30 October 2012

Danish 180% Tax on Cars is Rather Irrelevant

bike carries car
Much is said and reblogged/tweeted about the famous 180% on cars in Denmark. Back when rationality was fashionable, this series of taxes was put into place to try and discourage people from driving but also to try and win some money back for society for the destructive nature of automobiles.

We know, for example, that for every kilometre ridden by bike, the Danish coffers recieve 23 cents.

For every kilometre driven by car, the Danish state pays out 16 cents.

Those numbers are from the "Socio-economic analyses of bicycle initiatives - methods and cases", produced by COWI in 2009.

For a more local feel, if you ride in Copenhagen from Øster Allé to Nørreport during rush hour here's the societal benefit and loss:

Bicycle: 63 cents net profit for society. (3.65 DKK)
Car: $1.15 net loss to society. (6.59 DKK)

So you can see that it has previously been important to reclaim some of the money that we've been throwing into a big, bottomless hole by subsidising car culture. It's basic economics.

Worth noting that these numbers reflect the aforementioned taxes on cars in Denmark. I think I'd throw up a little bit in my mouth if someone could calculate the net loss in countries without such taxes.

So. What ARE these taxes of which we speak? First let's look at what cars cost, based on the Danish cost of living.

In Denmark a basic compact car will cost you about 100,000 DKK. ($17,400).
A new Honda, depending on model, will cost between 200,000 DKK ($34,700 USD) and 500,000 DKK ($86,900). A new BMW, again depending on model, will set you back between 400,000 DKK ($69,500 USD) and 2.5 million DKK ($434,360 USD).

That probably looks nasty pricey to many out there, but the cost of living here in Denmark is high. Wages are high. Things are expensive to visitors.

For example, minimum wage - if you work as a bartender at the age of 20 or something like that - is around $20.00 USD per hour. When I was working at Danish Broadcasting as a journalist at the age of 37, my annual wage was about $80,000 USD per year. Just to put it in perspective.

On top of the list price of the car, here are the taxes that make up the 180%. But please consider the disclaimers that follow.

The 180% on top of a basic car price
Sales and registration: 106,960 DKK ($18,583 USD)
Ownership tax: 44,562 DKK ($7742 USD)
Insurance tax: 8412 DKK ($1461 USD)
Fuel tax at 15,000 km/year of 15 km/liter: 50,989 DKK ($8,857 USD)

Total taxes over 12 years: 210,922 DKK ($36,643 USD)

So all that looks like a dreamy scenario for those who are working towards the Paradigm Shift of replacing the deadly cars in our cities with intelligent transport forms. Wonderful that Denmark taxes motorists for the destruction they cause in our cities and in the country in general

We still hear misconceptions out there about these taxes. Things like , "they only ride bikes in Denmark because they can't afford a car". Nah. Nice try.

In Copenhagen, car ownership is at 29.1%. It's even lower in certain neighbourhoods; Nørrebro (14%) and Vesterbro (17%). But people don't own cars because they don't need to. There are a host of other transport options, including the bicycle.

Out in the distant provinces, when a young person - usually a young man - turns 18 the first thing he does is pay the $2000 fee for a driving licence course and then, upon successful completion, buys a car. So cars are not inaccessbile to Danes when 18 year olds can afford them.

And this brings us to the current reality.

Since the 180% taxes came into effect, the Danish wages have increased dramatically. So they are no longer as prohibitive as originally planned. In other words, they are rather irrelevant.

Car ownership has been rising consistently over the past 15 years at least. Even the gas prices here - currently at about $2.17 per liter (roughly $8.70 per gallon) are lower than they were in the 1970s, at the height of the two energy crises.

What's more, I heard today that the fuel tax, which as I understand it carries a certain environmental aspect, is also increasingly redundant. Simply because cars are more fuel efficient and "environmentally-friendly" than when the taxes were implemented.

The money earned by the Danish state on these taxes has fallen from 24 billion DKK ($4.1 billion USD) to just 14 billion DKK ($2.4 billion USD).

While these famous 180% taxes were meant well back in the day, they are rather comical now. The automobile burden on our society is greater than at any point in the last 40 years.

All the more reason to raise the taxes - through simple rationality and economics - and to invest in better public transport, car share programmes and bicycle infrastructure.

5 comments:

Erik Sandblom said...

Another alternative is to stop pouring money into expanding car infrastructure. Don't build it, and they won't come!

Rich McQuaid said...

"Benefit to society" is not always the same thing as "Income for the government"

Billy said...

@Rich McQuiad:

Depends on how those taxes are used. In this case, the "cost to society" is the cost the govt paid (with tax money) to build roads, traffic signals, etc., plus the environmental damage caused by fossil fuel engines and road infrastructure, plus the health damage caused by air pollution and lack of exercise, and so on. This is money paid out or costs occurred simply because someone drove somewhere in a car.

These costs do not occur when someone rides a bicycle somewhere.

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Maurizio Denmark said...

One thing to say though is that the high cost of car make so that Denmark has one of the oldest average age on cars, making them very environmentally un-friendly and therefore making the benefits of those taxes lower than you say.