DENMARK

Denmark is a constitutional monarchy. It has a representative parliamentary system with a prime minister acting as head of government, a monarch as head of state and a unicameral parliament known as the “Folketing”. The Kingdom also comprises two autonomous constituent countries in the Atlantic, The Faroe Islands and Greenland, neither of which are EU members and which both have their own legislative assemblies. The country is decentralised in regions and municipalities, with no hierarchy between both levels. The principle of local self-government is enshrined in Article 2 of the Danish Constitution.

Municipalities are ruled by the Law on Local Self-Government (1968), which has been amended several times over the years. Decisions at the municipal level are vested in the local council. Local councillors are elected for a four-year period. The council elects the mayor from amongst its members for a four-year term. Regional governments are ruled by the Regional Government Act. Regional councils are made of 41 members, elected for four years during general regional elections, with a Chairperson as its head.

An important local government reform was launched on 1 January 2007 after several years of preparation and negotiations, which significantly changed the territorial and institutional organisation. The 14 counties were abolished and replaced by five new regions. The former 271 municipalities were merged into the current 98. The State territorial administration was also reformed. This reform had three main aims: improving the efficiency of the public sector in order to provide optimum services but without increasing taxation; reinforcing local democracy and local social services delivery, closest to the citizens; and improving the allocation of responsibilities across levels of government with clearer tasks and less overlapping.

From 2012 to 2019, part of a wider reform of the public sector administration, nine municipalities (initial number, extended afterwards) took part in a policy experiment called the “Free Municipality” initiative. They were granted exemptions from government rules and bureaucracy requirements, with the aim to review potential future legislation simplifying and de-bureaucratising Danish municipalities. The Centre for Collaborative Democracy (CfSD) was also established to offer advice to all subnational entities on planning and participatory processes.

The organisation “Danish Regions” (Danske Regioner) promotes the interest of the five regions and provides them with professional services. It is governed by a board of elected regional politicians from the five regions, appointed for four-year periods.

TERRITORIAL ORGANISATION
MUNICIPAL LEVEL	INTERMEDIATE LEVEL	REGIONAL LEVEL	TOTAL NUMBER OF SNGs (2020)
98 municipalities (kommuner)		5 regions (regioner)
Average municipal size: 59 591 inhabitants
98		5	103

OVERALL DESCRIPTION: Denmark has a two-tier system of local government resulting from the 2007 local government reform that significantly changed the territorial organisation.

REGIONAL LEVEL: Following the abolition of counties in 2007, the regional level is composed of five regions: Region Hovedstaden, Region Midtjylland, Region Nordjylland, Region Sjælland, Region Syddanmark. Population ranges from 590 000 inhabitants (Nordjylland) to more than 1.86 million in the capital city region (Hovedstaden). The average regional population size is 1.17 million inhabitants.

MUNICIPAL LEVEL: A major administrative reform started in 2002 with the appointment of a Commission on Administrative Structure. The reform was adopted by the Parliament in 2005 and implemented in January 2007. Its purpose included economies of scale, greater professionalisation of municipalities, and increased capacity to receive and manage new responsibilities, in particular in the social sector. In early 2020, the average municipal size was 59 591 inhabitants (vs 10 254 inhabitants in the OECD on average) and the median size, 43 164 inhabitants. After the reform, 9% of municipalities had fewer than 20 000 inhabitants (vs 67% in the OECD on average).

The capital city, Copenhagen, has a special administrative and political structure, as do three other major cities (Aarhus, Aalborg and Odense). The Copenhagen Metropolitan Region combines Copenhagen, Frederiksberg and 13 smaller surrounding municipalities.

HORIZONTAL COOPERATION: Inter-municipal cooperation is widespread at the municipal level. On average, each municipality participates in 47 cooperative arrangements with other municipalities or with private companies. Municipalities cooperate in various services: employment and immigrant integration, day care and school, culture and leisure activities, social services, technology and the environment, elderly care, health, digitization, business development, and tourism. The administrative reform of 2007 has not decreased inter-municipal cooperation markedly.

The 2007 territorial reform significantly changed the distribution of responsibilities between the central government, regions and municipalities. Following the reform, the five regions were granted responsibilities for a single sector: health care services. This included the exclusive task of managing the hospital system, controlled by national legislation. Moreover, they are in charge of advising the municipalities on spatial planning and regional development, and of organising regional public transportation (bus services and some non-state-owned railways) and road subsidies, in cooperation with the municipalities. The other responsibilities of the former counties were either transferred to the municipalities or recentralised. Recently, in 2019, the responsibility for business promotion was transferred from the regional to the national level (Danish Board of Business Development). This competence is now shared between municipalities (local business services) and the state (specialised business services).

Some of Danish municipalities’ responsibilities are stipulated by law, while others are based on unwritten municipal authority rules. With the 2007 reform, municipalities gained responsibilities for social welfare and education, making them responsible for most citizen-related tasks. Overall, their tasks include pre-school, primary, lower secondary and specialised education, healthcare (preventive medicine, dental care, home care, etc.), social welfare (child, elderly), support services (unemployment insurance, early retirement benefits, cash benefits, and sickness benefits), sports and culture, spatial planning, nature and environment, job centres, integration of immigrants, local roads, etc. Framework legislation includes the general competence clause for local public services, which means that municipalities and regions are free to choose how to address these local issues, as long as they meet goals and minimum standards of service delivery.

Main responsibility sectors and sub-sectors
SECTORS AND SUB-SECTORS	Regional level	Municipal level
1. General public services (administration)	General administration; Public buildings and facilities	General administration; Public buildings and facilities; Digitalisation
2. Public order and safety
3. Economic affairs / transports	Regional development; Tourism; Nature and environment; Employment; Development in remote areas and in rural districts; Raw material mapping and planning); Public transport	Local roads; Maintenance of regional roads; Local highways; Employment services (active labour market policies, local employment strategies, operation of job centres); Industrial and economic development aiming at stimulating growth; Business promotion (local business services);
4. Environment protection	Action against soil pollution	Refuse collection; Regulations regarding constructions, roads, transportation, drains, recreational areas, drinking water, waste, and waste-water management
5. Housing and community amenities	Regional development plans and regional growth strategies; Rebalancing action on behalf of the peripheral zones and rural areas	Administration of housing benefits transfers; Water supply; Spatial planning and environment
6. Health	Public health (public hospitals, psychiatric services, health insurance, primary healthcare and specialised medicine); Outpatient medicine; Ensuring that all Danes have access to a practising physician	Rehabilitation; Home care; Prevention of abuse; Dental care; Promotion of health
7. Culture & Recreation		Libraries; Theatres; Sports facilities
8. Education		Pre-school; Primary, lower secondary and specialised education; Educational assistance for young people
9. Social Welfare	Support services for the disabled; Operation of institutions for exposed groups	Care for elderly and disabled; Child (day)care; Psychiatric treatment; Social psychiatry; Placement of neglected children; Specialised education; Integration of refugees and immigrants

Scope of fiscal data: regions, municipalities, regional and municipal agencies.

SNA 2008

Availability of fiscal data: High

Quality/reliability of fiscal data: High

GENERAL INTRODUCTION: The right of municipalities to manage their own affairs independently but under state supervision is enshrined in Article 82 of the 1953 Political Constitution. The specific rules on internal structure, financing and supervision of local and regional authorities are laid down in the 1968 Law on local self-government, which has been amended several times.

Overall, Danish SNGs enjoy high levels of fiscal decentralisation regarding expenditures, but their autonomy is much more limited when it comes to revenue. Municipalities are the only subnational level to raise tax revenues, as opposed to regions which have no taxation powers. Taxes, mainly from personal income, are the most important source of revenue for the municipalities. Regions are mainly financed through subsidies from the state and activity-based co-financing from the municipalities.

Subnational government expenditure by economic classification
2020	Dollars PPP / inhabitant	% GDP	% general government	% subnational government
Total expenditure	19 876	32.8%	61.4%	100.0%
Inc. current expenditure	19 836	32.8%	66.4%	99.8%
Compensation of employees	6 743	11.1%	72.5%	33.9%
Intermediate consumption	3 519	5.8%	65.5%	17.7%
Social expenditure	8 103	13.4%	74.5%	40.8%
Subsidies and current transfers	1 389	2.3%	35.3%	7.0%
Financial charges	29	0.0%	8.8%	0.1%
Others	53	0.1%	71.2%	0.3%
Incl. capital expenditure	1 002	1.7%	40.4%	4.8%
Capital transfers	40	0.1%	9.3%	0.2%
Direct investment (or GFCF)	962	1.6%	46.9%	4.6%

EXPENDITURE: Subnational governments, in particular municipalities, are providers of numerous public services and benefits in key areas, making Denmark the most decentralised unitary country of the OECD (as measured by spending). SNG spending in Denmark amounted to 32.8% of GDP and 61.4% of public expenditure in 2020, to be compared to 17.1% of GDP and 36.6% of public spending in the OECD on average. Subnational governments employ the vast majority of public staff and are responsible for a very large share of social expenditure, much higher than the OECD average (74.5% versus 14.9% in 2020), given that both municipalities and regions are responsible for many social services.

DIRECT INVESTMENT: The role of Danish subnational governments in public investment is lower than across the OECD, where on average subnational governments´ investment accounted for 61.5% of public investment in 2020. Moreover, investments do not form a big share of subnational government expenditure (4.6% vs. 9.9% in the OECD in 2020). In many cases, public investment depends on the room for manoeuvre that subnational government have for prioritising their spending. It should also be noted that municipalities can borrow only for investments in utility services.

Public-private partnerships are not widely used by SNGs in Denmark. One reason for this is that municipalities can get financing for investment easily and cheaply from KommuneKredit, the credit association for regions and municipalities in Denmark. Therefore, the use of PPPs must be motivated by other factors, such as more efficient implementation of the project, or risk sharing. The PPP model is particularly promoted for regional councils, in particular for the construction of hospitals.

Subnational government expenditure by functional classification
2020	Dollars PPP / inhabitant	% GDP	% general government	% subnational government
Total expenditure by economic function	20 838	34.4%	-	100.0%
1. General public services	900	1.5%	9.0%	4.3%
2. Defence	6	0.0%	0.8%	0.0%
3. Security and public order	40	0.1%	6.5%	0.2%
4. Economic affairs/transports	734	1.2%	23.5%	3.5%
5. Environmental protection	144	0.2%	58.8%	0.7%
6. Housing and community amenities	78	0.1%	68.2%	0.4%
7. Health	5 262	8.7%	93.1%	25.3%
8. Recreation, culture and religion	452	0.7%	43.3%	2.2%
9. Education	1 733	2.9%	42.9%	8.3%
10. Social protection	11 491	19.0%	55.5%	55.1%

The largest area of spending for SNGs is by far social protection, which accounts for 55% of subnational expenditure, a much higher share than the OECD average (14.1% of subnational expenditure in 2019) and 19.0% of GDP (2.2% of GDP in the OECD on average). Social protection is a key responsibility of municipalities in particular. Health expenditure is the second highest budget item, accounting for 25.3% (vs 18.0% in the OECD) and 8.7% of GDP (vs 2.9% in the OECD). It is almost exclusively the responsibility of regions (health care represents 90% of total regional expenditure), which are responsible for the organisation of hospital services.

Although some other spending sectors represent a relatively low percentage of total subnational government expenditure, SNGs represent a substantial share of total public spending in the following areas: housing and community amenities, recreation and culture, environment protection. Compared to other OECD countries, spending in economic affairs and transports is relatively low (while it represented 13.6% of SNG expenditure on average in the OECD in 2019).

Subnational government revenue by category
2020	Dollars PPP / inhabitant	% GDP	% general government	% subnational government
Total revenue	20 975	34.6%	64.6%	100.0%
Tax revenue	7 648	12.6%	26.8%	36.5%
Grants and subsidies	12 281	20.3%	-	58.6%
Tariffs and fees	966	1.6%	-	4.6%
Income from assets	61	0.1%	-	0.3%
Other revenues	19	0.0%	-	0.1%

OVERALL DESCRIPTION: In Denmark, subnational government revenue as a share of GDP and as part of public revenue was the highest amongst OECD unitary countries in 2020. Grants and subsides are the main funding source for regions, which are no longer entitled to levy taxes (unlike the former counties), while taxes are the main source for municipalities.

Grants account for 59% of total subnational government revenue, a much higher share than in the rest of the OECD countries (41.2% on average in 2020). The Danish system for allocating financial resources is based on the “expanded total balance” principle (Det Udvidede Totalbalanceprincip - DUT), which guarantees a balance between the tasks assigned to municipalities and their financial resources. The “DUT” balance principle means that the state allocates funds to municipalities and regions in line with their expenditure needs.

TAX REVENUE: Since the 2007 administrative reform, municipalities are the only subnational level of government allowed to levy taxes (whereas prior to the reform, the former counties also perceived their own property and personal income taxes at regional level).

Major own-source taxes are the local personal income tax (89.2% of municipal tax revenue, 32.6% of SNG revenue and 11.3% of GDP in 2020) and the recurrent taxes on immovable property (10.7% of municipal tax revenue and 3.9% of total subnational revenue). The local income tax is collected by the central government together with the national income tax. Municipalities can set the local income tax rate. There is however a system that aims to slow down the local income tax rate growth: if a municipality decides to increase tax rates, using a complicated formula, a portion of tax revenue raised by local tax rate increase will be paid to the central government.

Recurrent taxes on immovable property are collected by the municipalities. They comprise the land tax which accounts for the larger part, a municipal duty on land (public property) and municipal duties on residential and non-residential buildings. Local governments are entitled to exempt private schools, non-profit institutions and museums, amongst others, from the land tax. A property tax reform was approved in 2017 and became fully effective in 2021. The reform included new valuations of property to more accurately reflect the property market values, thereby ending the property valuation freeze in place since 2002, which has led to falling effective tax rates for homes experiencing increases in value. Valuations are updated every second year since 2020. For many homes, this change leads to higher valuations, but at the same time the tax rates are lowered. Homeowners whose overall housing taxes increase with the new system will be compensated through a tax rebate. The payment of tax increases after 2021 are to be deferred until the home is sold. Overall, in 2020, the municipal recurrent taxes on immovable property accounted for 1.4% of GDP, above the OECD average of 1.0%.

Another tax for which municipalities are able to influence the rate is the Church tax. Shared tax revenue between municipalities and the state comprise company tax, researcher tax and estate tax.

GRANTS AND SUBSIDIES: The regions are mainly financed by transfers from the central government and municipal contributions, according to three main pillars: the health sector, regional development and educational/social institutions. For instance, in the health sector, the main grant (representing 75% of health care expenditure) is allocated according to a formula based on population size and objective criteria measuring regional spending needs, including the average population age and socio-economic structure.

Municipalities, on the other hand, receive earmarked grants and block grants. Municipalities also receive grants awarded under the statutory financial equalisation arrangements, which were modified in 2007. The Danish equalisation scheme aims to even out the differences across municipalities due to gaps in the tax base, composition of age groups and social structure in general, to give municipalities the same financial possibilities to accomplish their tasks and provide public services. It is based upon the “structural deficit” (or surplus), i.e. the difference between municipal calculated tax revenues (calculated with an average rate of taxation) and an estimate of its spending needs. It is composed of a national equalisation component (58% of the difference between the estimated expenditure need and the estimated tax revenue), and equalisation within the capital city (27% of the difference between the estimated expenditure need and the estimated tax revenue). The remaining part is, as a general rule, allocated to the municipalities by population.

OTHER REVENUE: Other sources of revenue consist mainly of charges and duties from public services (sewage disposal, waste disposal, gas, electricity, heating and water supply); private and public nursery schools (the cost of which is set by law); care for the elderly (elderly persons housed by the municipality are required to pay a rent, electricity and heating).

Revenues from the sales of assets and return on capital investments, chiefly from the sale of property and net financial interest, represent a very small percentage of local revenue compared to the OECD average (2.0% in 2020).

Subnational government fiscal rules and debt
2020	Dollars PPP / inh.	% GDP	% general government debt	% SNG debt	% SNG financial debt
Total outstanding debt (consolidated?)	6 551	10.8%	18.6%	100.0%	-
Financial debt	4 286	7.1%	14.5%	65.4%	100.0%
Currency and deposits	395	-	-	6.0%	9.2%
Bonds / debt securities	0	-	-	0.0%	0.0%
Loans	3 891	-	-	59.4%	90.8%
Insurance pensions	0	-	-	0.0%	-
Other accounts payable	2 265	-	-	34.6%	-

FISCAL RULES: Local governments are subject to a structural balanced budget rule. With the 2012 Budget Law, legally multiannual binding expenditure ceilings were introduced in central government, municipalities and regions. The limits apply across the entire municipal sector and there is a yearly negotiation between central government and municipal sector representatives about financing. These four-year binding expenditure ceilings are set annually, for current expenditure only. They do not cover investment. In case of non-compliance, the gap will have to be compensated the following year, and central transfers may be reduced.

DEBT: Regions are not allowed to borrow on capital markets, whereas municipal borrowing (loans and bonds) is subject to the supervision and approval of the central government. In general, municipalities can only borrow for capital expenditure for financing certain utility services. Municipalities are also allowed to borrow to meet their short-term needs with permission from the central government. Danish SNG outstanding debt as a percentage of GDP is lower than in OECD countries where it accounted 27.9% of GDP in 2020. However, the share of SNGs in public debt is on par with the OECD average (20.2%). SNG debt is made up of financial debt (65% of total outstanding debt) and other accounts payable (35%). The financial debt is composed primarily of loans (90.8%), and to a lesser extent of currency/ deposits.

Although Copenhagen and all other Danish municipalities have free access to the national capital market, they do not issue bonds directly. They often turn to KommuneKredit, a local government bank established in March 1899, and governed by Act No. 383 dated 3 May 2006 on the Credit Institution for Local and Regional Authorities in Denmark. Under the supervision of the Ministry of Economic Affairs and the Interior, it provides lending and finance leases to Danish municipalities and regions. Currently, all municipalities and regions are members of KommuneKredit, which hold 90% of subnational government loans in the country.

KommuneKredit issued its first green bond in 2017, and since then, it has issued a total of more than EUR 2.5 billion in green bonds. In 2022, it developed a specific Green Bond Framework with the aim to support local governments’ access to debt for financing the net-zero transition.

TERRITORIAL MANAGEMENT OF THE CRISIS: The Danish central government has the main responsibility for policy responses to COVID-19. In normal times, the Danish Health Authority, the overall national authority for emergency preparedness in the health sector, and Statens Serum Institute (SSI) are responsible for monitoring and providing recommendations to the Minister of Health. Danish Health Authority works closely with the municipalities, regions, police and the Danish Emergency Management Agency on contingency planning and have a permanent seat on the National Operational Staff (NOST) and the International Operational Staff (IOS). When the COVID-19 pandemic started, coordination across levels of government involved the National Security Council, headed by the prime minister and including ministers of health, justice, foreign affairs, defence and finance, as well as leaders of the National Health Authority and the National Serum Institute. The ability to invoke expanded powers during epidemics was enshrined in law through the new Epidemics Act, enacted in March 2021, under the supervision of a parliamentary Epidemic Committee.

The national and regional health authorities established a COVID-19 Intensive Task Force to oversee assessment and governance of resources needed during the pandemic. During the crisis, the National Health Authority has given guidance to the 5 regions and the 98 municipalities. Regions have cooperated with one another by admitting patients from other regions overburdened by COVID-19 patients. The Medicines Agency, working with the regions and the municipalities, established a national logistics center tasked with monitoring the distribution and redistribution of critical medical devices and protective gear/equipment. The Medicines Agency collaborated with AMGROS, a regional drug wholesaler, as well as other wholesalers, to stockpile essential and vital drugs. Finally, the Danish Health Data Authority collaborated with the National Health Authority, the Statens Serum Institut and the regions to collect data on coronavirus-related hospitalizations and deaths.

EMERGENCY MEASURES TO COPE WITH THE CRISIS AT THE DIFFERENT LEVELS OF GOVERNMENT: The central government has been responsible for direct support to various stakeholders during the crisis, along with regions and municipalities which have had a major role in tackling the impacts of the crisis. The main burden of the pandemic has been on health care, as the five regions have been responsible for securing beds and ICU capacity in the hospitals. Regions and municipalities have also been responsible for carrying out the COVID-19 testing and vaccinations. Other municipal services have been affected in many ways. In social services, the follow-up on the well-being and social problems of vulnerable children have been postponed. The day care centres and schools have had to organise smaller groups of students and conduct distance learning. In employment services, courses for unemployed and job seekers have been postponed. In elderly care, preventative home visits have been limited. The cleaning and sanitation of premises has also caused extra work and costs.

Denmark’s fiscal response to the crisis comprise automatic stabilisers, which are the strongest in the EU. This strategy reduced variations in disposable income. Support to firms include postponing VAT and tax payments, government loans and compensation to self-employed for lost revenue. In 2020 this form of support totalled DKK 276 billion (11.8% of GDP). In 2021 tax payments for firms were postponed by an additional DKK 57 billion (2.3% of GDP), and interest-free loans to firms totalled DKK 258 billion (10.6% of GDP). A further stimulus package was agreed in June 2020, totalling around 2.5% of GDP in 2020 and 0.8% in 2021, including some previously announced and off-budget measures.

IMPACTS OF THE CRISIS ON SUBNATIONAL GOVERNMENT FINANCE: Due to the COVID-19 crisis, municipal expenditure increased by about EUR 1.6 billion in 2020 (2.9%) and is estimated to increase by an additional EUR 2.2 billion in 2021 (3.8%). The increases were driven mainly by social services and staff expenditure. Municipal revenue remained stable between 2019 and 2020, but is estimated to decrease in 2021 by nearly EUR 313 million (-4.4%).

In regions, expenditure increased by EUR 424.4 million (2.4%) in 2020 and are expected to grow by nearly EUR 67 million (0.4%) in 2021. Revenue increased by EUR 106.2 million (6.5%) in 2020, and were expected to moderately decrease by EUR 0.8 million (0.05%) in 2021.

Early in the COVID-19 crisis, to support SNGs to cope with the crisis, it was announced that national authorities would accept budget over-runs by regions. In May 2020, the central government agreed to compensate regions for any additional expenditure in 2020 arising from the pandemic, and this was continued into 2021. Regions were allocated DKK 3.6 billion (EUR 498 million) in 2020 to spend on testing and personal protective equipment (PPE), and an additional DKK 3.2 billion (EUR 443 million) to compensate for COVID-19-related expenses in 2020. The new agreement for 2022 includes an additional DKK 1.7 billion (EUR 235 million) for COVID-19-related expenses in 2021.The central government also allocated DKK 2.6 billion (EUR 360 million) in 2020 and DKK 1.3 billion (EUR 180 million) in 2021 to municipalities to help cover additional costs, including PPE and school cleaning expenditure.

ECONOMIC AND SOCIAL STIMULUS PLANS: In December 2020 a green recovery package for 2021-22 was released by the central government, for an estimated cost of 2.6% of GDP, partly funded by EU Recovery and Resilience Facility grants. This package included disbursement of holiday allowances in March 2021, expected to boost incomes by DKK 22 billion (0.9% of GDP) after tax. More funds were allocated to support firms affected by restrictions over the winter and for investments that reduce greenhouse gas emissions in energy, buildings, transport and agriculture. About 0.7% of GDP was allocated in 2021 to compensate the mink industry, which had to cull its stock in late 2020 following infection with a mutated strain of COVID-19. Further funding was provided to increase the generosity of the “housing-job scheme”, which gives tax deductions for household services such as cleaning and childcare and for the costs of energy saving renovations of private homes.

In addition, the Agreement on the Finance Act for 2020 provides for a significant boost to the municipal economy of DKK 0.9 billion in 2020 and DKK 1.1 billion in 2021 for better standards in day cares, more teachers in primary school as well as increased care and presence in elderly care. The municipal expenditure ceiling for 2021 was raised by DKK 1.5 billion, resulting in municipal service expenditure limit of DKK 267.2 billion. The central government has also encouraged municipalities to increase investments in infrastructure and renovation projects (schools, public facilities, public housing). To achieve this, the central government will subsidise municipal investments by 1 billion DKK, and the spending limit to municipal investment was set at DKK 21.6 billion in 2021.