TAX TRUST

If you have the highest tax take of any country in the world, as Denmark does, then it makes sense to have a tax authority that all of your citizens can trust. Unfortunately, Danish citizens' trust in Skat has taken a series of major knocks in recent months.

First, there has been the drip, drip of revelations relating to the case of the tax status of Stephen Kinnock, the British wife of Prime Minister Helle Thorning-Schmidt. It is still not clear exactly who did what, and when (an official commission is busy digging); but it seems as if various officials, notably the Head of the Tax Ministry, interfered in order to try and get a politically satisfactory result.

Secondly, it is clear that Skat went aggressively after people they thought were trying to evade tax. So aggressively in fact, that they may have broken the law. Lawyers are currently collating evidence that may lead to these officials' being fired.

However, it is the latest revelations that will have had the worst impact, since they apply to many, many taxpayers. It turns out that since 2003, when Skat was given responsibility for valuing property for tax purposes, up to three out of every four valuations have been wrong. Even worse, both Skat and the six Tax Ministers who have held the post since then, have known about the problems and done nothing about them.

In Denmark, property taxes are an important part of local authority finance. From a tax administration point of view, they are good taxes. There are fewer properties than there are people, they tend not to move or hide themselves, and taxing them is broadly progressive (bigger houses are generally owned by richer people). Furthermore, taxing property helps to dampen speculative bubbles. The only disadvantage is that they tend to be paid in one go, so taxpayers know (in contrast to, say, VAT) exactly how much they pay each year.

Although some people will have gained from Skat's mess-up, they are unlikely to shout very loudly. Those adversely affected will, however, shout very loudly indeed. In other words, this is an unmitigated disaster for the tax authorities, and yet another blow to Denmark's famous welfare society.

Walter Blotscher