Amending the car tax law is under consideration, caught between economic necessity and politicians' fear of voters.
According to DR, the anticipated reform of Denmark's car tax system faces significant political hurdles, despite its economic importance and relatively simple technical implementation. The report, prepared by political journalist Christine Korsen, was published yesterday, Sunday.
The ambition is to have one million green cars by 2030.
In October 2018, Lars Løkke Rasmussen, then Prime Minister and leader of the Venstre party, announced an ambitious goal of having one million green cars in Denmark by 2030. At the time, this was considered an almost impossible goal, especially since the number of electric and hybrid cars sold up to that year did not exceed 3,000.
Despite changes in government, the ambition for green transition agreements has persisted. In 2020, the Social Democratic government led by Mette Frederiksen adopted a more conservative target of 775,000 green cars by 2030.
The purchase of electric cars has exceeded all expectations.
However, reality has exceeded all expectations, as the latest forecasts from the Ministry of Climate indicate that the number of electric cars will reach one million by 2028, and will rise to 1.2 million in 2030.
Christine Korsen said, “The Danish appetite for electric cars has exceeded all targets, but costs have also risen at the same pace.”.
High costs to the treasury and a decrease in revenues
According to the source, reducing taxes on electric cars cost the state billions of kroner, but it helped boost sales significantly. In addition to the lost revenue from registration fees, the state also lost a substantial portion of its gasoline and diesel tax revenue due to the decline in sales.
According to the current plan, the agreement concluded in 2020 stipulates a gradual increase in registration fees for electric cars starting next year, unless politicians make a new decision.
broad reform plan
The three-party coalition government (Social Democrats, Venstre, and Moderates) has been working through its Green Committee in recent months to prepare a comprehensive reform plan. Its aim is to promote electric vehicles and ensure a balanced public budget.
The main idea is to eliminate registration fees for all cars, which would mean a loss of about nine billion kroner. If the electricity tax is also reduced to the minimum allowed by EU regulations, the cost will rise to 18 billion kroner annually.
Among the proposals to compensate for these losses:
- Raising the annual green tax paid by car owners and linking it to the weight of the car or the power of its engine, thus giving it a more equitable social character.
- Imposing a new tax on road use could later pave the way for a more comprehensive pricing system based on congestion and the number of kilometers traveled.
- Generating additional revenue by imposing this tax on foreign drivers as well, which could generate a quarter of the revenue.
The report also noted that this plan could reduce bureaucracy, as the tax authority currently employs around 400 people to handle complex registration fees, an area that is subject to widespread attempts at evasion.
Political sensitivity and upcoming elections
While the idea is technically simple, it is politically highly sensitive. Owners of conventional cars who already paid high fees upfront could find themselves having to pay higher annual taxes and new road tolls, while new buyers of electric vehicles would receive greater benefits.
This situation could provoke widespread anger, especially in rural areas where residents rely more on cars, which poses a particular challenge for the Social Democratic Party and the Liberal Party Venstre, given the strong competition from parties such as the Danish Democrats and the Danish People's Party, ahead of the municipal elections scheduled for next November.
Corsen added: “From now on there is a permanent election campaign, and politicians carefully calculate the reactions of voters.”.
The decision rests with the government leaders.
The fate of the reform will ultimately be decided by the leaders of the ruling coalition: Prime Minister Mette Frederiksen, leader of the Social Democratic Party (Socialdemokratiet); Defense Minister Troels Lund Poulsen, leader of the Liberal Party (Venstre); and Foreign Minister Lars Løkke Rasmussen, leader of the Moderate Party (Moderate).
The decision is likely to be linked to the major economic plan scheduled to be announced in the fall, where additional resources may be allocated to facilitate the passage of the reform, but until then, car owners and the entire sector will remain waiting to see what the car tax reforms in Denmark will lead to.
