For the most part, Danmarks Nationalbank agrees with the Chairmanship's assessment of the cyclical position, the capacity limit and the fiscal policy requirements. Danmarks Nationalbank does not produce long-term projections, but the Chairmanship's expectations of the potential for growth over a 10-year horizon seem to be on the high side.
It may be misleading to focus exclusively on growth in real GDP when assessing the cyclical position and the development in prosperity. In an interesting analysis, the Chairmanship – in line with Danmarks Nationalbank – finds that, taking demographic factors, the terms of trade and investment income from abroad into account, the development in prosperity in Denmark since 2008 has been on a par with our neighbouring countries. Irrespective of the increase in prosperity and the development in productivity that has taken place, considering structural measures that may boost productivity is justified.
The Chairmanship also correctly states that the fixed exchange rate policy cannot contribute to explaining low Danish growth after the financial crisis. It is true that downward pressure on the krone briefly occurred in the autumn of 2008 and in 2009, followed by upward pressure. Due to the fixed exchange rate policy, obviously neither led to changes in the krone rate against the euro. However, warnings must be issued more widely against harbouring partial visions about what the state of the exchange rate and the economy would have been in the absence of the fixed exchange rate policy. The policy has consequences for the approach in all other economic policies and for fundamental stability and credibility. A fixed exchange rate policy is not something you can just opt into and out of (for instance, you cannot "obtain" a lower exchange rate in some quarters without also getting a higher exchange rate in others). The fixed exchange rate policy has much more far-reaching consequences, including for wage formation, formation of interest rates, financial stability, trade patterns and a sense of security about financial transactions.
The Chairmanship has prepared a good analysis of housing taxation. Danmarks Nationalbank shares its assessments and encourages everyone to read the chapter.
The primary focus of the analysis is on economic efficiency and distribution consequences. Indeed, it is difficult to understand that in tax policy terms a system is acceptable under which very different taxes are in practice levied on homes of the same value across properties and regions. It would have been good, however, if the problems with such a taxation method in terms of stabilisation had been emphasised more. In the short and medium term, they are an important reason for restoring the link between taxation and property values. A discussion of the level of taxation should not stand in the way of quickly restoring the link between property taxation and house prices in order to make taxation countercyclical and thereby strengthening the automatic stabilisers.
The Chairmanship should have addressed the subject of capital gains taxation of housing more strongly. If such a tax is of importance, it will inevitably lead to substantial lock-in effects, unless (highly fluctuating) taxes are regularly levied on unrealised gains. In the event of realisation taxation, individual homeowners have to hold on to their homes for as long as possible, particularly in the hope that such taxation will be abolished before the homes are sold. Such subsequent abolishment is likely due to the market consequences of lock-in effects – a lower supply of homes creates short supply situations, and shrinking turnover creates distortion.
Unless the unrealised gains are taxed on an ongoing basis, ever-increasing deferred taxes will also be accumulated – tax revenue that may prove difficult to collect in the longer term. The administration of purchase and sales prices, improvements, repairs and maintenance over what would, in practice, often be half-centuries would pose major challenges. Furthermore, the actual time of implementation would have substantial consequences in terms of distribution across properties and regions – it would have an expansionary effect where prices have already risen considerably, and a tightening effect where this is not yet the case.