future demand for renewable energy technologies and change in energy policy in the US, have also clouded prospects in Denmark’s wind industry. Trade fragmentation can boost business services and merchanting by creating price differentials and trade route opportunities that can be exploited through strategic sourcing and routing to bypass barriers.
2024
Source: Statistics Denmark.
Maritime transport accounted for around 19% of Denmark’s total exports in 2024. Geopolitical tensions have contributed to higher volatility in activity and prices in the sector, which has a long history of price volatility due to the cyclicality of trade and cycles capacity. Armed conflict at the Red Sea in 2024 led to a spike in maritime freight rates as it increased delivery times and reduced competition. Going forward, lower trade from and between US and China would weigh on Danish companies’ turnover as the two countries account for 13% and 16 % of Denmark’s sea freight respectively.
A fragmentation of global trade could lengthen shipping routes and increase transportation costs through lost economies of scale. At the same time, this could increase demand for ships, reduce competition and help ease growing vessel overcapacity issue. The sector has a high reliance on fuel imports, port and terminal operations abroad, and leasing of foreign ships poses other risks. Fees that the US announced they will impose on ships built in China could increase costs for Danish shipping companies.
Source: UNCTAD (2024) Economist Impact, 2023, Ministry of Economic Affairs, 2025
Raising spending on defence is a positive risk to the outlook, should budgets be directed toward investments in national military infrastructure, increased defence staffing, and the domestic production of equipment, including naval vessels. Easing geopolitical tensions and stronger consumer confidence could prompt households to reduce savings and boost domestic demand, while labour market conditions might also be tighter than assumed in the baseline. Tail risks include a pronounced fragmentation of global trade, inducing major disruptions of supply chains (Table 1.2). Denmark is also exposed to cyberattacks, infrastructure sabotage, and coastal floodings that could substantially damage economic prospects if they materialise.
Denmark has become increasingly reliant on trade, investment, innovation and tax revenues on a small number of successful multinational companies. This complicates the conduct of macroeconomic policies, calling for better assessing their economic role. At the same time, productivity growth has slowed in the rest of the economy and the narrowing of growth drivers poses risks to long-term growth. Ensuring economic resilience requires maintaining a diversified growth base, notably by reducing red tape, improving public support directed to business and R&D, addressing barriers to the adoption of productivity-enhancing technologies, and maintaining low corruption levels.
1.2.1. Better accounting for rising reliance on a few large exporting firms
Because of the high concentration of value added in a small number of firms, sector-specific external market conditions can lead to large GDP fluctuations and higher volatility. The relative disconnection between firms’ activity and domestic production capacities makes it more difficult to identify turning points in the business cycle. Developing analytical tools to measure the economic contribution of these firms would help to better assess Denmark’s position in the business cycle. A first approach consisting in excluding contract manufacturing from measures of economic activity could be complemented by alternative statistical adjustments, like done for instance in Ireland (Box 1.3), and using these to assess the position of the economy. The channels through which income from large multinational firms affects domestic demand require further examination. Assessing the spillover effects of these firms—particularly the role of their foundations within the innovation ecosystem—would help to improve understanding of productivity dynamics and uncover potential vulnerabilities.
Ireland's approach to measuring GDP has undergone significant adjustments to account for the substantial influence of multinational corporations that engage in activities such as contract manufacturing and intellectual property licensing, which can significantly inflate GDP figures without corresponding benefits to the domestic economy. These adjustments aim to provide a more accurate representation of domestic economic activity and inform fiscal policy effectively. In particular, it can help identify turning points in the national business cycle and be used to measure the output gap of the domestic economy.
To address these distortions, the Irish Central Statistics Office (CSO) introduced Modified Gross National Income, an adjusted metric that excludes the depreciation of foreign-owned intellectual property assets and the net income of redomiciled companies that have limited real activity in Ireland, among others.
A range of similar approaches based on exclusion have also been used by the Department of Finance and other official bodies, drawing on disaggregated sectoral data published by the CSO. These exclusions-based measures present a trade-off between excluding activities with little domestic impact and completely ignoring the part that does contribute to domestic incomes and activity. This approach can be extended to a wide range of national accounts measures. The CSO now publishes official estimates of the modified current account, and it is possible to derive other measures such as investment by domestically focussed firms (Timoney, 2023)
1.2.2. Fostering productivity growth in the domestic economy
Sustaining productivity growth will be the key to maintain a growing economy in Denmark and to further raise living standards as the population ages in the coming years. The OECD’s long-term baseline projections assume that productivity growth will remain between 1% and 1 ½% over the coming decades with GDP growth slowing due to declining workforce growth (OECD, 2025c). Danish productivity is among the highest in the OECD and has grown broadly in line with the EU over the past decades (Figure 1.9, Panel A and B). However, this good performance is mainly due to the international sector (Figure 1.9, Panel A). Outsourcing of multinationals’ production process abroad mechanically increases productivity growth as the foreign workforce is not accounted in employment data but as imports of services in national accounts. At the same time, high value added growth stemmed from R&D investments and returns generated by patents of Danish large companies.
Like in other OECD countries, productivity growth has been uneven across sectors. Excluding the pharmaceutical sector, Denmark’ productivity growth in manufacturing stands below the EU average and has declined since 2021. Labour productivity growth has also been weak in the construction sector, trade and business services (Figure 1.9, Panel C). This partly reflects cyclical factors, with strong employment increase and integration of lower-productivity workers into the labour market (Ministry of Economic Affairs, 2024). Nevertheless, like in other OECD countries, slower capital accumulation in the aftermath of the global financial crisis has also contributed to the productivity slowdown. The business investment to GDP ratio has recovered since and at 15% in 2024, was close to the average level in advanced OECD countries, including the United States. Investment gaps, estimated based on the relationship between business investment and output growth in real terms, have been larger in Denmark than in most other OECD countries, especially after the 2020 pandemic though, partly reflecting the growing contribution of merchanting and processing activities in output growth (OECD, 2025a). Sustaining capital intensity will remain key for future growth drivers, calling for further improving investment conditions in the domestic economy, as stressed in previous Surveys (Table 1.3).
Note: OECD calculations based on sectoral data on gross value added and worked hours. In Panel A, productivity growth excluding pharmaceuticals is estimated based on data provided by Statistics Denmark. In Panel B, “business economy” excludes real estate activities. In Panel C, “Wholesale & retail trade” includes transport, accommodation and food service activities.
Source: OECD (2025), OECD National Accounts Database; STAN Database for Structural Analysis, 2025 edition; and Statistics Denmark.
Creating better conditions for business and innovation
Public policies could help Denmark to diversify growth drivers, support broad-based productivity gains and limit risk of supply chains disruptions, thereby reducing macroeconomic risks attached to a dual and export-oriented economy. Denmark offers a favourable business environment, with competition-friendly regulation, skilled workforce and high-quality infrastructure, but recent evidence suggests large room for efficiency gains in public business support and for reducing administrative burdens, especially reporting requirements. The 2024 Entrepreneurship and Business Packages aim to address these issues (Table 1.3), but further measures could be considered.
Like in other OECD economies, regulatory compliance and reporting obligations impose substantial costs on Danish firms. Labour market administration costs are estimated at approximately DKK 7.5 billion annually, with around two-thirds originating from EU regulation (DA, 2025). Smaller enterprises are disproportionately affected: about four in ten Danish micro and small firms report that over 10% of their staff is employed in compliance and reporting activities (EIB, 2025). Denmark should continue to support EU-level initiatives to streamline documentation and reporting requirements, while further engaging key stakeholders in regular consultations to minimise the cost of implementing EU legislation. Allowing for more self-declaration coupled with risk-based inspections, and lightening requirements for small and medium enterprises (SMEs) are other options to reduce administrative burdens.
Regulatory reform in Denmark has increasingly focused on fostering innovative, digital, and business-friendly rules (OECD, 2025d). Regulatory Impact Assessment (RIA) must be carried for new regulation and regulations with significant impact are regularly reviewed. This system could be improved by systematically informing stakeholders in advance that a consultation on a legislation is due to take place, including consultation views in assessments, and introducing a mechanism that would allow for returning proposed regulations for which impact assessments are considered inadequate. While it helped reduce administrative burden, Denmark discontinued its “one in, one out” rule that required that any new regulation imposing administrative costs on businesses be offset by removing or reducing existing rules with equivalent costs. It switched to a qualitative approach focusing on simplification and the promotion of digital-by-default and future-proof regulation. Re-introducing quantitative targets for reducing regulatory costs integrated in a broader evidence-based, transparent better-regulation system could help to maintain strong incentives across the administration.
Spending on business support has been relatively high, characterised by a greater reliance on tax expenditures and stronger emphasis on green objectives compared to peer countries (Box 1.4). However, the system is fragmented and has inefficiencies: a review of the almost 200 support measures showed that some forms of support are not well justified, with unclear objectives, overlaps and no systematic evaluations nor scheduled revisions (Expert Group on the Future of Business Support, 2024). OECD data on industrial policies also suggest support is insufficiently targeted, with around 40% of measures not meeting broad eligibility criteria (Box 1.4). A framework to design business support measures should be put in place to ensure future policies have well-identified objectives and are limited in time. The framework should incorporate transparent selection, evaluation and adaptation processes. In addition, the industrial strategy’s net benefits should be evaluated, considering any potential distortions to competition.
Preferential tax treatment to family-owned businesses and foundations should be reviewed as evidence on their positive impact remains scarce. For instance, the estate and gift tax rate for the transfers of commercial businesses within families was reduced from 15% to 10% to prevent potential liquidity problems. This preferential tax treatment may lead to inefficient capital allocation due to lower managerial quality in family businesses (DORS, 2024a). While family succession may ease knowledge transfer and foster long-term focus, it can also hinder the entry of more capable managers. Furthermore, the measure is regressive as 80% of unlisted share wealth is owned by the 1% wealthiest people in Denmark (AE, 2023). Given the lack of clear evidence supporting the socio-economic value of the reduced tax rate, an instalment-based payment option should be considered as a more effective alternative. As for foundations, establishing a digital platform that lists tax-exempted grants from foundations could help promote transparency and cooperation with public institutions. It could also be used for regularly evaluating their socio-economic impact.
Public support to business R&D could be improved, as its impact on knowledge production and diffusion, measured by the number of patent applications or citations, is found to be low (DORS, 2024b). Programmes overlap and access can be difficult due to burdensome administrative barriers (Expert Group on the Future of Business Support, 2024). Clarifying objectives of public R&D support and strengthening coordination mechanisms would help to improve the allocation of resources. Cooperation at the EU level in strategic fields, including the green transition (Power to X, carbon capture and storage) and artificial intelligence and with industrial foundations (see Box 1.1) should be promoted to mutualise costs and benefit from economies of scale. Collaboration between university and businesses could further improve by increasing the number of shared positions, streamlining grants procedures and easing intellectual property rights transfers. Test facilities enable to bridge the gap between theoretical research and real-world applications, reduce implementation risks and facilitate collaborative capacity building. The development of a public digital portal mapping existing test facilities is welcome as it should improve access, notably for SMEs. National test facilities are missing in key sectors (green and digital) though and should be further developed.
Denmark’s public spending on industrial strategy has been relatively high, amounting to 2.6% of GDP on average between 2019 and 2022 (Figure 1.10, Panel A). Around 80% of spending consisted of grants and tax expenditures, while the use of financial instruments was relatively modest.
Eligibility criteria for support measures, which can overlap, include digital, green, sectoral, SMEs and young firms, R&D and jobs/skills components. About 40% of spending on grants and tax expenditures did not meet any of these criteria, suggesting a relatively low level of targeting (Figure 1.10, Panel B). Looking at each criterion, Denmark outperformed other countries in the share of spending directed to green policies and specific technologies. Only 24% of spending have been targeted at specific sectors though, with energy and transport accounting for around 50% and 30% of sectoral spending respectively, well above the sample average (Figure 1.10, Panel C). All measures directed to the energy sector had a green component, but none in the transport sector.
Financial instruments mostly consisted of export insurance and loans, but support to venture capital was relatively low, amounting to only 9% of the total, well below levels seen in the UK, Ireland or the Netherlands (Figure 1.10, Panel D). However, since 2022, measures have been taken to raise capital supply under Danmarks Grønne Fremtidsfond and the Entrepreneurship Package.
Industrial policy expenditures, average over 2019-22
Note: Spending related to COVID emergency support is excluded. Data on export finance are excluded from financial instruments. In Panel B, eligibility criteria refer to the seven categories: Digital, Green, Sectoral, Technology-focused, SMEs and young firms, R&D and Jobs/skills policies. In Panel C, the “Energy” sector refers to electricity, gas, steam and air conditioning supply. “Average” refers to the unweighted average of eleven countries included in the QuIS database.
Source: OECD calculations based on the Quantifying Industrial Strategies (QuIS) database.
Policies can help reduce exposure to supply chain disruptions that is large in some industries including those exporting green technologies. For instance, Denmark’s wind power industry has one of the highest import concentration rates of critical raw materials among OECD countries (Dechezleprêtre et al., 2024). Products with critical import dependency – meaning imported for a large part from risky countries - accounted for 21% of net imports of strategically important products in Denmark in 2021, with China being the main supplier (Branner et al., 2024). Denmark is implementing the EU Critical Raw Materials Act that aims to secure supply of critical raw materials. Among other measures, the Danish Mineral Intelligence Center has been founded to advise companies on how to decrease their dependencies on critical raw materials and diversify their supply chains. Denmark should also promote the use of circular material and research in recycling or substituting of critical raw materials as it is lagging OECD countries in these areas.
Addressing skills shortages to reap the benefits of artificial intelligence
The diffusion of digital technologies and artificial intelligence (AI) holds significant potential to raise productivity growth. Recent OECD research finds that under a number of conditions, including having framework conditions and policies that facilitate its adoption across the economy, AI can increase annual productivity growth by up to 0.9 percentage point over ten years (Filippucci et al., 2024). Denmark is among the OECD countries that are more advanced with the adoption of AI (Figure 1.11, Panel A). However, like in other OECD countries, indicators find relatively low take-up rates of AI in small firms and in conventional sectors (Figure 1.11, Panel B). Artificial intelligence has been high on Denmark’s government agenda with the ambition to promote a responsible use of AI. A comprehensive set of measures has been implemented under Denmark’s AI strategy.
Share of firms using AI, 2024
Note: Data covers firms having 10 employees at least. The number of employees is less than 50 for small firms and 250 and more for large firms. In Panel B, “Admin. service” refers to administrative & support service activities and “Professional act.” refers to professional, scientific & technical activities. “Wholesale trade” excludes motor vehicles and motorcycles.
Source: OECD ICT Access and Usage by Businesses database, https://oe.cd/dx/ict-access-usage.
The development of AI technologies relies on the availability of specialised advanced skills. Survey data suggest that in Denmark technological changes intensify existing recruitment challenges (Figure 1.12, Panel A). While the level of digital competences is high, only few people report having general AI skills essential for its widespread adoption and diffusion (Figure 1.12, Panel B). University places in mathematics, statistics and computer science should increase to respond to growing demand for qualified professionals in AI and very large gender imbalances in these fields should be addressed (OECD, 2024a). The estimated gender gap in concentration of AI expertise has widened over the past years (Figure 1.12, Panel C). Incorporating a gender perspective into “technology understanding” courses in primary and lower secondary education and identifying schools with lower levels of gender bias in student orientation to share best practices, as done in the Netherlands should be considered. Other effective measures to promote greater take-up of AI-relevant subjects by female students include developing information about career and wage prospects by topic in middle and high-schools, showcasing female role models and developing mentoring programs (Encinas-Martín and Cherian, 2023).
Note: In Panel A and B, OECD calculations based on GFP Employer Survey data (details available in Filippucci, Laengle and Marcolin (2025), forthcoming). The OECD aggregate refers to the unweighted average of 35 countries. Panel C is based on self-reported data by LinkedIn members from 2016-2023. A country’s AI skills penetration of 1.5 means that workers in that country are 1.5 times more likely to report AI skills than workers in the benchmark. Average from 2016 to 2023 for a selection of countries with 100 000 LinkedIn members or more. In Panel D, AI talent concentration refers to the share of LinkedIn members who are considered to have AI talent, i.e. if they have explicitly added AI skills to their profile, work or have worked in AI.
Source: OECD (2024), OECD Economic Outlook, Volume 2024 Issue 2; OECD AI Policy Observatory, accessed on 24/4/2025, www.oecd.ai; and Artificial Intelligence Index Report 2025.
Difficulties to recruit experts and strategic management professionals have been identified as a major barrier to AI adoption in the public sector. As stressed in previous Surveys, the lack of flexibility of the wage setting mechanism makes it difficult to attract highly skilled professionals (OECD, 2019). Wages are negotiated by occupational group, so that the average wage growth in the public sector aligns with wage growth in the private sector. Only 8-10% of total compensation of employees is negotiated at the workplace and wage growth has been relatively homogenous across occupations and has not adjusted to market imbalances (Ejrnæs and Würtz Rasmussen, 2025). Raising flexibility by allowing more bargaining at the local level would help recruiters to offer higher wages to address shortages. In addition, AI training courses available to public sector employees do not fully integrate interdisciplinary AI competencies that combine technical understanding with insights into law, ethics, politics and management they need. Training of public employees could be reinforced by establishing a digital training school that enables public-sector employees to train in big data management and AI deployment as done in Israel.
Maintaining low corruption by strengthening the framework for public integrity
Maintaining a favourable business environment requires ensuring corruption remains low. High levels of trust underpin the Danish social and political model. The level of satisfaction of citizens vis-à-vis public institutions is relatively high (2024 Transparency International’s Corruption Perceptions Index), and indicators point to low perceived corruption and reported bribery in Denmark (Figure 1.13). However, survey data indicate that only around a third of people expects officials to reject corporate requests harmful to the public interest or refuse a job offered in exchange for favours (OECD, 2024d). As noted in OECD reports (OECD, 2024a, OECD, 2024c, Table 1.3), the strategic framework for anti-corruption and public integrity is weak and preventive measures against corruption risks need strengthening. By improving the competition environment and trust in institutions, these measures could bring significant economic benefits.
Note: “Nordics” include Finland, Iceland, Norway, and Sweden. Panel B shows sector-based subcomponents of the “Control of Corruption” indicator by the Varieties of Democracy Project.
Source: Panel A: Transparency International; Panel B: Varieties of Democracy Project, V-Dem Dataset v12; Panel C: World Bank, Worldwide Governance Indicators; Panel D: Anti-Corruption and Integrity Outlook 2024.
Unlike most Nordic countries, Denmark lacks a proper assessment of public integrity risks and a risk-based strategic framework (OECD, 2024c). Existing regulation, such as the Executive Order no. 116/2018, the Public Administration Act, and the Act on Openness in Administration, only partially addresses integrity issues. Anti-corruption efforts are not coordinated nor centrally supervised, as several institutions share fragmented responsibilities for promoting integrity in the public sector. In addition, risk management is not consistently applied across public bodies in practice, suggesting a potential need for a more harmonised integrity risk management framework as exists in Sweden and Finland.
Denmark still does not have strong rules that ensure transparency and accountability in lobbying activities (OECD, 2024c). Lenient regulation may allow influential interest groups to shape policies in ways that favour their own interest rather than public interest and distort competition. The concentration of value creation in a small number of firms and sectors in Denmark increases risks. In line with OECD recommendations (OECD, 2024e), Denmark should regulate lobbying activities, especially by establishing a clear legal definition of lobbying activities and a supervisory function in central government that oversees transparency of lobbying activities. Making the public aware of the interactions between policymakers and interest groups as well as their impact can strengthen public trust and integrity safeguards. This could be done by requiring policymakers to make their agendas public and mandating a publicly accessible register that discloses detailed information on lobbying activities.
While it would limit the risk of “revolving doors” abuses, pre- and post-public employment is largely unregulated. Tracking the movement of high-level officials between the public and private sectors in practice would help identify and respond to integrity risks. A mandatory cooling-off period for public officials should also be introduced as in most OECD countries. For the prevention of conflict of interest, Denmark mandates interest declarations for parliamentarians but equivalent requirements for high-level judiciary, executive officials, and high-risk public employees, which is relatively standard in the OECD, are missing. The system of political finance reporting and oversight could be strengthened. Separate reporting requirements for financing of electoral campaigns are missing and reporting requirements from some political parties have been met with delays. The Audit General Office in charge of auditing political parties’ financial reports does not publish information on investigations and sanctions and its independence could be improved by defining criteria for the appointment and removal of its members. Denmark could take inspiration from Norway, Finland, Portugal or Canada for improved supervision and auditing of political finance.
Creating safe environments for whistleblowers is fundamental to ensure a culture of openness and accountability in the public and private sectors. The mandate of Denmark’s National Whistleblower Scheme established in 2021 was broadened in 2023 and its use has increased since, but there is room for further improvements (Transparency International, 2024; Terracol, 2023). Obstruction, retaliation, or vexatious actions against whistleblowers should be penalised. Providing access to confidential, individual advice or free legal support and mandating the processing of anonymous reports by both public and private entities as done for instance in Belgium and France would further strengthen whistleblowers’ protection.
Denmark has not given adequate priority to the prevention, detection, and sanctioning of foreign bribery, as evidenced by the underutilisation of detection sources, the limited number of investigations and sanctions imposed, despite credible allegations involving major Danish companies (OECD, 2023a). These challenges are exacerbated by resource constraints and regulatory hurdles as stressed in recent OECD reports on “Implementing the OECD Anti-Bribery Convention” (OECD, 2023a and 2025e).
1.3.1. The financial sector has remained resilient
The financial sector has remained resilient, despite relatively high debt levels, the increase in interest rates in 2022-23, and volatility in global financial markets. Banks’ capitalisation has remained well above regulatory requirements (Figure 1.14) and profitability has been supported by high net interest margins and historically low impairment charges. Danmarks Nationalbank’s stress tests conclude that major financial institutions would meet regulatory capital requirements in a severe recession scenario after releasing the countercyclical capital buffer (Danmarks Nationalbank, 2025b). Relatively high dependence on market funding exposes some banks to sudden liquidity shortfalls and can undermine financial stability during stress periods. Systemically important banks have maintained a strong liquidity position and remained well equipped to withstand episodes of severe liquidity stress (Figure 1.14).
2025Q1/Q2 or latest available quarter
Note: Unweighted average of the two most recent quarters for which data are available, or of the latest quarter if two consecutive quarters are not available.
Source: IMF Financial Soundness Indicators (FSI) database.
Pressures on mortgages have increased due to higher interest rates, but overdue or delinquent loans have remained at low levels. Household gross debt has declined significantly since the 2020 pandemic with the buybacks of fixed rate mortgages, given falls in market values when interest rates increased in 2022-23 (Figure 1.15). Gross debt is offset by large amount of assets and is mostly held by households with high repayment capacity. Falling interest rates increase incentives to refinance, which could improve households’ financial resilience. However, household gross debt remains among the highest in the OECD and started to increase again in early 2025. The growing share of borrowers opting for variable rate mortgages (accounting for around half of mortgage loans, Figure 1.15), eventually with deferred amortisation, increases housing sector risks. In addition, lower credit costs combined with fast increases in house prices in Copenhagen can boost credit demand and encourage excessive borrowing. Nearly a fifth of new mortgage loans are issued to borrowers with a loan-to-value ratio above 90%, raising their exposure to negative equity should house prices decline. Debt-service-to-income ratio has increased substantially for home buyers, reaching 30% in 2024 from 17% in 2020 in Copenhagen (Danmarks Nationalbank, 2025b). Such high debt servicing costs put pressure on households’ debt repayment capacity, and raise default risks, especially amid a softening labour market and economic slowdown.
Note: In Panel A, the OECD aggregate refers to the unweighted average of 30 countries.
Source: OECD National Account at a Glance; and Danmarks NationalBank.
The corporate sector has remained resilient to rising borrowing costs, with bankruptcies back to their historical average and only moderate increases in underperforming loans. Despite a doubling of interest expenses for many firms following the 2022–2023 rate hikes, most Danish companies have managed the higher financing costs, with arrears remaining low. Risks remain elevated in the commercial real estate sector, despite some signs of recovery since early 2025. Commercial real estate companies account for 40% of lending by Denmark’s credit institutions to non-financial companies and exposures are higher for some smaller banks. As in other countries, this sector is heavily exposed to higher interest rates and to shifts in demand for office space since the 2020 pandemic. In 2022-23 returns in the sector fell as sharp increases in interest rates pushed property values down. Non-residential property values in Copenhagen are estimated to have fallen by 20% since 2022 and vacancy rates have increased, reducing debt servicing capacity in the sector (Danmarks Nationalbank, 2025b).
The growing size and interconnectedness of insurance companies, pension and investment funds have heightened systemic financial risks. While their role in direct credit intermediation is limited, these non-bank financial institutions (NBFIs) play a pivotal role in promoting financial diversification and act as major investors in Denmark’s large mortgage bond market. They have more than tripled in size since 2007 to almost 300% of GDP and Denmark’s banks’ exposure to these entities is one of the highest in the EU. Exposures of insurers and pension funds to investment funds are sizeable and interconnectedness with domestic banks is significant through relatively large holding of covered bonds compared with other euro area countries (IMF, 2024). Investment funds, insurers and pension companies have increased borrowing in the repo market substantially. As mortgage bonds account for around 90% of collateral in the repo market, shocks to mortgage bond prices or reduced repo market liquidity can trigger selling pressure, pushing bond prices down and mortgage interest rates up (Danmarks Nationalbank, 2025b). The non-banking financial sector recovered from profitability losses in 2022 and around half of its liabilities have non-guaranteed market returns, which mitigates market risks but exposes investors, including future pensioners, to turbulences in foreign stock markets, notably in North America.
Denmark’s systemic risk monitoring framework is largely focused on banks and mortgage credit institutions. The Danish Financial Stability Authority has developed a stress testing framework for pensions and insurance funds and NFBIs are included in Danmarks Nationalbank financial stability assessment. Nevertheless, Danmarks Nationalbank has emphasised the need to improve monitoring of NBFI exposures calling for better data collecting and stress-testing (Danmarks Nationalbank, 2024c). Against this background, supervision of non-banking financial institutions should be strengthened, notably by better including them in the systemic risk assessment framework and by establishing system-wide stress testing exercises, covering both NFBIs and banks, as done for instance by the Bank of England and as envisaged by the Danish Financial Stability Authority. Denmark should also support EU on-going initiatives to develop macroprudential tools for NBFIs at the EU level.
1.3.2. Addressing pockets of vulnerabilities and structural risks
Macroprudential tools can reduce financial vulnerabilities by curbing risk build-up and strengthening system resilience. To manage systemic risks, tight macroprudential requirements, a 2.5% countercyclical capital buffer, a 7% sector-specific systemic risk buffer for exposures to real estate companies and supervisory guidelines on commercial real estate should remain in place. Internal rating-based models are being reviewed and an output floor for the risk-weighted assets that banks using internal models must report should be established in line with the EU banking package. This should help to safeguard against excessively low risk weights, ensuring a minimum level of capital adequacy across institutions and reduce possible inconsistencies between internal risk assessment models in the financial sector. Supervision of banks’ credit risk modelling should be strengthened as provisioning expenses have been relatively low by EU standards.
Borrower-based tools have also been deployed to address high household debt in the form of non-binding guidelines to banks and credit institutions. Guidelines introduced in 2018 restrict the capacity of highly indebted households to take out variable interest rate loans without amortisation. Recommendations for granting owner-occupied mortgages in municipalities with high housing price growth, such as Copenhagen, have been in place since 2016: banks may issue variable-rate loans only if borrowers can afford payments at the fixed rate plus one percentage point or 4% minimum, and borrowers with high debt-to-income ratios must be able to sustain positive housing equity under a 10 or 25 percent fall in property prices. Nevertheless, the government has not taken up the Systemic Risk Council’s recommendation to limit access to interest-only loans for borrowers with a loan-to-value ratio above 60% and the requirement of a 5% down payment is low relative to the other Nordic countries. Further restrictions on high-risk loans should be implemented over time, including lowering the maximum loan-to-value (LTV) ratio currently at 95%, further limiting access to interest-only and variable rate loans for borrowers with high LTV ratios, and introducing a debt-to-income limit as recommended in the previous Economic Survey (OECD, 2024a). An interest rate stress test for credit assessments of individual borrowers when they take out a new loan should also be mandated for variable interest rate loans as done in the UK and Canada in addition to existing affordability tests (Table 1.4). These measures would help to reduce excessive borrowing and speculative activities that unduly inflate housing demand and prices. Reducing mortgage interest relief would also help reduce pressures on house prices and debt levels. Structural reforms improving housing supply would mitigate potential negative impact of these reforms on the housing market and on credit-constrained buyers (see Chapter 4).
Risks to financial stability include those from cybersecurity, financial integrity, and climate change. Eurostat data on ICT Access and Usage by Businesses suggest Denmark has been among those countries with businesses reporting a large number of cyber security incidents, which could be due both to the high degree of digitalisation and awareness and the frequency of events. Initiatives to strengthen cyberresilience through the Financial Sector Forum for Operational Resilience “FSOR” include a protocol to communicate and coordinate actions should a large-scale operational incident occur, threat-based testing programs (TLPT, TIBER DK) and the development of stress test of operational resilience. Capacity in crisis management planning and contingency plans to maintain operations in the financial system in case severe cyber threats materialise should be expanded further as planned. Following the 2018 money laundering scandal involving Danske Bank's Estonian branch, Denmark has made substantial progress in reinforcing its anti-money laundering (AML) framework in line with Financial Action Task Force (FATF) recommendations. Continued efforts and regular updates to the national AML strategy are essential to address evolving risks and prevent financial integrity events. Climate change could impact asset values, particularly given the exposure of large cities to coastal flooding (see Chapter 2), calling for further improving risk assessment and adapting macroprudential policy to reflect unpriced systemic risks associated with climate change (Table 1.4).
1.4.1. Denmark faces medium- and long-term spending pressures
With high government surpluses and low public debt, fiscal policy has remained prudent. Denmark has a sound fiscal framework, including four-year expenditure ceilings, automatic sanctions for local governments in case of overspending and a structural deficit limit (Box 1.5). Denmark’s public debt-to-GDP ratio has continued to decline over the past decade, helped by continuous fiscal surpluses, including during the COVID-19 pandemic (Figure 1.16). Tax revenues from international activities, sustained employment growth, combined with a prudent spending strategy have contributed to putting Denmark in a strong position to meet future challenges. However, in the medium- and long-run, Denmark faces spending pressures from its commitment to raise defence spending, the implications of the climate transition, the ageing of the population, and the costs of maintaining a strong welfare model.
Note: EA17 refers to countries that are members of both the OECD and the euro area.
Source: OECD (2025a), OECD Economic Outlook: Statistics and Projections (database); and Eurostat.
Denmark’s fiscal rules in effect since 2014 and defined in the 2012 Budget Act include a deficit limit for the structural public balance, binding and multiannual expenditure ceilings for central government, municipalities, and regions and economic sanctions in case of non-compliance. The deficit limit was increased to 1% of GDP in 2022 (from 0.5% of GDP) as part of an agreement on defence and national security, in line with EU rules and government’s fiscal sustainability objective.
A key part of the national fiscal framework is medium-term fiscal plans designed by the government and aligned on a target for the structural balance in the end-year of the planning horizon, currently -0.5% of GDP in 2030. The “fiscal space” to increase expenditure or to change taxation within the planning horizon is defined relative to this target. The binding four-year expenditure ceilings are decided by the Parliament based on estimates of the available “fiscal space”.
Each year, as part of the budget proposal, an assessment is made to determine whether the planned fiscal stance stays within the deficit limit. An automatic correction mechanism is activated in case of significant estimated deviations of the structural balance from the deficit limit (except if due to exceptional circumstances such as the COVID-19 pandemic). Any new discretionary decisions involving a deterioration of the government balance beyond the deficit limit or an increase in spending above expenditure ceilings should be compensated by offsetting measures when presented in Parliament.
The Danish Economic Council ensures the function of national fiscal council by assessing the long-term sustainability of public finances, the compliance with the expenditure ceilings and their alignment with the medium-term fiscal objectives as well as the credibility of fiscal projections.
Source: Torben Andersen (2024), Fiscal Stabilisers in Denmark, Nordic Economic Policy Review 2024
Fiscal space will be used to reach NATO targets on defence spending
Meeting the 2035 NATO commitments would imply to raise defence spending permanently to 3.5% of GDP, with potential additional security-related spending of 1.5% of GDP. Under current policies, defence spending is expected to increase to 3.5% of GDP by 2026 before returning to 2.4% of GDP by 2030. Projections from the Ministry of Finance indicate Denmark has sufficient fiscal room of manoeuvre to maintain defence spending at 3.5% of GDP after 2026. The room for increasing public spending while reaching the medium-term target of 0.5% deficit by 2030 – the so called “fiscal space” – is estimated at 2.6% of GDP (see Box 1.5). Furthermore, a more rapid expansion of defence expenditure resulting from unforeseen developments—potentially pushing the government deficit beyond the 1% of GDP ceiling established by national fiscal rules—could be accommodated under the flexibility clause of the national fiscal framework, which permits temporary deviations from balance requirements in exceptional circumstances.
Recent revisions underscore the uncertainty around fiscal projections
There is large uncertainty over Denmark’s fiscal room of manoeuvre in the medium term, as it depends on uncertain economic developments, including the contribution of large successful firms and financial markets to the public finances. Projections for the period leading to 2030 that form the basis for setting the spending ceilings have been subject to frequent and major upward revisions over the past five years, enabling a possible upward adjustment of expenditure limits within the structural budget framework. In February and June 2025, updates reflected changes in demographic projections and methodology, with new estimates for structural employment, corporate and share tax levels. In June 2025 projections, the estimated “fiscal space” almost doubled. Considering new measures from the 2026 Budget Bill, public spending will be allowed to increase by 0.7% of GDP annually from 2027 to 2030. While revisions are needed to adjust policy to a changing macroeconomic environment, fiscal policy should account for the uncertainties surrounding estimates, and sufficient fiscal buffers should be maintained to mitigate potential risks.
Future tax revenues face significant risks. A substantial share of corporate income tax receipts is linked to the success of key multinational companies. Around a third of the corporate income tax revenue of 4% of GDP is collected from the top 10 largest firms. Significant company or industry-specific difficulties may impact public finances, posing risks for revenue stability and the size of available fiscal space. Projections of the Danish Ministry of Finance suggest the structural primary balance would weaken by 0.2 per cent of GDP by 2030, should markups in the manufacturing sector return to their pre-pandemic level (Danish Ministry of Finance, 2025). Furthermore, there are risks of downward adjustments on the labour market and lower than expected effects of recent reforms, including of personal income tax, on labour supply. Should tax revenues disappoint, raising tax rates in response should be avoided, as the tax-revenue-to-GDP ratio is already relatively high, reaching 43% of GDP in 2023.
There are significant fiscal pressures further ahead
In the longer term, stronger pressures on the budget balance from ageing, defence and climate change than currently envisaged in national projections would require changes in tax and spending policies to maintain Denmark on a prudent path (Figure 1.17). The ageing challenge is less severe than in some other European countries, including as a result of past pension reforms. The maturing of private pension savings and the planned increases in the legal retirement age in line with life expectancy gains contribute to long-term fiscal sustainability by reducing public spending on pensions, while stimulating labour supply. Denmark’s indexation of pension ages to life expectancy gains is among the strictest among OECD countries. In 2025, the retirement age was increased to 70 in 2040. After 2040, the one-for-one indexation of the legal retirement age would increase the retirement age well above existing and projected OECD norms, even when compared with countries that have already implemented pension reforms. Further increasing the pension age beyond the age of 70, as assumed in national fiscal projections, could prove politically challenging as it would shorten retirement for younger generations and exacerbate inequalities, as lower-income people typically enter the labour market earlier and have significantly shorter life expectancy. While this is partly included in national projections, the uptake of early retirement schemes may accelerate beyond expectations if deviations occur in the projected work capacity of older workers and large private pension wealth may allow people to leave the labour market earlier than the official age, dragging on revenues. In addition, spending on care is expected to rise significantly more than in other EU countries due to generous public support for older adults, although these projections are uncertain and assume an increase of relatively high spending per older person in care.
The climate transition will put pressure on the public finances. Denmark has developed analytical tools and models to assess the impact of climate change on economies and public finances and led the “Mainstream Climate in Economic Policies” workstream under the Coalition of Finance Ministers for Climate Action. A major fiscal cost will be the loss of revenue from excise duties as drivers shift from fossil fuels to electric vehicles, a process that is already underway in Denmark. The government planned to phase out tax advantages for zero-emission vehicles that also weigh on tax revenue (see Chapter 2), but the decision has been postponed. Furthermore, revenues of carbon taxation will decline as greenhouse gas emissions diminish. It would be sensible to introduce a system of distance-based taxation for all motor vehicles, even if set at an initially low rate, to provide a tax base for the future to compensate these effects in line with proposals in some OECD jurisdictions, such as Norway, New Zealand and the Netherlands. Nevertheless, implementation and administration costs of distance-based road taxation can be high and need to be considered, as well as the socio-economic impact of the tax, notably on people with few transport alternatives. Other fiscal costs related to climate change mitigation include subsidies to zero emissions technologies and compensation to sectors most affected by the green tax reforms (see Chapter 2).
The cost of mitigation policies for public finances are partly considered in the government’s fiscal projections, to the extent that they are already in place or legislated and only until 2030 for some. Reaching climate neutrality by 2045 as planned requires the development of renewable energy and carbon capture technology whose success likely relies on further public support (see Chapter 2). The combined additional long-term costs associated with carbon capture and loss of revenue from fossil fuels and combustion engines taxation are estimated at around 1% of GDP (Pedersen, 2025). Adapting to climate change and implementing risk-prevention measures will also induce large costs for public finances (see Chapter 2).
Note: In Panel A, projections for public spending on pension, care (healthcare and long-term care) and education draw on the European Commission 2024 Ageing Report (+0.7% of GDP by 2050). Defence spending is projected to gradually increase by 1.5% of GDP by 2030. Projections for climate change mitigation assume losses of fossil fuel and carbon tax revenues as well as rising public subsidies for green technologies in line with the Danish Ministry of Finance medium projections (sensitivity scenario n°10). In Panel B, in the “current tax and spending structure with future ageing, defence and climate mitigation costs” scenario, the primary government balance is projected to gradually deteriorate in line with rising costs presented in Panel A. The “prudent path under fiscal rules” scenario assumes consolidation measures of 1.7% of GDP to stabilise the debt-to-GDP ratio when ageing, defence and green costs are included. The “prudent path with growth impact of structural reforms” scenario assumes in addition that GDP growth increases with the implementation of structural reforms as shown in Table 1.6.
Source: Adapted from OECD (2025c), OECD Economic Outlook 117 database; OECD (2025a), European Commission (2024); and Danish Ministry of Finance (2025).
Detailed projections from the Danish Ministry of Finance and the Danish Economic Council, that include the impact of ageing, defence and climate change mitigation on public finances, suggest fiscal sustainability can be maintained under unchanged fiscal policy. Using a different set of policy assumptions, illustrative OECD projections show that stronger spending pressures without compensation measures would put the debt-to-GDP ratio on an upward trend (“current tax and spending structure with future ageing, defence and ageing costs”, Figure 1.17). In OECD projections, defence spending is projected to increase by 1.5% of GDP from 2027 to 2030. Growth of long-term care spending is stronger in the OECD projections than in national projections that assume constant real unit costs for public services. The fiscal cost associated in OECD projections with climate change mitigation consists in revenue losses from carbon taxes and subsidies for carbon capture and storage to reach government emission 2045 targets, amounting to 0.6% and 0.9% of GDP by 2045 and 2050 respectively that are not in national projections. In absence of reliable estimates, the costs of climate change adaptation are not included. OECD projections implicitly assume stable tax revenues in GDP units, while national projections include an estimated impact of reforms, which imply that tax revenues increase in GDP units.
Overall, the pressures considered in OECD projections would require spending reallocation of around 1.5% of GDP, in addition to space that would be created by eliminating the existing headroom to the fiscal rules and reducing the budget balance by around 1% of GDP. This would stabilise debt at around 35% of GDP over the long run and keep structural deficit aligned with the fiscal rules (“prudent path under fiscal rules” in Figure 1.17). The difference between the projections shown in Figure 1.17 and the national projections highlights the risks to sustainability with a different set of assumptions about policies and hence the need to remain prudent in the management of the public finances. For instance, relaxing the indexation of pension ages to life expectancy gains after 2040 as currently discussed in Denmark would add to the ageing costs relative to these projections. An alternative longevity indexation mechanism, with a lower indexation rate and a different benchmark of life expectancy gains would reduce Denmark’s room to increase the fiscal deficit while stabilising the debt ratio by around DKK 30 bn (0.9% of GDP, Danish Ministry of Finance, 2025).
Table 1.6 shows an illustrative policy package of spending reallocation and revenue-neutral changes consistent with stabilising the debt-to-GDP ratio in OECD projections and the measures recommended in this Survey. By fostering GDP growth (Table 1.5) the package of reforms recommended in this Survey would reduce fiscal pressures (“prudent path and growth impact of structural reforms” in Figure 1.17).
This box summarises potential medium-term impacts of selected structural reforms included in this Survey on GDP (Table 1.5) and fiscal balance (Table 1.6). The quantification impacts and the packages of reforms are only illustrative. The estimated fiscal effects include only the direct impact and exclude potential behavioural responses that might occur due to a policy change. While recommended reforms in this Survey have budget and GDP implications, not all can be quantified due to model limitations.
Source: OECD long-term model and OECD calculations
Note: 1. Estimates based on the 2024 EU Ageing report (baseline, healthy ageing and higher old age employment scenarios respectively)
Source: OECD calculations
1.4.2. Efficiency gains in key public services and stronger labour market can help foster fiscal sustainability
Denmark’s long-term fiscal sustainability can be reinforced through various combinations of expenditure and revenue policies, the specific mix should ultimately reflect Denmark’s population preferences. Priority should be given to spending measures, the tax burden being already among the highest in the OECD. Denmark’s government already committed to save on administrative costs in local and State services (around 0.2% of GDP by 2030) including through the use of productivity-enhancing digital technologies. This will require addressing barriers to technology adoption in the public sector (cf. above).
Denmark’s welfare model provides good quality of public services and a large range of universal benefits. Fast-rising costs of welfare services, notably of specialised social services, have already put pressure on municipalities’ finances, causing large ad hoc adjustments of State grants to municipalities. Meeting growing demand for welfare services will be more challenging as the fiscal space diminishes. Additional funding will be needed if the provision of public services continues to grow in line with private consumption opportunities, a trend that coincides with citizens’ expectations (OECD, 2024a). Compared to peer economies, spending on social protection and hospitals has been relatively large, suggesting room for savings. Reforms improving labour market outcomes and efficiency in public employment services can also contribute to long-term fiscal sustainability, by raising tax revenues and reducing reliance on social benefits.
Managing the cost of health and long-term care
Denmark’s social model provides high levels of care but involves relatively high social spending. Denmark’s total health expenditure, at 9.4% of GDP in 2023, is close to the OECD average. However, spending on long-term care (LTC), including health components, is around 3% of GDP, among the highest in the OECD (OECD, 2023b). The combined costs of these sectors are projected to rise fast, by almost 4% of GDP by 2070 (Figure 1.18, Panel A). The projected rise in LTC is the second highest increase in the EU, after Norway, driven by both generous in-kind benefits for older people and a growing number of recipients. In Denmark, LCT is universal and provided for free by municipalities. Healthcare is also largely publicly funded and provided by regions and municipalities. Long-term projections for care spending are sensitive to underlying assumptions. The Danish Ministry of Finance’s projections include a “healthy ageing” assumption, whereby health improvements parallel rising life expectancy, thereby dampening the expected growth in care costs. Conversely, demand for care services could increase more rapidly than demographic trends suggest, driven by technological advances or higher public expectations.
Healthcare and long-term care are currently undergoing ambitious reforms to further improve the quality of services, address shortages and respond to growing demand (Box 1.7). The reforms also aim to achieve efficiency gains, via reduced bureaucracy and closer coordination between healthcare and long-term care. Strengthening primary care, easing access to mental health services and improving coordination between care segments, as envisaged by on-going reforms would support healthy ageing and could entail substantial savings. Fiscal projections indicate that increasing years in good health in line with life expectancy would save 0.7% GDP on care costs by 2070 (EU, 2024). Other estimates suggest that after controlling for per capita income, demographics and the general preference for government spending, Denmark has potential savings in hospitals, given its high level of spending relative to OECD norms (Barnes et al., forthcoming; Figure 1.18, Panel B). The 2024 reform is aiming to address the relatively high spending on hospitals relative to primary care (Box 1.7).
Projections of health and long-term care costs
Note: “Nordics” include Finland, Norway, and Sweden.
Source: EU Ageing report 2024, Economic and Budgetary Projections for the EU Member States (2022-2070).
Recent reforms of healthcare and long-term care aim to improve co-ordination and to address labour shortages in the sectors. They will be phased in over 2025-2027 with a fiscal cost of about 0.25% of GDP from 2027 and additional 0.9% of GDP over 2026-2035 for investments.
Healthcare
The 2024 healthcare reform aims to improve care coordination across government levels by creating 17 health councils between four regions (responsible for hospitals, general practitioners (GPs), psychiatrists and other specialists) and 98 municipalities (responsible for prevention, rehabilitation, home care and social psychiatry). A new national framework of resource planning and a new remuneration scheme should help tackle unequal regional distribution of GPs. The number of medical university places outside of the largest cities will be expanded and the number of specialists in university hospitals will be capped, to incentivise medical professionals’ location in shortage areas. A new national framework for prevention will be set up and chronic disease treatment packages introduced to improve prevention and treatment quality across healthcare providers. Currently lacking psychiatric capacity will expand and be better integrated with other health services. New digital solutions and home treatment teams should bring care closer to the patient.
Long-term care
The 2024 elderly care reform aims to improve quality of care by reducing the high administrative burden, including by simplified supervision and lighter regulation of the sector. Care will become more holistic by assigning one provider to coordinate home nursing, rehabilitation and homecare for each client. To help address staff shortages, social and healthcare education has been expanded and made more accessible.
Long-term care expenditures have remained high, despite past efforts to raise efficiency, notably by prioritising home care and rehabilitation over institutionalisation. Growing demand for services, notably specialised social services, have increased pressures on municipalities’ finances. State grants that compensate municipalities do not systematically adjust to rising needs and transfers to municipalities have increased substantially over the past years to reduce funding gaps. As ageing progresses and fiscal space diminishes, meeting growing demand for care will become increasingly challenging. Prioritisation of spending in long-term care – as done in the early 2000s by strengthening eligibility criteria for access to care – should be envisaged to keep the already growing costs in check. As stressed in past Surveys, another option would consist in diversifying funding sources by adjusting public support to the means of citizens for non-essential services as is done for instance in the Netherlands to avoid restricting the provision of public services. More targeting based on needs and a progressive means-testing would help savings on long-term care expenditures.
Labour shortages of some professions in healthcare and LTC are a key issue, particularly outside the major cities. By 2035, projections suggest there could be a shortage of 15,000 social and healthcare workers and assistants (Danish Ministry of Finance, 2023). Recent reforms aim to address recruitment and retention problems (Box 1.7). While working and training conditions are being improved, the relatively high reliance of Danish LTC on temporary work contracts still needs to be reduced, as recommended in the previous Survey (Table 1.7). Nation-wide health resource planning models are being put in place, but data improvements may be needed to allow for a more reliable assessment of recent trends and future outlook for supply and demand of health workers. Improved skills and capacities for effective management of workforce planning also need to be developed at regional and local levels (OECD/European Commission, 2024). In England, a Workforce Planning Hub provides resources, including basic data and best practices, for local and regional workforce planners in social care.
Denmark’s healthcare is among the most advanced in the OECD in using digital solutions. An even greater use of digital tools in both healthcare and LTC, as envisaged, can further improve job satisfaction, aid reallocation of tasks to optimise skills use and help make further efficiency gains. All health and care workers and managers need support in developing a comprehensive set of digital and data literacy skills, via both life-long learning for existing professionals, as well as part of health training curricula (OECD/European Commission, 2024). In Netherlands, the collaborative initiative “Digitally literate in healthcare” has defined minimum digital skills standards for specific healthcare and LTC professions and provides targeted training via an online hub (Kaihlanen et al., 2024).
Denmark’s use of foreign-born staff in healthcare and LTC is relatively low compared to the OECD average. Administrative barriers for recruiting non-EU workers exist, such as the administrative complexity and strict eligibility criteria for work permits. The 2025 initiative to hire workers from India and Philippines can provide useful experience on most pressing issues to attract and retain foreign workers, including language training provision or housing assistance. In the longer term, however, overreliance on migrant workers should be avoided because international competition for workers will intensify with adverse effects on countries of origin (OECD/European Commission, 2024).
Achieving savings in public employment services while adapting to changing needs
Denmark is undergoing a major reform of public employment services (PES). Denmark’s active labour market policies have been well-regarded as a key aspect of the flexicurity model and spending in this policy area is among the highest in the OECD. However, spending has been relatively constant over time, despite a dramatic fall in the number of unemployed people. In April 2025, a political agreement was reached on the high-level institutional set-up of PES, with the objective to reduce spending by DKK 2.7 billion by 2030 (from DKK 11.3 billion in 2024) and address criticism over excessive rules, process requirements and complexity (Danish Ministry of Employment, 2024). Work is currently underway on how to implement the reform in detail. The reform could help to achieve substantial efficiency gains by reducing administrative burden and closing ineffective programmes, as recommended in past Surveys (Table 1.7).
Preserving the Danish flexicurity model in times of major transitions linked to digitalisation and climate change remains important and a major reform poses some risks. The reform rightly plans to ease regulation on PES services provided by municipalities. Municipalities will have higher degree of autonomy, but less resources to organise employment services to meet savings objectives. There are concerns that the reform could affect the quality of PES, generate disparities in the quality of services across municipalities and reduce incentives to support people whose reintegration in the labour market would induce large costs. While the abolition of ineffective programmes, such as “resource courses” for people with disabilities, is welcome, appropriate alternatives should be provided to avoid people moving to other benefits (early retirement, disability, social assistance) and reducing their chances to return to employment. While implementing the PES reform, Denmark will need to strengthen incentives to balance any potential negative effects of cutting costs and processes. This requires strong accountability frameworks and an appropriate performance management system (OECD, 2025b). Following the reform, municipalities will be held accountable for outcomes rather than compliance with procedural requirements. The existing mechanism whereby central government’s reimbursements to municipalities decrease in proportion to the length of jobseekers’ unemployment will also remain in place. The Central Public Employment Agency (STAR) will be in charge of monitoring outcomes of labour market policies and providing support to lagging municipalities. Efficient data exchange will be key for benchmarking and identifying best practices.
Particular attention should be put on young people detached from the education system and the labour market. While Denmark has a relatively high youth employment rate compared to the OECD and EU averages, about 10% of young people (around 45 000) are not in employment, education, or training (NEET), more than in most other Nordic countries. While job centres effectively support young people in finding jobs or education, almost half of the NEETs have been inactive for more than three years, mostly due to mental health challenges and lack of specialised support (OECD, 2024b). More worrying, the number of young people receiving long-term disability benefits has surged since the pandemic, reflecting a rise in mental health issues. In 2023, around 27% of disability pensions were granted to people under 40 (around 6000 people), despite the benefit being intended for older adults who fully lost work capacity. The “Youth Promise” programme will allocate DKK 1.3 billion up to 2035, to fund local initiatives for NEET with a focus on employment and mental health. This includes funding of Individual Placement Support (IPS) which proved effective in raising employment and education during a first trial. Integrated mental health and employment services and regular training of case workers should be further developed as priority.
Pilot programmes will assess the potential of expanding the role of private providers and unemployment insurance funds (UIF, “A-kasser”) in employment services provision. Since 2024, the UIF have been responsible for providing employment services to insured jobseekers during the first three months of unemployment. Although UIF’s labour market expertise is a valuable asset in supporting job search efforts, expanding their role further may hinder job mobility. While they could help jobseekers transition to new sectors or occupations, their expertise is typically confined in certain fields. They lack performance-based incentives aside from maintaining attractive services for their members. Moreover, pilot studies have yielded inconclusive evidence on the benefits of assigning employment services to the UIF. In parallel, to test the impact of opening PES to the private sector, a selection of jobseekers will be allowed to choose providers of employment services for the first four months in unemployment. Evidence on the capacity of the private sector to overperform the public administration in activation at a lower cost is mixed (Langenbucher and Vodopivec, 2022). In Sweden, moving to private suppliers has not triggered positive results, while being relatively costly (OECD, 2025b). The use of private providers in employment services carries potential drawbacks, including the risk of cream-skimming effects and limited incentives to engage less motivated jobseekers. Furthermore, the proliferation of service providers may complicate the governance and oversight of active labour market policies, necessitating a clear strategy to ensure adequate provider capacity and the establishment of coordinated operational frameworks.
Further raising work incentives while maintaining adequate social protection
Strengthening labour supply would raise private incomes and support the public finances. It has long been a cornerstone of achieving fiscal sustainability in Denmark and remains high on the government agenda. A large number of structural reforms have been implemented since 2022 to increase work incentives (Box 1.8). Measures including cuts in the personal income tax and premiums to those prolonging working lives should contribute to reducing financial barriers to work. Nevertheless, as stressed in previous Surveys, while the average tax wedge is close to the OECD average, labour income taxation remains relatively high for upper-middle and high incomes and can discourage productive investment and longer working hours. Moving taxation further away from personal income to housing would bolster work incentives while improving efficiency of the tax system and limiting distortions in housing markets (Table 1.7, Chapter 4).
Tax reform: A major reform of the personal income tax was initiated in 2024. The reform raised the employment allowance in 2025. It will increase the top income taxation threshold, add a new tax bracket for middle-to-high income households and introduce an extra tax bracket at the very top of the income distribution in 2026. The reform is projected to cost around DKK 10.75 bn (0.4% of GDP) and raise labour supply by around 5000 persons.
Unemployment benefits: in 2023, a reform reduced the unemployment benefit period for recent graduates from two years to one year and their replacement rate after three months. The maximum unemployment benefit was increased for the first three months of unemployment. The provision allowing individuals over 30 years old to receive 110% of their unemployment benefits while pursuing vocational education in high-demand fields was permanently reintroduced on 1 July 2023.
Social assistance: in 2025, a reform simplified income-dependent benefits, making the system more transparent and reduced the benefit deduction when labour income rises. A work requirement of up to 37 hours per week was imposed to benefit recipients who do not meet residence and employment requirements.
Pension: In 2023, the deduction of households earned income from the basic amount of the old-age pension and pension supplement was abolished. Means-testing of a partner’s earned income in social pension (including disability pension) was also abolished. In 2026, tax-free bonuses will increase for the first two years of work after the retirement age and seniors close to retirement will receive a new tax deduction. The Danish Parliament legislated to increase the state pension age from 68 in 2030 to 69 in 2035 and 70 by 2040.
Education- Working time: In 2024 and 2025, education reforms aim at speeding up entry of graduates in the labour market, including the shortening of the length of master’s programmes or cuts in generous students grants. A public holiday was abolished in 2024.
The Danish Welfare model provides broad social protection based on universal rights. Almost one in five people of working age received public benefits in 2024 and a very large share of public spending is allocated to social protection (Barnes et al., forthcoming), notably on disability and social exclusion. The 2025 social assistance reform aims to increase work incentives by simplifying the system and ensure minimum financial gains of taking up a job (Box 1.8 and Chapter 3). At the same time, the work requirement of up to 37 hours per week targeted at recipients who do not meet residence and employment criteria may be relatively costly for municipalities to implement, risks locking-in people in unskilled jobs and further stigmatising people with a foreign background.
Population ageing and past reforms of public benefits, notably increases in retirement ages and the 2013 reform restricting access to disability benefits, have coincided with increasing flows into disability-based early retirement and flex jobs schemes. As noted in the previous Survey, the system of early retirement is complex, with four different schemes and could be streamlined. Reducing the early retirement age to 3 years before the legal retirement age in all schemes and assessing work capacity vis-a-vis a broader range of jobs and on a more regular basis could help maintain people with reduced work capacity in employment (Table 1.7).
The flex job scheme that allows people with disability to work part time while receiving complementary financial support, covered almost 100 000 people (around 3.5% of the workforce) in 2024. While it has contributed to improving labour market integration of people with disability, a number of people eligible for the scheme are unemployed due to insufficient supply of flex jobs, notably for skilled positions. After the 2013 reform of disability benefits that increased the share of people with significantly reduced work capacity in the scheme, average weekly working hours of people on flex jobs almost halved (from 17 to 9). More than a quarter of them worked less than 6 hours per week in 2024. For some groups of recipients, increased working hours can result in little financial gains due to benefit withdrawal, calling for strengthening financial incentives to make additional work pay.
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