Denmark’s Central Bank Warns: No Money Left

Irina

March 30, 2026
10:30 am

Denmark’s central bank has issued a stark warning to politicians: there’s no room in the budget for campaign promises like slashing fuel taxes, cutting food VAT, or changing pension rules unless the money comes from somewhere else. The message comes as the Liberal Party pushes to drop petrol and diesel taxes to EU minimum rates, a move that would cost roughly 3.5 billion kroner for the rest of 2026.

Christian Kettel Thomsen doesn’t mince words. The National Bank director told politicians that the era of spending without consequences is over. If you want to spend a krone somewhere, you need to point to where it’s coming from.

I’ve covered enough budget cycles here to know that’s not what most parties want to hear. But Thomsen has the numbers to back up his caution, and they’re sobering.

The Liberal Party’s Fuel Tax Gambit

Venstre wants to cut fuel taxes to EU minimum levels for what’s left of 2026. That means petrol excise duty would drop to 2.67 kroner per liter and diesel to 2.46 kroner per liter. Fill a 40 liter tank with petrol and you’d save more than 100 kroner. Petrol prices would fall by over 2.50 kroner per liter, diesel by roughly 1.80 kroner.

It sounds attractive. Fuel costs bite, especially for people who need to drive for work. But the National Bank sees problems with letting politicians mess with price signals when markets are already volatile.

Thomsen argued that when oil supplies drop and prices spike, those high prices serve a purpose. They force the economy to adjust. If governments start tampering with tax structures every time prices swing, they interfere with that adjustment and potentially keep prices elevated longer. Denmark isn’t the only country that could make this mistake, and if multiple nations cut fuel taxes simultaneously, the market distortion gets worse.

The Inflation Risk Nobody Wants

There’s another issue. Denmark committed to reducing dependence on gas and oil. Cutting fuel taxes sends the opposite signal. It makes fossil fuels cheaper just as the country tries to shift away from them.

The real concern, though, is inflation. Thomsen pointed to 2022 and 2023, when price increases hit everything and everyone worried. We’re not there yet, but energy costs don’t stay isolated. Energy feeds into producing nearly everything else. If oil prices keep climbing, those costs spread through the entire economy.

The National Bank ran scenarios. Even in the worst case, with oil at 160 dollars per barrel for an extended period, Denmark would still see modest growth in GDP and employment. We’d hold on, but inflation could reach 4.5 percent this year. That’s not catastrophic, but it’s high enough to hurt household budgets and undermine wage gains.

Thomsen’s advice is simple: don’t make it worse. Don’t loosen fiscal policy beyond what’s already been done. That means no broad tax cuts, even popular ones.

Where The Money Already Went

Part of the reason there’s no room is that Denmark already spent the fiscal cushion. After Russia invaded Ukraine, annual defense spending jumped by 75 billion kroner. That’s not a one time expense. It’s permanent. The country found that money without raising taxes or slashing other programs because there was room in the budget. There isn’t anymore.

I respect that Denmark takes defense seriously now. The spending increase was necessary. But it means choices elsewhere get harder. Thomsen noted that politicians can still prioritize new initiatives, but they need to deprioritize something else.

Food VAT and Pension Promises

The fuel tax isn’t the only campaign promise getting cold water thrown on it. Some parties want to cut or eliminate VAT on fruit and vegetables, or lower VAT on food generally. Thomsen said Denmark has a good VAT system that shouldn’t be carved up based on political preferences for what people ought to buy. He was careful not to oppose every idea outright, but his skepticism was clear. When asked if the food VAT cut was better than slashing fuel taxes, he said yes, but only barely.

Then there’s pensions. Before the election, Prime Minister Mette Frederiksen said her Social Democrats would change the automatic increase in retirement age. Thomsen didn’t pass judgment on the policy itself, but he warned it would be expensive. Denmark’s pension system is a cornerstone of the economy. Changing it costs real money, and that money isn’t sitting in reserve.

What Help Looks Like Now

So what can politicians do if oil prices keep rising and people struggle? Thomsen offered a guideline: assistance should be targeted, temporary, and must not interfere with price formation. That’s a narrow lane. It rules out broad tax cuts. It allows for direct support to specific groups hit hardest, but only for a limited time.

Denmark already tried a different approach to fuel costs. In September 2025, the government required fuel companies to publish prices via online APIs starting January 1, 2026. Google Maps now shows fuel prices. The idea was to boost competition and let drivers shop around. FDM, the Danish motorist organization, found the measure had no effect when piloted in December 2025. Prices didn’t budge.

For 2026, fuel taxes were set to rise slightly due to inflation indexing. A driver covering 20,000 kilometers annually would pay 39 kroner more for petrol and 21 kroner more for diesel over the year. FDM’s political chief called it a quiet year with no major changes. Stability, but no relief.

That stability might be all Denmark gets. The National Bank isn’t predicting crisis, but it’s warning against complacency. If inflation climbs again, the country needs fiscal discipline to weather it. Campaign promises made in better times don’t fit the current moment. Thomsen made that clear. Now it’s up to parliament to decide whether to listen.