Political and Economic Report 2016

Ministry of Finance

Naalakkersuisut – the Government of Greenland – is required pursuant to the Budget Act to present an annual Political and Economic Report at the spring sessions of the Parliament of Greenland, Inatsisartut.

In addition to shedding light on the finances of the Government of Greenland (GoG) and the general trend in income and expenditure, its purpose is to undertake an analysis of the development of the economy and activities in one or more key areas of expenditure and income, including in relation to the prerequisites laid down in the Finance and Appropriation Act.

The report aims to increase the amount of information available on the finances of the Gov- ernment of Greenland and to form a basis of an informed debate on the economic development of the Government of Greenland and of Greenland as a whole.

The report further seeks to highlight particular issues and development trends, and in relation to legislation, the form of the report is intended to make it usable in Naalakkersuisut’s and In- atsisartut’s consideration of financial development and prioritisation.

Naalakkersuisut’s present 2016 Political and Economic Report should be seen in the context of Naalakkersuisut’s work on the forthcoming proposal for the 2017 Finance Bill.

Spring session 2016 / 10

Editing concluded on 16 May 2016 CONTENTS

1 Preamble...... 3 2 Introduction...... 4 2.1 The economic situation and structural problems ...... 5 2.2 The finances of the Treasury of Greenland...... 10 2.3 Debt trend...... 17 3 Status of the work on the 2016 Report on Country Planning...... 19 4 Framework of the 2016 Finance and Appropriation Act and preparation for FFL 2017...... 21 5 Sustainability and Growth Plan...... 25

After the completion of the 2016 Political and Economic Report and thus of the Sustainability and Growth Plan in May 2016, Statistics Greenland became aware in mid-August 2016 that the basis for the 2015 population projection was, unfortunately, misleading. That is regrettable, because the sustainability model and thus the effects of Reform Tier 3 described in the Sustainability and Growth Plan were based on these population projections.

Based on the latest 2016 population projections from Statistics Greenland, and using up-to-date data on the economy, the Ministry of Finance has therefore recalculated the effects of the reforms in order to ensure a more reliable picture of the effects of the sustainability and growth plan.

The following figures are updated 1.2, 1.8, 1.11, 2.4, 3.2, 3.4, 3.6 and 4.9 compare to the danish edi- tion.

Please note that the net effect of these changes does not give rise to any change in the overall conclusion. The proposed initiatives in the four reform tiers remain sufficient in the updated version to safeguard a long-term balance in the public finances, if implemented as described.

A separate public version of the Sustainability and Growth Plan is also being produced. This uses the updated illustrations and annex.

Political and Economic Report 2016 · December 2016 Graphic production: Info Design ApS · Nuuk 2016 1 PREAMBLE

which will also ensure a healthy social balance.

This is no easy task. The GoG and the municipalities alike must prioritise and implement ongoing efficiency improvements. There is a need for innovation and specific action if we are to achieve our goals of increased economic self-sustainability, business growth and good conditions for individual families. With that in mind, the challenge is to pursue a constructive dialogue about the reforms and for everyone to pull together in bringing these about.

Foto: Helle Nørregaard These reforms must be workable in practice. This may re- Randi Vestergaard Evaldsen, quire adjustments, new ways of organising the work and Greenland’s Minister of Finance and Mineral Resources upskilling. Some may find this disconcerting, but the alternative is worse, as already highlighted by the Tax and Wel- The annual Political and Economic Report is a review of fare Commission: the risk of increasing fiscal pressure, the initiatives which Naalakkersuisut plans to initiate in pressure on welfare services, and emigration. The latest the year concerned and in future years. The 2016 report is population figures from Statistics Greenland show that no exception, although its structure differs from previous the latter is no mere threat but already a reality. The pop- years. ulation figure at the start of 2016 is the lowest for 20 years. We need to work together to reverse this trend. This The 2016 Political and Economic Report describes the is the time not for division or focusing on single issues, current economic situation and the major challenges of but for greater solidarity in tackling the major tasks at being able to ensure sustainable development as de- hand. scribed in the reports from recent years, in the Economic Council annual reports and the Tax and Welfare Commis- Naalakkersuisut has taken up the challenge in this politi- sion’s expert opinion. cal and economic report’s special theme with a sustainability and growth plan with clear milestones and specific As a new element, the 2016 Political and Economic Report proposals for future-proof policy. also contains Naalakkersuisut’s proposed overall long- term plan with a number of specific solution options, the Obviously, not everyone will agree on all aspects of the previously heralded “Sustainability and Growth Plan”. plan. That is fair enough. Naalakkersuisut’s crystal clear view is that anyone desiring to remove elements that con- The plan is designed to ensure that Greenland’s economy tribute to creating sustainable development must also enters into positive and stable development that is sus- come up with alternative proposals to safeguard ongoing tainable for the long term and achieves a robustness that sustainability of the plan. will allow for investment, going forward. The plan expresses the active political stance on how we Happy reading, and I look forward to the continuing de- can deal with the challenges in a way that enables us to re- bate. tain the values we wish to build our society on and also to safeguard capacity for the welfare of future generations.

Naalakkersuisut thus wishes to ensure continued confidence in the management of Greenland’s economy via a number of reforms and initiatives to promote growth and

3 2 INTRODUCTION

After three years of economic decline, the trend has sector, a more whole Greenland, a good social balance, turned around. In its 2015 report, the Economic Council where the individual has a real incentive to boost self-suf- envisaged GDP growth of 2.7% in 2015 and 2.9% in 2016. ficiency as well as an increase in the proportion of people Since then, the Greenland Institute of Natural Resources employed in the private sector. has produced positive guidance on shrimps, for example. Against this backdrop, Naalakkersuisut has raised the The sustainability and growth plan incorporated into the shrimp quota, which could further boost growth and em- report clarifies how, with better management tools, we ployment in 2016. Growth in 2016 will therefore be ahead can and should ensure timely prioritisation that can simul- of the Economic Council’s September 2015 estimates. taneously function as milestones for a cohesive, forward- looking policy. That is good news, of course, but improving economic conditions for a period must not distract from the need to de- Naalakkersuisut wants there to be more investment from vote resources to solving the major structural and long- private capital so that investments are not funded solely term problems in our society: from the public purse. Naalakkersuisut therefore aims to • We need to get to grips with the issue of fewer people create good, stable framework conditions and appropri- having to support more and more elderly people in the ate conditions for domestic and foreign investors and decades ahead. business partners to have confidence in the policies pur- • We need to deal with the fact that a disquietingly large sued and to want to take on significant financing tasks. proportion of a youth cohort fails to gain qualifications The intention is to help society to deal with some of the or does so disproportionately late. imminent heavy investments without eliminating econom- • We must endeavour to galvanise the potential work- ic room for manoeuvre from the Treasury of Greenland. force as an asset in the labour market with the ability to This will concurrently free up resources for use in other find long-term employment – or, at least, to develop urgent problem areas that must be deemed to be the core closer links with the labour market instead of primarily tasks of the public sector and which it is most natural to existing on State handouts. fund from taxes and duties. • We must ensure more dynamic commercial development, with growth in all four municipalities, and we must Provisional accounting figures for 2015 show clearly that put a stop to net emigration from our country. boosting the level of activity in society raises revenues • We must develop additional leading business sectors to from increased duties and taxes. The expectation is for prevent us from being asymmetrically dependent on the this trend to continue in 2016 and 2017, but it must also fishing sector when it comes to generating export rev- face down increasing pressure on expenditure. The 2016 enues for Greenland. Finance and Appropriation Act only just balanced overall • We must therefore work systematically to improve for the whole period 2015–2018. The budgeted result is Greenland’s competitiveness and to make it an attractive based, among other things, on efficiency enhancements in place for domestic and foreign businesses to invest in. the public sector and new revenues from reforms. It is • Consequently, we must establish a cohesive, effective therefore impossible to promise improvements to servic- infrastructure to connect Greenland together better es in a number of areas in the current situation. That would and more cost-effectively, and to improve our pros- be irresponsible. pects for trade and tourism. • We must continue to invest, in a targeted and cost-ef- Any uncommitted funds must necessarily go to politically fective way, in training and skills development for the prioritised growth promotion or cost-cutting initiatives. benefit of individuals, families and society. That will be Naalakkersuisut’s starting point for the future Finance and Appropriation Act discussions with the par- The main purpose of this year’s Political and Economic Re- ties, with the question of follow-up on and further speci- port is to show how we create the framework to ensure fication of the sustainability and growth plan as another long-term balance in the economy throughout the public key plank.

4 2.1 The economic situation and structu- partly as a result of the contribution from a number of ma- ral problems jor construction projects temporarily raising the level of activity. The chairmanship of the Economic Council published its latest report in September 2015. The assessment was Actual figures and estimates of economic development that, after several years of negative development, there are summarised in Table 1. was a real prospect of economic growth in 2015 and 2016,

Table 1: Balance of supply, annual real-terms growth expressed as a percentage of GDP and gross investments at fixed prices

Growth rate, %. Share of GDP in 2014 2009 2010 2011 2012 2013 2014 2015* Private consumption 47.4 -0.7% 1.7% 2.7% -1.8% -0.3% -1.7% 1.1% Publing spending 55.6 3,7% -1.4% -1.1% -0.5% 2.2% 0.6% 0.5% Fixed gross investment 17.8 -23.7% 75.2% 27.4% -40.6% -22,8% -44.0% 26.8% - excluding internat mineral exploration 14.7 -23.4% 4.1% 15.4% -10.9% -8.3% -38.1% 42.3% Exports of goods and serviced 32.1 -11.3% 12.5% -1.7% -3.9% -1.5% 0.9% -1.5% Total supply/total final usage 152.9 -6.7% 16.5% 7.9% -14.9% -5.0% -8.5% 3.9% Imports of goods and services 52.9 -14.6% 37.6% 14.2% -29.3% -10.2% -19.2% 5.9% Gross Domestic Product 100.0 -0.7% 2.5% 2.2% -0.5% -1.3% -1.6% 2.7 % Fixed 2005-prices Faktiske beløb, 1.000 kr. Gross investment, total 3.442.687 6.030.731 7.681.810 4.560.351 3.519.644 1.969.601 Mineral and oil exploration. 771.658 3.249.346 4.472.461 1.699.377 895.077 345.829 Gross investments excluding exploration 2.671.029 2.781.385 3.209.349 2.860.974 2.624.567 1.623.772 Note: The 2009–2012 figures are final figures, whereas the 2013–2014 figures are provisional figures from Statistics Greenland. • The 2015* figures are provisional estimates from the Economic Council. The figures will not be available until 16 November 2016.

It should furthermore be noted that gross investments in FISHERIES mineral and commodity activities in 2014 were consider- Fisheries remains the key export industry. Figure 1 shows ably lower than in the preceding 5 years. This is presuma- that the price level for halibut rose in the latter half of bly both a consequence of the fact that no actual drillings 2013 and, in Q3 of 2015, was at its highest level for the took place as part of oil exploration and of the general past 5 years. slump in the global economy in recent years that has hit the mineral resources sector particularly hard. The price level for cod had been in decline since 2011, but began to climb as of Q4 2013. In Q3 2015, prices returned Since the Economic Council published its annual report in to the level of 2011. September 2015, positive guidance on shrimps has emerged from western Greenland. That is one of the rea- Shrimp prices have been climbing since 2010. Despite a sons for forecasting higher growth than the 2.9% envis- slight dip in 2013, they have more than doubled in the last aged by the Council in 2016. 5 years. The favourable shrimp prices have helped to keep earnings on shrimp fishery up, despite falling shrimp quotas during the same period.

5 and the advice has since remained at that level – accordingly, the biological advice remains at 2,000 tonnes for 2016. The shrimp quota in eastern Greenland is set at Figure 1. Index of average kilo prices for fish and shellfish 5,300 tonnes in 2016, of which 5,100 tonnes are allocated to the EU; cf. the relevant agreement. Besides the “normal” shrimp quota, a trial quota was set for shrimps in Melville Bay, northern Greenland, of 3,000 tonnes.

With mackerel fishery, there are expectations of a broader-based income stream to help create growth in fisheries via the development of pelagic fishery. In 2013, more than 50,000 tonnes of mackerel were caught, although the value per kilogram is lower than for the other species re- Source: Statistics Greenland. Index: 2010=100 ferred to. In 2014, a quota of 100,000 tonnes of mackerel was set for Greenland, and 78,670 tonnes were caught. Table 2 shows catches of the three most important species in Greenland’s fisheries, together with mackerel. Mackerel fishery in 2015 fell to 30,428 tonnes, which is less than one-half of the established quota. It emerges Table 2: Fishermen and trawler catches based on licences is- that there have been major fluctuations in mackerel fish- sued by Greenland ery, and fluctuations in fishing for pelagic species may also be expected going forward, as changes in the species’ tonnes 2012 2013 2014 2015 migration, the size of the biomass, the feed base, etc., will Mackerel, total 5.284 52.797 78.670 30.428 mean fluctuations in the quantities fished. In addition to Cod, total 21.625 25.504 31.372 49.005 the mackerel quota in the east, as a new initiative an ex- Cod, deep sea 11.010 11.976 12.874 23.648 perimental quota of 10,000 tonnes was set in western Cod, coastal 10.615 13.528 18.497 25.357 Halibut, total 34.622 34.829 38.213 38.178 Greenland, which, however, was not utilised. Halibut, deep sea 13.062 11.348 11.464 13.318 Halibut, coastal 21.560 23.481 26.749 24.860 Table 2 shows catches of halibut at a steady level over the Shrimps, total 109.256 88.531 83.329 71.009 four-year period, whereas there were major fluctuations Shrimps, marine 51.169 44.879 45.265 36.398 in catches of shrimp, while catches of cod more than dou- Shrimps, coastal 58.086 43.652 38.064 34.612 bled. Source: Greenland Fisheries Licence Control Authorities. Taking account of the above, and making allowance for Shrimp fishery remains Greenland’s key industry, repre- fishery for mackerel, other pelagic fish and possibly new senting more than 50% of total export value. In 2015, the species, the opportunities for growth in fisheries as a shrimp quota was set at 73,000 tonnes in western Green- whole must be regarded as limited in the short term. At land. That is a decrease of 61,000 tonnes since 2007. In the same time, the general viability and resource situation 2016, the biological advice rose to 90,000 tonnes. Ac- of fisheries does not mean that the number of fishing ves- cordingly, the 2016 quota was set at 85,000 tonnes, an in- sels cannot be expected to grow in the years ahead. All crease of 12,000 tonnes compared to 2015. Canada and this emphasises the importance of developing other pri- the EU are allocated part of the shrimp quota in western vate enterprise and implementing reforms. Greenland.

For eastern Greenland, the biological advice and the shrimp quota have been 12,400 tonnes for a number of years. In 2014, the biological advice fell to 2,000 tonnes,

6 Figure 2. Proceeds from tax on fisheries, 2001–2016, in DKK forward, to ensure stable framework conditions, ready ac- millions (2016 budget figures) cess to data, and access to promote Greenland’s potential for mineral resources. In addition, closer attention will be paid to examining the possibilities for improving the efficiency of official paperwork and adjusting the standard terms to promote the desired development.

A significant boost in activity is essential for achieving increased economic independence. Currently, the trend with regard to minerals is positive, especially in the light of the current situation of the minerals industry worldwide.

The construction phase of True North Gems Greenland Source: The Tax Agency A/S’ ruby and sapphire project at Aappaluttoq is drawing to a close and production is expected to commence in the first six months of 2017. Fishery contributes a substantial amount to the public coffers. This includes income from fishery revenues (re- After having received an exploitation permit in 2015, Hud- source tax) which has grown to a historically high level, in- son Greenland A/S’ anorthosite project near Naajat is exter alia because new, significant income has been added in pected to complete its construction phase in 2017. recent years from special taxes on mackerel fishery, cf. Figure 2. Ironbark Zinc Ltd.’s zinc and lead project and Greenland Minerals and Energy Ltd.’s rare earth, uranium and zinc Deriving an excessively large proportion of government project are among the projects that are well advanced in revenue from fishery taxes can be a risk, because experi- the process of achieving an exploitation permit. ence shows that income fluctuates in fishery. However, that level is presumably still to be reached. Conversely, a Among projects with an exploitation permit are London significant proportion of commercial fishery is not cur- Mining Greenland A/S’ iron ore project near Isukasia, rently subject to resource tax. Beginning in 2016, coastal which, following the bankruptcy of the parent company, fishery for halibut will be the only coastal fishery subject has been taken over by General Nice Development Ltd. to duty. This came about under the impression of the good income from this fishery enabling taxation on a par with As shown in Table 3 of selected mineral projects, several other similarly remunerative fishery. projects have an exploitation permit or are shaping up to obtain one imminently. MINERAL RESOURCES In recent years, there has been a decline in exploration ac- The issuing of an exploitation permit is not synonymous tivities in relation to minerals and hydrocarbon, both glob- with immediate commencement of construction and ex- ally and in Greenland. A significant reason for the decline ploitation activities, partly because the financing options in the level of activity is that the mineral resources indus- are affected by the trend in mineral resources prices. It is try has experienced decreasing prices for metal, minerals therefore difficult to assess whether – and, if so, when – and oil. This development has generally continued in the individual projects can be brought to fruition. 2016.

To ensure the continued interest of the mineral resources industry in investing in exploration and exploitation of Greenland’s underground deposits, it is important, going

7 Table 3. Current mineral projects (the years stated are the earliest potential point)

Expected employment operation (construction) Project Update operation

Aappaluttoq C on s tru c tion ph a s e ( e x ploita tion pe rmit ( 35–50 in 2016) 80 in 2016 (ruby and pink sapphire) communicated in 2014) Naajat/Søndre Strømfjord Ex ploitation permit c ommunic ated in 2015 ( 20 in 2016) 61 in 2017 ( a n orth os ite ) Citronen Fjord A pplic ation rec eiv ed in 2015 ( 300 in 2018) 47 5 in 2020 (Zn, Pb) Kuannersuit/Kvanefjeldet Application expected to be received in 2016 ( 1,17 0 in 2018) 7 85 in 2020 (REE, U, Zn, fluorite) Isukasia Ex ploitation permit c ommunic ated in 2013 ( 1,500–3,300 in 2018) 680–810 in 2020 (Fe) Killavaat A lannguat/Kringlerne A pplic ation rec eiv ed in 2013 A w aiting the res ult of applic ation proc es s ing (Zr, REE, Nb, Ta, Y) Maarmorilik Ex ploration ( Ex ploitation permit c ommunic ated in A w aiting res ults of ex ploration (Zn, Pb) 2008) Nalunaq A/S Ex ploration ( Ex ploitation permit c ommunic ated in A w aiting res ults of ex ploration (Au) 2003)

Source: Mineral Licence and Safety Authority (MLSA)

In addition to the projects above, exploration activities Figure 3. Number of cruise ship passengers are expected for other mineral projects in 2016, and the hydrocarbon exploration activities off north-eastern Greenland in recent years are expected to continue in 2016.

The main section about the sustainability and growth plan explains more details of the mineral resources strategy going forward.

TOURISM From 2011–2014, tourism saw a major drop in the number of cruise ship passengers, while the number of airline passengers and hotel stays stagnated. Source: Statistics Greenland 2016

In 2015, Naalakkersuisut reformed the duty on cruise The number of hotel stays also developed positively from ships to boost competitiveness in this area. The reform 2014 to 2015. Figures from Statistics Greenland’s bed- brought Greenland in line with other North Atlantic desti- night statistics show a rise in the number of bed-nights nations in terms of duties. Figure 3 shows that the reduc- (see Figure 4) and in the number of hotel guests. The num- tion in the number of cruise ship passengers has now ber of hotel guests rose 9.2% in 2015. Some of this is at- turned around in 2015. tributable to people living in Greenland, however.

8 Figure 4. Number of hotel bed-nights per year Figure 5. Registered job-seekers in 2013–15 in towns and settlements showing a monthly breakdown

Source: Statistics Greenland 2016

In February 2016, Naalakkersuisut adopted an ambitious new tourism strategy designed to boost investment in a number of areas thanks to reductions in levies on cruise ship passengers, better reception facilities, better infrastructure and comprehensive regional initiatives. The strategy is described in more detail in the main section of the report, the Sustainability and Growth Plan.

UNEMPLOYMENT As shown in Figure 5, the number of job-seekers in March 2016 fell by 1,144 individuals this year compared to Source: Statistics Greenland 2016 March 2014. In other words, a decrease from 4,385 to 3,241 individuals in two years. Figure 6. Number of job-seekers in Greenland as of March

This trend correlates in part with the significant political focus applied to reducing unemployment, notably the adoption of the cohesive employment strategy, “A secure labour market”.

Economic downturns are not the sole cause of unemployment; more structural issues are involved too, such as problems with incentivisation and interaction problems in social legislation. Unemployment is relatively greatest in the settlements and among young people. Unskilled workers are disproportionately represented among the unemployed. The challenge of unemployment among young people is exacerbated inter alia by the fact that many young people do not get onto a study programme after completing compulsory schooling, while others start their youth study or training programme late.

9 The labour market has also undergone a significant trans- 2.2 The finances of the Treasury of formation in recent years. Old jobs are disappearing; new Greenland ones are appearing – for example in the tourism industry and the mining and oil industry sector, but also in elderly Public sector finances are inherently subject to the preva- care and other service functions. That requires adjust- lence or otherwise of growth and employment in society. ment. High unemployment and the large number of people on benefits are a burden to the Treasury of Greenland and to Fishery and hunting remain the backbone of employment the municipal finances. and are of vital importance to the whole of Greenland. However, we must also be bold enough to launch into new The specification of the Treasury of Greenland’s financial areas, including the mineral resources sector; cf. Table 3. statements below is based on the Government of Green- We must ensure broader investment in tourism – and it is land’s entries in the account types, as the figures for 2015 gratifying to note that the number of tourists is now rising are preliminary estimates. It should be noted that nega- again after some tough years – and we must focus more on tive numbers in this overview are income/surpluses, while new entrepreneurs in order to acquire a dynamic business positive numbers are expenditure/shortfalls. community that will create better conditions for the population and generate economic growth, jobs and income.

Naalakkersuisut’s employment strategy, “A secure labour market”, incorporates a number of specific initiatives designed to assist in further transformation of the labour market. The following can be highlighted among the many initiatives described in more detail in the Sustainability and Growth Plan: The suli.gl jobs portal, and new Job, Guid- ance and Upskilling Centres designed to help fast-track unemployed people more effectively into training programmes or a new job. The 2016 Finance and Appropria- tion Act earmarked approximately DKK 28 million for adult education courses and in-service training, approximately DKK 9 million for rehabilitation efforts and more than DKK 71 million to ensure that young people get into a training programme or work via Job, Guidance and Upskill- ing Centres. Naalakkersuisut’s strategic investment in establishing growth-supporting business frameworks is also described in detail in the Growth and Sustainability Plan in the section on “Modernisation of business frameworks and the labour market”.

10 Table 4. Financial statements for the Treasury of Greenland, 2008–2015, in DKK millions. (2015 provisional figures)

S tated in w hole DK K millions 2008 2009 2010 2011 2012 2013 2014 2015 1. Revenue -5.259 -5.379 -5.716 -5.832 -5.952 -5.868 -5.947 -6.091 71. Taxes, duties, mandatory -1.669 -1.606 -1.886 -1.969 -2.030 -1.892 -1.980 -2.053 contributions, penalties 73. Transfer income -3.590 -3.774 -3.830 -3.864 -3.922 -3.976 -3.967 -4.039 2. Operation and Subs idy 5.009 5.363 5.430 5.402 5.602 5.709 5.829 5.784 10. Pay 1.333 1.451 1.499 1.533 1.541 1.610 1.635 1.685 21. Travel for employees and 93 93 86 79 69 72 78 80 consultants 22. Corporate hospitality 3 3 3 3 4 3 2 3 23. Course fees, etc. 27 39 40 33 42 35 35 35 24. Purchase of services 390 428 524 369 380 366 342 364 25. Client and trainee 203 170 156 156 164 171 173 187 transportation 26. Recruitment, leaving and 57 72 46 28 30 32 30 30 redeployment

27. Services; purchase of services 152 211 150 117 127 116 117 117

31. Goods 241 266 275 278 279 300 296 301 32. Buildings, cars, boats, etc. 58 199 329 329 368 415 399 382 33. Acquisitions, IT, Repairs and 400 241 155 122 131 132 162 139 maintenance 50. Operational income -382 -339 -435 -411 -397 -505 -645 -693 61. Subsidies for business 494 501 542 480 506 469 507 466 purposes 62. Subsidies for culture, leisure 394 449 447 494 470 584 598 622 and education 63. Subsidies for welfare 681 661 702 665 662 683 679 681 purposes 64. Misc. subsidies 48 45 21 27 32 37 38 27 65. Subsidies for the 781 834 789 1,044 1,131 1,127 1,281 1,295 municipalities 66. Depreciation 21 12 109 20 68 65 55 70 69. Transfers spanning more 14 29 -7 35 -5 -2 48 -9 than one financial year 3. Capital expenditure 442 215 350 563 287 190 384 375 81. Capital expenditure 442 215 350 563 287 190 384 375 4. Interest -171 -207 -331 -263 -342 -434 -409 -293 7 5. Div idend -74 -60 -80 -68 -150 -238 -216 -146 76. Capital return, property rentals 0 -60 -55 -53 -52 -53 -54 -49 77. Interest, Royal Greenland 0 0 -13 -12 -9 -7 -2 - 7 8. Interes t, Nukis s iorfiit 0 -65 -78 -95 -109 -117 -116 -109 79. Misc. interest, net -97 -21 -105 -35 -22 -19 -20 -13 5. Lending 298 958 265 291 470 332 298 62 91. Construction loan, housing -93 230 163 168 301 236 107 -7 ( ex c luding BS U) 92. Nukis s iorfiit 338 132 223 27 7 263 42 160 87 93. Shares 26 285 12 -80 8 30 55 15 94. Munic ipalities , lending 0 53 -18 -18 1 15 8 - 96. S ikuki, Lending 0 0 0 0 0 110 0 - 97. Royal Greenland, repayments 0 0 0 -50 -50 -50 -100 - 98. Mis c . lending 27 258 -116 -6 -53 -50 -32 -32 OIL result 321 950 7 159 67 -71 154 -188 OI result 98 515 -198 -51 -147 -78 222 -137

Provisional figures for the 2015 financial statements (Table 4) show that the GoG’s income from taxes and duties together with transfer income from the Danish state and the EU grew in 2015. This comes in the wake of a period of several years of falling income to the Treasury of Greenland. The GoG’s expenditure on operation of institutions as well as subsidies also decreased in 2015, after having increased by an average of approximately DKK 100 million per year for the previous three years. 11 As a result of this favourable development on both the in- and company dividends. come and the expenditure side, the Treasury of Greenland The Government of Greenland’s lending activities include expects to see a better outcome than expected in 2015. many different types of loans. With regard to housing The trend was particularly positive on the income side in loans, a considerable subsidy element is built into the loan the latter months of 2015. The Treasury of Greenland’s conditions. Thus, only part of the funds lent can be expect- construction costs have also grown somewhat compared ed to be repaid later on, and interest receivable from to previous years. these housing loans is considerably below the level of interest that the Government of Greenland could otherwise The Treasury of Greenland’s 2015 financial statements. have achieved. The Treasury of Greenland’s financial statements are expected to show an OIL surplus of around DKK 170–200 mil- In 2015, there was less use of other types of grants. This lion. Specifically, the current expectation is for an OIL re- could be due in part to better financial management and sult that is approximately DKK 190 million better than an- greater cost-consciousness, and partly due to the call for ticipated in the Finance and Appropriation Act, including an election in autumn 2014, which must be assumed to Additional Funding. Similarly, the OI result looks set to be have put a damper on consumption. In addition, statutory DKK 180 million better than expected. expenditure was below budget.

This includes combined income being approximately DKK The 2015 accounts have not been finalised as yet, and 50 million ahead of what the Finance and Appropriation there will still be items that could change the outcome ei- Act budgeted for. There are significant deviations in tax to ther way. the Government of Greenland, import duty, mackerel duty

Table 5. Overview of key figures from financial statements and budgets for 2009–2019. Figures from the 2015 financial statements are provisional. (DKK million)*

R2009 R2010 R2011 R2012 R2013 R2014 R2015 FFL16 BO17 BO18 BO19

Operations, 6.052 5.464 5.456 5.622 5.854 5.888 5.819 6.009 5.891 5.885 5877 subsidies & statutory

Revenue -5.910 -6.185 -6.391 -6.526 -6.524 -6.630 -6.586 -6.594 -6.560 -6.575 6574 Unit 807 719 1 969 597 896 589 686 743 627 561

Of which construction excluding lending to 544 418 721 594 438 736 498 508 565 507 441 Nukissiorfiit

OIL 950 -2 161 65 -71 154 -188 100 74 -64 -136 OI 515 -207 -49 -149 -78 222 -137 57 42 -31 -98

12 Provisional figures *Negative OIL and OI indicate a sur- dend tax in the form of municipal tax and joint municipal plus. tax. Figure 7 below shows the profit trend in operations and construction in the Treasury of Greenland since 2010 and Borrowing by the municipalities through to the most recent estimated budget year. As As of the end of 2015, the municipalities’ lease commit- shown, the period since 2010 has consistently produced ments and debts to external lenders were as follows; cf. relatively modest deviations from zero profit. Only a few the 2015 provisional financial statements: years have shown a deviation of more than 3% from zero • In 2015, Kujalleq Municipality had a loan of approxi- profit. mately DKK 76 million (some of which was raised in the Treasury of Greenland) and no lease commitments. Figure 7. The trend in OI 2010–2019 as a percentage of the to- • Kommuneqarfik Sermersooq owed approximately tal Finance and Appropriation Act expenditure (2015 FS provi- DKK 16 million, with no leasing commitments. sional figures, 2016–19 budget figures) * • Qaasuitsup Kommunia owed approximately DKK 100 million (mainly short-term debts) plus a modest level of leasing commitments. • Qeqqata Kommunia had no borrowings and no leasing commitments.

2015 Financial Statements (provisional figures) and 2016 Budget The table below shows the municipalities’ provisional financial statements for 2015. Note that the accounts currently do not include the auditors’ report, and are yet to receive political approval. Source: Ministry of Finance. Posivtive numbers indicate surplus. The table also shows that the municipalities all had a sur- Correlation of the municipalities’ economic development plus in 2015 varying between DKK 10 million and Public-sector finances are closely interconnected. An un- DKK 37 million. In the 2016 budgets, the municipalities tenable development in the Treasury of Greenland has a (apart from Kujalleq Municipality) expect rising income major impact on the financial options of the municipali- and, once again, a surplus in the result for the year. ties, and vice versa. Described below for the municipalities are the current situation and significant expected Furthermore, the budgets show that, generally speaking, features of the trend over the short term. the municipalities have planned a higher level of construction in 2016 than they brought to fruition in 2015. This is The increased level of activity and better export prices in a positive trend, and its continuation over the next few the fishery sector are having an impact on the revenues to years would be most welcome. the GoG and the municipalities from taxes and duties. The last few months of 2015 saw a large rise in revenues from direct taxes. This presumably relates to the drop in the number of people registered as unemployed in the latter half of 2015, as illustrated in Figure 5 and Figure 7.

Accordingly, the rise in revenues from direct taxes benefits not only the Treasury of Greenland but also very much the municipalities, as they receive approximately 70% of their total revenue from PAYE tax, corporate tax and divi-

13 Table 6. Municipal finances, DKK thousands (positive figures designate expenditure)

Kujalleq Sermersooq Qeqqata Qaasuitsup I alt 2015 FINANCIAL STATEMENTS Operation 493.837 1.430.142 610.556 1.148.740 3.683.275 Unit 9.364 225.898 60.646 33.559 329.467 Revenue -533.457 -1.679.266 -681.697 -1.219.659 -4.114.079 Result -30.256 -23.226 -10.495 -37.360 -101.337

2016 BUDGET Operation 477.472 1.432.106 604.171 1.169.439 3.683.188 Unit 36.600 232.560 52.649 80.000 401.809 Revenue 531.920 -1.691.261 -683.329 -1.271.963 -4.178.473 Result -17.848 -26.595 -26.509 -22.524 -93.476 Source: The municipalities; 2015: provisional figures; 2016: budget figures.

Financial management in the municipalities • In early 2015, Qaasuitsup Kommunia was unable to Pursuant to Chapter 7 of the Local Government Act, Naal- abide by its agreement with Naalakkersuisut to reduce akkersuisut is required to oversee the municipalities. The its municipal overdraft facility. Qaasuitsup Kommunia Premier of Naalkkersuisut oversees the municipalities’ has since been under stricter supervision and has en- compliance with legislation, while Greenland’s Minister for tered into an agreement with Naalakkersuisut to reduce Finance oversees the municipalities’ finances. As part of its overdraft over the next few years. In 2016, Naalak- the latter function, agreements have been entered into kersuisut hopes to be able to rescind the stricter super- with several of the municipalities in recent years regard- vision of Qaasuitsup Kommunia. ing stricter supervision. This is as a result of financial challenges in relation to compliance with agreements to Stricter supervision is deemed to have helped the munici- reduce the level of debt or to ensure sufficient liquidity to palities to improve their financial management and to pay for current commitments. make the sometimes unpleasant but necessary decisions to rebalance the economy. • At the end of 2013, Kommuneqarfik Sermersooq faced challenges regarding liquidity. The municipality has Cost development in the public sector since boosted its liquidity as well as its general finan- The wage bill for the municipalities and the GoG is approx- cial management. At the beginning of 2015, Kommune- imately DKK 2.6 billion per year, which makes wages the qarfik Sermersooq was taken out of stricter supervi- largest single item in public-sector budgets. Therefore, sion. wage increases are one of the biggest inflationary pres- • Kommune Kujalleq started the year 2014 with a strug- sures in Greenland. The majority of inflationary factors gling economy and poor liquidity, and was unable to ful- are beyond the control of the GoG – for example, the rise fil its agreement for paying off a loan from the Treasury in oil prices in the world market. Conversely, wage increas- of Greenland. The municipality has subsequently paid es are a factor that the GoG can influence. Accordingly, down the debt in accordance with its agreement with keeping wage increases modest is crucial in order to keep Naalakkersuisut, complied with other conditions and, a lid on inflation. under stricter supervision, improved the municipal finances. Accordingly, Kujalleq was taken out of stricter Inflation and wage increases define the regulation of pric- supervision again in early 2016 es and wages in the Finance and Appropriation Act each

14 year. Modest wage increases and, hence, minimising infla- beneficial effect on public health and, long term, will help tion will help to reduce the costs of price and wage regula- to keep a lid on healthcare expenditure. tion in the Finance and Appropriation Act. Revenue from import duty is still expected to stabilise at The public sector is the largest employer in Greenland. the level of around DKK 480 to 500 million in future years. Therefore, public sector wage increases set the tone for The upward adjustment compared to statements in the wage increases in the private-sector labour market. The 2015 Political and Economic Report is due exclusively to effect of keeping public sector wage increases modest the new duties on snuff/chewing tobacco and fireworks, can carry over into the private-sector labour market, con- as well as higher duties on confectionery/chocolate. tributing to opportunities for creating jobs as Greenland becomes more competitive. This way, modest public sec- Duty from marine fisheries for shrimps, halibut and mack- tor wage increases help to stem high unemployment. erel account for approximately 23.5% of total revenue from duty from indirect taxes of DKK 901.3 million in Due to the need to secure growth in the private sector, and 2015. to keep public sector cost development down, there is a need to keep overall wage increases modest in the public Revenue from indirect taxes in 2015 is approximately sector, including in the years ahead. That means, in the ab- DKK 33.0 million less than in 2014, due primarily to the sence of exceptional circumstances, generally subdued change in the Act on cruise ship passenger duty, which re- wage increases in the various collective agreements. duced revenue by approximately DKK 8 million, along with – compared to 2014 – disappointing mackerel fishery. Thus, revenue from duty on mackerel was approximately Tax DKK 46 million less in 2015 than in 2014. After some difficult years for the economy, a more positive development is on the way. The costs most sensitive Arrears to economic variables have stabilised or are showing The total arrears sum decreased throughout 2015, slight progress compared to 2014. amounting to approximately DKK 875 million in January 2016 compared to approximately DKK 932 million in Janu- Revenue from stamp duty in 2015 is DKK 25.4 million com- ary 2015, equivalent to a decrease of approximately pared to DKK 22.4 million in 2014. However, it is notewor- 6.09%. This decrease must be regarded as very positive. thy that part of this increase should be ascribed to loan restructuring in early 2015, when many home owners re- mortgaged at a lower interest rate, taking on further ad- vances at the same time.

Another indicator of a cautious turnaround in the economy is the import duty from motor vehicles, which amounted to DKK 33.2 million compared to DKK 30.4 million, represent- ing an increase of 9%.

Altogether, revenue from import duty in 2015 was DKK 467.0 million compared to DKK 475.8 million in 2014. The drop in import duty is primarily due to a sustained reduction in the importation of alcoholic beverages and tobacco, with revenue falling DKK 15.9 million from 2014 to 2015. Lower revenue from “sin tax” is, in fact, good news. Decreasing consumption of tobacco and alcohol has a

15 Table 7. Arrears

Jan. 2015 Jan. 2016

Ca tegory Type of arrears Number of cases Size of arrears Number of cases Size of arrears

No. DKK No. DKK 1 Alimony, maintenance 69.939 328.870.615 72.800 344.267.248 2 Unpaid tax 3.615 36.701.531 1.573 28.271.831 3 ESU 96 67.294.241 92 65.572.643 4 PAYE tax 2.597 182.703.816 2.462 135.768.805 5 Corporation tax 73 2.275.425 65 2.137.707 6 Rent 11.658 81.107.104 6.358 68.771.213 7 Interest on tax 1.280 2.379.212 1.525 2.193.233 Various municipal 8 13.706 33.184.523 18.311 38.422.793 arrears Help with repayment 9 5.470 24.892.076 5.581 26.223.801 obligation 10 Student loans 1.001 14.354.330 956 13.325.626 11 Institutional childcare 20.636 14.939.086 22.774 16.273.041 12 Waste disposal 89.080 24.611.568 100.273 29.997.122 Municipal business 13 210 2.686.116 129 1.412.166 loans 14 Sundry GoG arrears 5.060 22.479.626 5.606 25.758.883 15 Housing support loan 298 29.050.223 242 13.570.409 16 Self-build loan 458 6.628.809 390 5.788.494 17 Electricity/water 10.226 4.311.272 8.972 3.924.954 Parent payment for 18 children in out-of- 21.605 29.881.652 23.472 32.968.683 home care 19 Nordic claims 1.295 20.926.529 1.225 18.038.871 20 Other arrears 8.089 2.663.974 8.058 2.517.410 Total 266.392 931.941.728 280.864 875.204.933

The areas with the most significant deviations in the arrears sum can be seen in the table below.

Table 8. Trend in arrears expressed as a percentage

Type of arrears Percentage change Change expressed in DKK 1000s Alimony, maintenance 4.68% 15.396 Unpaid tax -22.97 % -8.429 PA Y E ta x -25.69% -46.935 Rent -15.21% -12.335 Waste disposal 21.88% 5.385 Housing support loan -53.29% -15.47 9

16 The number of arrears cases has increased by more than 2.3 Debt trend 14,500; the number of refuse collection cases alone is in excess of 11,000. The ongoing rise in the number of refuse The table below specifies the expected borrowing trend in collection cases has resulted in there being more than the public sector, including borrowings by limited liability 100,000 arrears cases of in January 2016 in the area of companies owned by the Government of Greenland. The refuse collection, with an average amount outstanding of general assessment is that the level of debt in the public DKK 290 per case. sector will be kept at an acceptable level in the next fiscal year and estimated years, given the decisions that have Although the arrears sum for refuse collection is modest been made and that are expected to be made. in relation to the overall arrears sum, the number of cases adds up to more than one-third of all arrears cases. What- The trend in debt in the limited liability companies owned ever the amount of the individual arrears, there are a num- by the Government of Greenland has generally been de- ber of rules and procedures that have to be complied with, creasing in recent years. This is due primarily to Royal so there is a risk of the whole collections system “drown- Greenland, where interest-bearing debt has fallen from ing” in the many refuse collection arrears at the expense 2,281 million in 2010 to 1,033 million 2014. This is due to of recovery of receivables in other areas. positive operating results combined with sales of assets.

A statement prepared in January 2016, showing a break- Overall, though, the outlook is good for a rise in borrowing. down of arrears by where individual debtors live, shows Royal Arctic Line has taken out a loan in excess of DKK 900 that just under 70% of refuse collection cases pertain to million to finance new settlement ships. In addition, there people living in Qaasuitsup Kommunia. That figure is still is Tele Greenland’s expected loan for a submarine cable, very high. and an increase in KNI’s debt. The level of debt in these companies is expected to fall again from 2016 onwards. It would be obvious to consider whether, going forward, this area would be most appropriately financed by billing During the period 2011–13, the level of debt of the mu- individuals directly, or indirectly via tax. nicipalities matched their liquidity. However, since 2013, they have experienced ongoing improvements in their li- Of the arrears sum of approximately DKK 932 million as of quidity. This liquidity is expected to be maintained in the January 2016, approximately DKK 248 million has been years ahead. Municipal debt is expected to decrease successfully collected, across approximately 55,000 ar- through to 2018. In conclusion, Sikuki Harbour is taking rears cases. There has been a drop in the number of cases out a loan to finance a new port in Nuuk. and arrears amounts within all categories, but primarily in relation to PAYE tax arrears. The commitments of the limited liability companies owned by the municipalities or by the GoG directly affect Naalak- During 2015, approximately 67,500 new cases came to kersuisut’s borrowing opportunities. Any and all borrow- light, with a combined arrears sum of approximately ings by the GoG or the municipalities must support the DKK 191 million. sustainability of economic policy in accordance with the existing governing principles of the debt and investment Together with the municipalities and a number of stake- strategy. There is an expectation that a revised set of holders, Naalakkersuisut has initiated work to chart the principles will be incorporated at the time of adopting a problems of high debt with a view to reducing this by new budget and financial statement Act for the entire means of concerted efforts. For example, it is important public sector. to distinguish between people with debt as to whether they are unable or unwilling to pay.

17 Table 9. Debt trend, 2010–2018 in DKK millions (2016–2018 budget figures)

Interest-bearing debt 2010 2011 2012 2013 2014 2015 2016 2017 2018 Companies 3707 3845 3452 3422 3225 3842 3692 3560 4022 The munic ipalities 119 38 22 18 161 153 119 93 68 GoG 250 250 600 600 600 574 600 600 600 Total 4076 4133 4074 4040 3986 4569 4411 4253 4690 Net interest-bearing debt, DKK million Companies 2975 2909 2494 2615 2490 2549 2849 2966 3387 The munic ipalities 102 24 48 31 -11 -56 -121 -190 -259 GoG -7 97 -67 7 -463 -539 -586 -7 16 -141 15 235 Total 2280 2256 2079 2107 1893 1777 2587 2791 3363

Source: Information from the companies, the municipalities and the Ministry of Finance. In the consolidated debt, liquidity is deducted from the interest- bearing debt, and debt between the GoG and the municipalities is offset. Comment: The largest companies include Tele Greenland A/S, Royal Arctic Line A/S, Royal Greenland A/S, Great Greenland A/S, Visit Greenland A/S, Green- land Holding A/S, Illuut A/S, INI A/S, KNI A/S, Nunaoil A/S and Sikuki Nuuk Harbour A/S.

Note: The signs are reversed in the table. In other words, positive numbers are debt, and negative numbers express liquidity that exceeds debt.

The Treasury of Greenland closed 2015 with gross debt of DKK 574 million and liquidity of DKK 1,289 million. It may prove necessary to increase interest-bearing debt in the period 2016–2020. This could, for instance, come as a result of an expected reduction in holdings in the Fund for Construction & Renovation, including a loan to Nukiss- iorfiit for a hydro-electric power station.

Last but not least, at the present time there remains considerable uncertainty about how the overall financing of runways will be put together, including the extent of financing from the Treasury of Greenland and, therefore, also the GoGֹ’s borrowings. In the period up to the autumn session, the expectations of GoG borrowings during the budget period will be further substantiated.

18 3 STATUS OF WORK WITH THE 2016 REPORT ON COUNTRY PLANNING

The 2015 Report on Country Planning, “Necessary coordi- from the input collected during the public phase. Naalak- nation” was proposed in the autumn session, and was gen- kersuisut must be presented with a draft in May. erally well received. It was the first Report on Country Planning since 1995. As announced, Naalakkersuisut is 3: From the end of May through to the end of August: Con- preparing a follow-up Report on Country Planning for the sultation phase: 2016 autumn session. A draft 2016 Report on Country Planning will be put out to consultation for five weeks. The consultation is expected Work has been ongoing to get the forthcoming Report on to conclude by the end of June. Afterwards, any responses Country Planning under way since November 2015. The from the consultation should be incorporated to the rel- work can be broken down into three phases: evant extent before the 2016 Report on Country Planning is presented to Inatsisartut. 1: Up to and including March 2016: Publication phase. The purpose is to widely consult members of the public, The key elements of the 2016 Report on Country Planning organisations and the public administration. As of the be- are expected to be as follows: ginning of March, public meetings have taken place in Ta- • Differentiated division of work and roles: Some aspects siilaq, Sisimiut, Ilulissat and Qaqortoq. At the public meet- of the development of Greenland are viewed from an in- ings, members of the public were encouraged to suggest ternational vantage point. Hierarchy of settlements and how to assess our settlements (towns and villages) based service differentiation will also be dealt with. on a few common parameters. Between 40 and 15 people • Major infrastructure construction works: Update on ex- attended each meeting. Participants offered construc- isting and planned infrastructure construction works. tive, useful input. These construction works are the backbone of our whole society. They therefore set the tone for all other as- As part of the public phase, national planning and sector pects of planning. plans were a topic of this year’s cross-public sector semi- • Coordination of municipal and national plans: This year nar in February. This year saw the third annual seminar once again, an update on sector plans will be a key plank. held by the cross-public sector working group. The theme As stated under the description of the Finance and Ap- this year was “Transparent national planning and sector propriation Act [FFL] 2017, it is absolutely key for ena- planning”. The seminar topic builds on the 2015 Report on bling opportunities for coordination of planning at na- Country Planning entitled “Necessary coordination” and tional and municipal level that the departments prepare lays the groundwork for this year’s Report on Country operational sector plans. Here, it is important to bear in Planning, which bears the working title of “Necessary pri- mind that these are rolling sector plans. In other words, oritisation”. Transparency is required, in order to achieve when any changes occur in other sector areas, the im- sufficient coordination and prioritisation, in the work of pact of these changes must always be incorporated into involving the Report on Country Planning and sector plans, the remaining sector plans. for example. • Settlement profile: A profile of each settlement is created using a selection of parameters in some of the ar- At the cross-public sector seminar, officials from the four eas of demography, the economy, commerce, infra- municipalities and the GoG, together with representatives structure, education, the workforce, social affairs, from a number of the GoG’s companies and from organisa- health, climate and culture. This is to ensure consisten- tions, had the opportunity to discuss how to improve co- cy in the descriptions and therefore comparability be- ordination of the planning work and objectives for this. tween settlements.

2: From March through to May inclusive: Writing and ap- The starting point is Statistics Greenland’s latest popula- proval phase. tion figures, which show the lowest number of inhabitants Over these months, the text of the 2016 Report on Coun- for 20 years, and projections that show declining popula- try Planning will be written. Some of this will be drawn tion figures in the years ahead. Results from an initial vox-

19 pop survey are analysed together with new spot-checking The intention is for the settlement profile chapter in the of samples from Statistics Greenland. This is designed to 2016 Report on Country Planning to put into perspective produce an immediate picture of our mobility and our rea- the political discussion of future allocation of responsi- sons for relocating. These results must pave the way for a bility and roles. An important sub-topic in this regard is more in-depth and more representative survey, to be con- consideration of where commercial development poten- ducted in Q1 2017. In terms of method, the more in-depth tial exists and what that means for future prioritisation. investigation must be based on triangulation. In the chapter on differentiated allocation of responsibil- A great deal of work has gone into identifying these pa- ity and roles, the Report on Country Planning will inter alia rameters. Attendees at public meetings have provided take a view on current municipal input to overarching de- useful input. In addition, ministries, agencies, public-sec- velopment. In February, the mayors of Kommune Kujalleq, tor companies, municipalities and the business communi- Qeqqata Kommunia and Qaasuitsup Kommunia launched ty have contributed positively. the report entitled “Future equality” with its vision of how to bring about more balanced development. The report At the same time, it is clear that some years will be needed proposed inter alia that 600 GoG jobs could be relocated in order to establish more of the statistics that could use- from Nuuk to other parts of Greenland. It also pushes for fully be included in a settlement profile. The settlement the recommendations of the Structural Reform Commis- profiles to be included in the 2016 Report on Country sion to be put into practice in earnest with the transfer of Planning, therefore, could usefully be expanded to include tasks involving responsibility from the GoG to the munici- additional parameters over the next few years. Therefore, palities. Kommuneqarfik Sermersooq launched its capital the collection of relevant, valid data and optimisation of city strategy in March. cooperation between the data suppliers and Statistics Greenland to ensure this has also been an important part The Report on Country Planning will have a national per- of the discussions in country planning work. spective. It will be based on political objectives for future allocation of responsibility and roles and will be based, inter alia, on Naalakkersuisut’s overarching desire for development in Greenland, enshrined in the preface to the 2015 Report on Country Planning:

“Naalakkersuisut does not wish to distort Greenland. Naalakkersuisut desires development with growth in all municipalities and sustainable economic development throughout the public sector.”

20 4 FRAMEWORKS OF THE 2016 FINANCE AND APPROPRIATON ACT AND PREPARATION FOR FFL 2017

Preparation of 2017 Finance Bill is taking place at a time the view that the books must balance for this period, as when economic variables have improved after several determined in the adoption of Naalakkersuisut’s policy years of negative growth. There is still some uncertainty targets and principles, and this will also be required in connected with economic development. connection with preparation for a new budget and financial statements Act. Revenue from the fisheries industry is still based largely on shrimp fishery activities. In early March 2016, the Nor- Therefore, the starting point is that any requests for ad- wegian fisheries research institute hosted a presentation ditional expenditure in one resource area must be coun- about developments in shrimp stocks in Canada, Green- terbalanced by corresponding savings within that area’s land (West and East) and in the Atlantic Ocean. This was at own framework. Naalakkersuisut’s forthcoming proposed the North Atlantic Seafood Forum Conference. amendments for the second reading of the 2017 Finance Bill must be fully costed. At the conference, the Norwegian fisheries research institute reported that the trend in shrimp stocks near Canada In further political processing of the Finance Bill and as- is not looking good, and is in decline. As for Greenland’s sociated negotiations with the parties, therefore, there stocks, the trend in stocks may be going too much into de- will be no room for adopting uncosted proposals, and cap- cline, despite the positive advice for 2016. In principle, ital-intensive parliamentary resolutions for the spring the Greenland Institute of Natural Resources does not dis- session 2016 and the autumn session 2016 must also be agree. The Institute of Natural Resources emphasises, fully costed to the extent that they are adopted. however, that there is great uncertainty surrounding the trend in Greenland’s shrimp stocks in the near future. It is therefore important that any such proposed decisions are included in Finance Bill negotiations, and do not take Accordingly, it may be necessary to reconsider revenue on a life of their own outside the general, interdepartmen- expectations from the shrimp levy in 2017 Finance and tal and overarching priorities that must be reflected in the Appropriation Act, no later than this autumn, once new ad- final Finance and Appropriation Act. vice on shrimps is available for 2017. Moreover, it will be important to be aware of the trend in shrimp prices, which This will be the starting point for Naalakkersuisut’s future are likewise of major importance in terms of revenue from discussions with the parties, and Naalakkersuisut hopes the shrimp levy. to find broad-based understanding for this across the political spectrum, including in future collaboration with the Similarly, some caution is needed regarding expectations of Finance and Tax Committee and in the forthcoming Fi- revenue from mackerel fishery, for example. The trend in pe- nance Act agreement on the 2017 Finance Bill. lagic fishery has remained a high priority. Here, it is important to focus on obtaining stable income by bringing Green- Preparation of the 2017 Finance Bill land’s vessels and Greenland’s crew members into fishery. The Finance Act agreements for 2015 and 2016 provide some milestones for the work with the 2017 Finance Bill. There is still some uncertainty surrounding future income The goal is that Finance Act negotiations for 2017 as well from activities derived from the service contract on the should culminate in written agreements with the parties operation and maintenance of Thule Air Base (TAB). The on key topics after the forthcoming discussions. The in- Finance Bill will therefore take this into account. tention is to begin these negotiations earlier in 2016 than was practicable in 2015. Handling of new expenditure requests There are always requests for additional funding from var- At the same time, Naalakkersuisut’s objective is to avoid ious sectors which could not be accommodated in the cur- having unimplemented reserves from savings on adminis- rent 2017 Finance Bill while ensuring a balance of OI in the tration and operation incorporated into its proposal for period 2017–2020. Nevertheless, Naalakkersuisut takes FFL 2017, presented in August 2016.

21 Naalakkersuisut hopes that the parties will be receptive investments in this area will contribute to subduing cost to this proposal to improve the process prior to the adop- increases and create growth in, essentially, all sector ar- tion of future Finance Acts. eas.

This year, too, it will be difficult to strike a balance and 3. Better coordination of construction sector plans in all find room for new growth-promoting initiatives and any areas. unavoidable service improvements. Naalakkersuisut and the municipalities are still in an early Naalakkersuisut is keen to take on this task, as it is an im- phase of working with construction sector plans, and portant political task to set bold priorities and stake out a some areas have not yet started, let alone finished, pre- long-term course for the development of our society. paring their plans. At the same time, it is crucial to ensure correlation between the GoG’s sector planning and the Going forward, it is necessary and in line with the coali- municipalities’ corresponding planning. Similarly, there is tion’s infrastructure agreement to prioritise above all a need to coordinate planning in relation to the major in- funds to help address society’s basic structural problems frastructure and utility companies. In many ways, sector as the most important thing. This can be promoted inter plans in these areas serve as a foundation for the other alia by establishing a special-purpose priority fund. This sector plans. will be addressed during the forthcoming Finance Act discussions. Going forward, the construction sector plans will constitute a crucial and necessary foundation for setting priori- This overarching main objective can be expressed in four ties and for the use of GoG’s construction funds. This also equally important sub-objectives: means that areas that do not prepare these types of plans will quite simply find it difficult to get priority in the use 1. We must avoid increasing overall fiscal pressure, and of the GoG’s construction funds. we must avoid taking on unnecessary debt. In that connection, it must also be remembered that the That does not mean we cannot reconfigure individual tax- sector plans may very well contribute to attracting out- es and duties, but the ordinary taxation of income must side investors such as funds, banks and pension schemes. not rise. Having well-thought-out and politically approved sector It also means we must invest wisely in better infrastruc- plans is an expression of stability and long-term planning. ture and education, where we can see that this actually Investors typically attach great significance to this. pays dividends. Preparing construction sector plans and coordinating 2. Prioritisation of growth-promoting and structure-en- these with the municipalities is also one of the key prereq- hancing measures ahead of ordinary improvements to uisites when, in future years, more detailed agreements services. are to be prepared regarding parts of the construction area for the municipalities, just as there is consensus be- We all know that many people would like higher benefits tween the municipalities and Naalakkersuisut. and higher levels of service, but if we are to be able to afford these things and, at the same time, safeguard the 4. Better frameworks for commercial development. necessary economic sustainability, it will be of decisive importance to take political responsibility for unwaver- The objective is not to increase subsidies for non-viable ingly setting tough priorities. commercial activities but, rather, to put in place the pre- Specifically, Naalakkersuisut is preparing to put the em- requisites for lasting jobs in the private sector. phasis on social investment in children and young people and on improving outcomes from basic courses. The right Today, the public sector accounts for too much of the

22 overall economy. This limits economic growth and contrib- years. utes to making the population’s expectations of the public • Preparation of other possible actions to achieve econo- sector for getting things done unrealistically high. How- mies of scale and productivity in administration and op- ever, redeploying the workforce and tasks from the public erations, including to the relevant extent through joint sector to the private sector in actual fact (not quasi) de- public-sector solutions. mands continued effort and continued upgrading of skills. • Implementation of additional spending analyses to pave the way for possible targeted savings or possibly ad- As part of the preliminary work for the 2017 Finance Bill, justment of the level of service, e.g. in case processing presentations are being prepared regarding a number of in social matters. areas. • A prioritised plan for redoubled efforts in relation to what is known as the target group of young people. This includes objectives and initiatives enshrined in previ- • Follow-up of proposed decisions from the 2015 autumn ous Finance Act agreements and proposed decisions in In- session with possible impact on expenditure for opera- atsisartut as well as initiatives involving the municipali- tions and subsidies, including possibly transposing UN ties: Conventions into legislation in matters pertaining to • Implementation of a plan for investment and financing children and disabled people (first half of 2016). of improvement to the runway structure. • Continuation of the work of modernising the block grant • Proposal regarding construction sector plans and their agreements with the municipalities, first to secure financing in all significant areas as input to the con- agreements for meeting targets and related incentivi- struction part of the 2017 Finance Bill. sation, and secondly to incorporate a longer-term per- • Preparation of new service contracts in the areas of spective into these. passenger transport and the supply of goods. The eco- • Creation of better frameworks for controlling economic nomic starting point here is the level set out in the esti- development throughout the public sector, including mated years in the 2016 Finance Act, but ongoing work follow-up of the future new public-sector budget and fi- to improve these could indicate a need for changes nancial statements Act. here. If there is to be any additional expenditure, this must be financed. • Further development of frameworks for development of experimental fishery and the creation of increased added value based on fishery resources. Development of a strategy for pelagic fishery in dialogue with relevant parties as well as targeted use of monies from the fisheries development fund to develop the fisheries industry. At the end of 2015, the fisheries financing fund contained approximately DKK 25 million. • Initiatives to create better framework conditions for establishing and developing businesses. • Evaluation of special fishing industry rates for electricity and water. • Legislation to implement the reform measures on which the sustainability and growth plan depends. • Preparation to consolidate the GoG departments’ IT to produce effective, secure and cost-conscious IT operations by ensuring a high level of technology and professionalism, cohesion and shared architecture as the basis for economies of scale and thus savings in future

23 24 VISION AND GUIDING PRINCIPLES FOR THE SUSTAINA- BILITY AND GROWTH PLAN

25 w

INDHOLDSFORTEGNELSE

CONTENTS

Introduction...... 27 Vision and guiding principles for the sustainability and growth plan...... 29 The four Reform Tiers...... 35

Reform Tier 1: Raise the level of education...... 43 Raise pupils’ academic skills – give more people the opportunity to take a study programme...... 46 Optimise and boost capacity – have more people complete a study programme...... 53 Increase the efficiency of the education system – get people out into the labour market faster...... 55 Objectives and outcomes...... 56

Reform Tier 2: Stimulating growth and conversion to a multifaceted economy...... 59 Targeted infrastructure investments...... 64 Oil and minerals area...... 82 Tourism ...... 88 Fisheries...... 92 Modernisation of business frameworks and the labour market ...... 95 Objectives and outcomes ...... 107

Reform Tier 3: Modernisation of the public sector...... 109 Better financial management of the entire public sector...... 111 Digitisation of processes, task performance, planning and services to end-users...... 120 Early preventive initiatives...... 126 Objectives and outcomes...... 129

Reform Tier 4: Increased self-sufficiency through reform of welfare, the tax system and housing...... 131 Self-sufficiency...... 133 Housing supply...... 138 Independent living in later life...... 143 Initiatives...... 144 Objectives and outcomes ...... 159

Appendices...... 161 Appendix 1: Central macroeconomic assumptions...... 161 Appendix 2: Contributions from the reforms...... 162

26 w

Introduction

Greenland’s economy and society are dependent on devel- brate, we cannot afford to rest on our laurels. In a number opment in a number of sectors and positive interaction of areas, we need to develop further in order to bring between these, strong public-private partnership as well about a more secure society with better prospects. as development within Greenland’s regions, interregional development and Greenland’s trade and cooperation with Therefore, there are relevant questions that we may and other countries. must ask ourselves: Can’t we make things a bit better?

Achieving the desired positive socio-economic develop- Definitely. And we must recognise that there are a lot of ment is therefore not a straightforward task. It is also a adjustments in how society is organised if the desired out- task that constantly demands minor course corrections comes are to manifest so that society can be a shared and, frequently, also major reform measures. framework for ensuring welfare and prosperity for generations to come. The better we are at this – especially when it comes to timely action – the greater the probability of achieving For those reasons, Naalakkersuisut has now set out a co- the desired outcome. Figuratively, it is a little like an en- hesive proposal for dealing with a great many challenges gine. Anyone who has access to a dinghy or a car is familiar facing society. This will be accomplished in the form of a with the ingenious life of an engine. If you do not take Sustainability and Growth Plan, which discusses how to good care of it, it soon breaks down. Repairs cost a lot, and optimise the way society is organised and the underlying premature replacement is expensive. processes to enable us, together, to put right the challenges we face together. Obviously, a society is very different from an engine. So- ciety consists of people, communities, institutions and The outline of the plan covers four Reform Tiers, as fol- businesses, laws and regulations. They are intricately lows: bound together. Fortunately, a society cannot break down • Boosting the level of education in the same way as an engine, but a society can function • Stimulating growth and conversion to a multifaceted less well. This becomes evident as follows: economy • Modernisation of the public sector • For example, when there are too many people outside • Future-proofing of welfare our labour market, both the unemployed and the group of people who are incapacitated, due either to an occu- The four Reform Tiers cover significant areas that are cru- pational injury or to substance abuse, this is a major cial to our society. They touch on everything, including problem for society. matters of health, social affairs and the labour market, ad- • When a very large proportion of young people and ministration and tax, infrastructure and business develop- adults have only passed the Folk High School final ex- ment. The Sustainability and Growth Plan provides the amination – and perhaps not even that – as their highest framework for us to create a better, successful society. level of education, that, too, is a major challenge for so- However, it is up to us as members of the public, business- ciety. es and public institutions to flesh out this framework. • Or when there are areas of the country with modest or negative rates of growth, and which for the same reason With that in mind, I would urge everyone to contribute to have difficulty living up to the expectations that people dealing with the overarching challenges facing society to today expect of their society. make our country a secure, attractive place to live and create good conditions to enable the public sector to invest The statistics speak out loud and clear in relation to all in and run a business on a sustainable foundation. At the three examples; the conclusion is clear: same time, Greenland must continue to be a significant player and partner in the Arctic region. The whole of although, fortunately, there are also successes to cele- Greenland deserves that.

27 I look forward to a rewarding debate on the subject in the Inatsisartut chamber, where I look forward to the parties’ proposals for how we can deal with the common socio- economic challenges that face us.

Because here is a salient point: the Sustainability and Growth Plan is not the conclusion of a process. It is only now that the process gets under way in earnest. No one yet knows how long this process will take. However, my hope is that, with the Sustainability and Growth Plan, we have a really good foundation for discussing how to develop our society for many years ahead.

We hope you enjoy your reading and we welcome a hearty debate!

Kind regards

Randi Vestergaard Evaldsen

28 Vision and guiding principles for the Sustainability and Growth Plan

Naalakkersuisut has an overarching vision for the Sustain- are five specific cross-disciplinary guiding principles for ability and Growth Plan: specifically, that Greenland will the four Reform Tiers of the Sustainability and Growth gradually become more economically self-sufficient and, Plan. in the long term, become independent of the block grant from Denmark.

This vision demands securing a sustainable economy in the public sector, and authentic growth in the private sector.

This is necessary in order to be able to win new projects from the state and to achieve greater economic and, therefore, greater political independence, for which there is broad-based political and popular support.

It is no simple task to bring to fruition this vision and the implicit objectives inherent here in terms of economic growth, as this demands a positive development in a number of sectors if such growth is to be lasting and sustainable. Neither is it the intention for this vision to become a reality from one year to the next, but rather through joint effort and a long, hard trek.

In reality, we must gradually move in the desired direction based on some common lines of sight in a number of central areas in society, including education, the labour market, business and social affairs, together with investments in housing and infrastructure.

The fact that these areas are interrelated complicates matters. Success in one area is important in terms of opportunities for achieving similar success in other areas and for the possibilities of many players interacting at many levels in the various key initiatives. In practice, that is the only way things can be done. This places major demands on coordination and shared ways of perceiving the starting point for the necessary changes and common goals for initiatives in key areas.

The Sustainability and Growth Plan is Naalakkersuisut’s attempt at a shared picture that sets the direction for the desired outcome of the reforms and key initiatives in each of these which must be achieved in order for us to come closer to making the vision a reality in practice.

To bind the reform measures together, therefore, below

29 Cross-disciplinary guiding principles for the Sustainabil- structure of the public sector appropriately and to find in- ity and Growth Plan telligent, sustainable solutions based on where and how best the tasks can be performed for the benefit of the Sustainability. people. The development of our society must be sustainable and must include all components of society, including the Like any other country, we face many challenges. The solu- economy, the community and the administration of natu- tion to this is a joint task that requires cooperation and ral resources. trust between the players across the board: Between sectors, in joint public-sector solutions and, frequently, in Increased self-sufficiency. constructive interplay with the private sector and volun- Individuals must become better able to take responsibili- tary organisations. ty, be self-sufficient and create the framework for their own life and that of their family. Being self-sufficient An attractive place to grow up and live as part of a com- must be feasible and attractive to those who have the po- munity. tential to achieve this. For example, more people must be Our society must constitute the framework for building a enabled to own their own home so that individuals can be positive life and a community that is attractive to live in the master in their own house and take on the attendant and be a part of, and also be the obvious choice of where responsibilities and opportunities. to live after completing a study programme abroad. We welcome people and families who, as part of attracting We must continue to have social schemes that make it the necessary workforce for major projects and other key possible to receive focused help from the public authori- tasks, have chosen to live here in Greenland. ties when necessary, and the public authorities have a re- mit to provide homes for groups who are unable to provide We must give everyone opportunities to develop person- a home for themselves. ally and good choices for individuals by creating a system of education and welfare that we can be proud of – with A good, stable framework for private investment. the focus on the person. Nature has endowed us with a An important joint public-sector task is to create political unique environment that we must nurture, and we must and administrative frameworks that enable the private make our settlements a pleasure to live in and come home sector to grow, both relatively and in absolute figures. to. Greenland’s culture, our shared values and our lan- This includes enabling the taking over of tasks currently guage add up to a robust foundation for socio-economic performed by the public sector. development that we can use to build on and develop ourselves from, in our encounter with the rest of the world. Greenland competes directly with the rest of the world to attract investment with a view to creating lasting jobs and greater prosperity. We are part of a globalised economy. We must therefore work systematically and with our eyes on the goal to strengthen Greenland’s competitiveness. We must invest wisely in infrastructure and develop our pattern of trade to harness the advantages of increased trade and new opportunities as and when they arise.

Tackling tasks holistically and effectively. The public sector has a central role to play, especially in a country with a sparse population scattered across rather a large number of settlements over an enormous area. The GoG must work with the municipalities to arrange the

30 Overarching structural problems and how to deal with them

Society faces major economic challenges, and the way the The Economic Council has demonstrated that demograph- welfare state is currently structured is not economically ic development and the current structural problems, sustainable going forward. However, we can and must be whereby many people of working age are outside the la- proactive in dealing with this. Figure 1.1 illustrates some bour market or have a low income, may lead to systematic overarching barriers to growth and inclusiveness. deficits in the public finances and rising social challenges.

Without political action, we will see increasing inequality Some of the economic key figures are not particularly en- in the population, emigration and a public sector starved couraging. For a long period of time, there has been low of the resources it needs to deal with the tasks we want economic growth in society and persistent low productiv- the public authorities to deal with for society. ity.

Through reforms, due account must be taken of a number The public sector therefore faces an increasing funding of underlying development trends: problem unless things change. The Economic Council’s • More people will exit the labour market in the years sustainability model is used to calculate the economic ahead, while more people will be fortunate enough to outcome of the reforms. The sustainability model is an- live longer. Overall, then, fewer people will be providing chored in the Ministry of Finance, which, together with the for more people in the future. Economic Council, is responsible for developing and up- • The demands for education are generally rising in rela- dating the model. Figure 1.2 illustrates that the trend in tion to finding lasting employment. overall income and expenditure in the public sector may • Greenland is part of a globalised world and is increas- lead to an annual deficit by the year 2030 of almost DKK 1 ingly in competition on the one hand to attract invest- billion, unless solutions are found for these major chal- ment and, on the other, to be able to retain viable jobs. lenges. However, it also illustrates that it is actually pos- • A general – and global – trend over the past 50 years is sible to resolve these. The red line in the Figure shows a for more people to move to larger settlements. projection of public revenues with implementation of the reforms included in the four Reform Tiers of the Sustain- These basic prerequisites need to be addressed political- ability and Growth Plan. ly when it comes to discussing and making arrangements for the future organisation of the welfare state.

Figure 1.1. Barriers to growth and to inclusion in the development of society

Barries for growth • Low competitiveness • Significant subsidies to the traditional occupation • Structural unemployment • Small markets and small business disadvantages • Trade patterns and infrastructure are historically dependent

Barries to inclusion in societal development • Profeciency backlog • Inequality and marginalisation • Negative social inheritance • Bottlenecks in the ecucational system • Substance abuse problems

Source: Ministry of Finance 31 Figure 1.2: Trend in public-sector revenues, expenditure and revenues + reforms (DKK million, 2014 prices)

Source: Ministry of Finance Comment: This projection is based on assumptions notably in relation to demographic development. Appendix 1 shows a more detailed review of the assumptions underlying these projections. The overarching objectives of the Sustainability and Growth direction. This is important to include in the assessments Plan shown in Figure 1.3 must support the vision of inclusive when it comes to setting annual financial priorities. Howev- growth and sustainability in the public finances. er, there is also an inherent risk of losing sight of the big picture by focusing blindly on targets. Therefore, it is im- The advantage of setting specific targets is that it makes it portant to interpret the trend in selected parameters while possible to evaluate whether society is moving in the right keeping in mind the political intent.

Figure 1.3: The overarching goals for the reform tiers

Economic development through growth and occupation Average GDP growth throught to 2030 exceeds the growth rate from 2000-2014 Employement ratio of up to 80 pct. Share of employees with an income below the minimum wage set by the labor union SIK will be reduced by 5 pct. in 2030

Everyone is included in development of our society 70 % of each graduating class who finishes elementary school in 2015 must have a professional education before turning 35 years old Net emigration changes population growth in 2020 Measureable social changes and progress in public health At least 66 pct. of the population must have acces to high speed internet by 2020

Balanced public finances Public finances must be balanced beyond 2030 Continuous productivity decelopment in the public sector

32 Kilde: Finansdepartementet The political objectives and tasks comprise: Four overarching Reform Tiers • creating good, stable frameworks to lead forward to increased investment, high growth rates, the establish- The Sustainability and Growth Plan consists of four Re- ment of more jobs in the private sector that pay well, form Tiers, each of which is designed to achieve the over- and the creation of two or three new leading export in- arching objectives. They must support the visions of cre- dustries, ating inclusive growth in the private sector and sustaina- • raise the general level of education significantly, get bility in the public finances. more people quickly and durably into employment on completion of their study programmes, and boost self- Naalakkersuisut’s absolutely top objectives in the plan are sufficiency, and gradual independence from the block grant as well as an • the public sector must focus on dealing cost-effective- economically and socially sustainable society in which, as ly with its core tasks in the fields of education, the la- far as possible, individuals are able to be self-sufficient. bour market, social affairs and health. The public sector must create space for positive commercial development and must also be able to enter into public–private The Sustainability and Growth Plan is divided into the partnerships wherever beneficial. following four Reform Tiers:

It is not possible to deal with the economic challenges 1. Boosting the level of education without getting to grips with the social problems and setting in motion initiatives capable of eliminating the nega- 2. Stimulating growth and conversion to a multifacet- tive social legacy. As a result of social problems, a dispro- ed economy portionately large part of the population of working age has no permanent connection with the labour market. The 3. Modernisation of the public sector reasons for this are many and varied, and individuals may encounter problems coming at them from many different 4. Increased self-sufficiency through reform of the directions at once. welfare benefits, the tax system and housing

This requires us as a society to invest in upgrading individual people’s skills to enter positively into socio-eco- The four Reform Tiers are not independent, but should be nomic development and actively seek to help those who regarded as mutual prerequisites. For example, it is not risk getting – or already have got – sidetracked. It is a joint possible, in a socially sustainable way, to elevate new in- social task to break these patterns, and the individual too dustries into leading industries if the population does not has a responsibility to seek to become part of the working have or does not acquire the necessary skill-sets to mas- community. ter the many jobs within these industries.

At the same time, this demands a modern public sector For each of the four Reform Tiers, a number of measurable with a high degree of capacity to work across organisa- targets have been established to benchmark whether, as tional divides in order to deal with the complex issues that a society, we are moving in the desired direction. These people have. Therefore, the Sustainability and Growth could be objectives that must be achieved by 2030 (in Plan is measured at more dimensions than purely in eco- some cases, 2040) or within a shorter timescale. Progress nomic terms in order to provide a picture of progress, in- requires continuous follow-up, however. This will be done cluding in matters relating to including more people in so- in part in the annual Political and Economic Report, and in cio-economic development. part in reporting within the individual sectors.

The objectives are either taken, for example, from existing sector strategies or formulated as part of the work of pre-

33 paring the Sustainability and Growth Plan. The objectives are presented below and are included in the descriptions of each of the four Reform Tiers. For some objectives, a baseline must be prepared as the starting point for formu- lating a relevant, measurable objective. This applies particularly within Reform Tier 3, Modernisation of the public sector, and Reform Tier 4, Increased self-sufficiency through reform of the welfare benefits, the tax system and housing.

Reaching these targets will not happen by itself. It demands setting tough priorities and targeted initiatives in a number of focus areas and coordinating them systematically.

Each of these Reform Tiers has a number of focus areas, described briefly below and in more detail in dedicated main sections of the Sustainability and Growth Plan.

34 Reform Tier 1: Boosting the level of education

The level of education is vital to the development of our Reform Tier 1: Boosting the level of education society, in the private and public sector alike. Naalakker- suisut wishes to boost the level of skills throughout soci- The level of education is vital to the development of our ety and ensure that the education system is effective, society, in the private and public sector alike. Naalakker- with young people progressing rapidly through their suisut wishes to increase the level of competency study programmes and getting off to a successful start in throughout society and to ensure there is an effective ed- the labour market. ucation system that guarantees young people leaving school equal opportunities to progress rapidly through Figure 1.4: Main focus areas of Reform Tier 1 – Boosting the their study programme and gain the right skill-sets for a level of education successful start in the labour market.

Main focus areas of Reform Tier 1 Targets for Reform Tier 1 Raise pupils’ academic skills so that more people un- • At least 85% of all children must be in daycare by dertake a study programme 2024 • Holistically oriented early intervention • 70% of all daycare staff must be qualified by 2024 • Basic general education as the foundation – Pre- • 92% of all primary and lower secondary school school and primary and lower secondary school staff must be qualified by 2024 • Stronger focus on Greenlandic, English, Danish and • The proportion of pupils completing their primary mathematics and lower secondary education and beginning a • Assigning higher priority to efforts aimed at the youth study or training programme the same year target group of young people must be 30% by 2024 • Sector plan for investment in education – elimina- • All 16–18-year-olds must be activated via organ- tion of capacity problems and creation of more ised education opportunities, and the goal is for the teaching jobs target group of young people (without an education or work) to be reduced to a maximum of 25% by Increase the efficiency of the education system – get 2024 people out into the labour market better and faster • By 2024, there must be at least 246 more trainee- • Use of ICT as an integrated part of the education ships than there were in 2015, corresponding to an system increase of 32%, and the number of completed vo- • Better, Greenland-wide guidance – reducing the cational programmes must increase by 98 people, drop-out rate corresponding to 22% from 2015 to 2024. • Getting more people through the education system • Completion percentage must rise in the run-up to quickly and into the labour market – reform of stu- 2024: from the current figure in 2015; dent grants • Upper secondary school – 75% by 2024 from 50% • Vocational programmes – 65% by 2024 from 47% Source: Ministry of Finance • Short-cycle higher study programmes – 60% by 2024 from 59% • Bachelor’s – 60% by 2024 from 45% • Master’s – 85% by 2024 from 71% • The average age of completing a study programme must be reduced from today through to 2024 • Upper secondary school – 20.5 by 20245 from 22 • Vocational programmes – 26.0 by 2024 from 29.1 • Short-cycle higher study programmes – 26.0 by 2024 from 33.3 • Bachelor’s – 26 by 2024 from 33.3 • Master’s – 28.0 by 2024 from 31.4

35 Reform Tier 2: Stimulating growth and conversion to a multifaceted economy

A larger income base must be created by creating growth Reform Tier 2: Stimulating growth and conversion to a and increased employment in the private sector. This multifaceted economy growth and employment must not be created only in one sector but in multiple sectors in order to pursue multiple Targets for Reform Tier 2 strategies. This requires improved competitiveness and Overarching targets for Reform Tier 2 • Target for improving the benchmarking of Green- trade development initiatives in the field of mineral re- land’s attractiveness in relation to attracting for- sources and tourism, while at the same time better frame- eign investments for growth industries and infra- works need to be put in place for further development of structure, including ongoing modernisation of fisheries. trade legislation • Increased application of new funding instruments to promote commercial growth industries without Figure 1.5: Main focus areas of Reform Tier 2 – Promote growth damaging the Treasury of Greenland and conversion to a multifaceted economy • Measurable targets for ice and water exports in the water export strategy by the end of 2016 Targeted infrastructure investments Main focus areas of Reform Tier 2 • Direct flights between main cities in North America Better framework conditions to create growth and and Europe and Disko Bay and the capital Nuuk by sustainable jobs 2020 • Focus on improving competitiveness • Renewable energy must account for at least 90% of • Better infrastructure – airports, ports, telecommu- Nukissiorfiit’s energy production by 2030 nications, energy and map data Raw materials • Adjustment of corporation tax • Establishing 2–3 mines within a period of five Fisheries remains the key industry years, including a large mine • The relationship between fisheries legislation and • Exploration activities in the field of minerals and oil resource tax at least on a par with 2015 • New species and exploitation of the whole fish Tourism • Modernisation of coastal fishery • Land-based tourism must rise to 74,500 tourists by Further development in the field of mineral resources 2040 • Ensuring an effective interplay of the education, • The number of cruise ship tourists must increase to labour market, social and health sector as well as 39,000 by 2040 infrastructure Fishery • Establishing internships in the field of mineral re- • Revenue from coastal fishery should, as a starting sources point, not develop any more slowly than income • Better collaboration between the labour market within the onshore fisheries industries offices in the municipalities and the companies in The labour market the mineral resources sector • A larger proportion of registered job-seekers must • Upgrading the qualifications of Greenland’s SMEs be able to be included in Match Group 1 and thus be, and establishing collaboration between the miner- or be made, work-ready al resources companies and local businesses • A cohesive labour market, measured by increased • Redoubling the public consultation process mobility across Greenland Tourism as a future leading industry • Full implementation of new Job, Guidance and Up- • Reforming duty structure in the field of tourism skilling Centres in all towns/villages • Improving infrastructure • Better connection between available jobs and A cohesive, dynamic labour market available posts through effective utilisation of the • Ensuring the best possible interaction of the labour Suli.gl jobs portal market, education, social and health sectors • By 2030, unemployment among young people aged • Good match grouping as a starting point for being 18–29 must be halved compared to 2015 able to target investment Greater professional and geographical mobility An accommodating labour market

Source: Ministry of Finance

36 Reform Tier 3: Modernisation of the public sector

The public sector accounts for a large part of the overall Reform Tier 3: Modernisation of the public sector social economy. It is important to make the best possible use of public resources. Targets for Reform Tier 3

This will be done by efficiency improvements and appro- Overarching objectives priate organisation and division of labour. There is tre- • Balance the economy in the GoG and all four munic- mendous potential for thinking along different lines and ipalities respectively, by 2018 at the latest making use of technical and digital capabilities. In addi- Better financial management of the entire public section, we must ensure that public-sector initiatives are tor evaluated, and that there is effective control of the econ- • Shared basic data by 2020 at the latest omy both in the GoG and in the Municipalities. Digitisation of processes, task performance, planning and services to end-users Figure 1.6: Main focus areas of Reform Tier 3 – Modernisation • Targets for the level of digitisation in relation to citizen-related enquiries of the public sector Early preventive initiatives • Targets for early, preventive initiatives in the fields Key initiatives of Reform Tier 3 of social affairs and health care Better financial management of the entire public sector • New budget and financial statements Act • Development of financial management expertise in the public sector • Spending analyses • Performance-based and results management More appropriate organisation and balanced development of Greenland • Follow-up on the structural reform – better organisation of the public sector • Preparation of new equalisation scheme • Sector planning Expert employees and managers • • Digitisation of processes, task performance, planning and services to end-users • The basic-data programme, shared public systems as a foundation for ongoing digitisation • Consolidation of digitisation efforts • Welfare, identity, the individual and democracy as hubs for the continuing digital strategy • Smarter solutions and more space for private initiatives • Electronic invoice processing • Professionalisation of facility management and maintenance • Establishing joint, coordinating functions in the public-sector • Better purchasing Early preventive initiatives • Optimisation of the interaction between the field of health and other sectors • New socio-political family strategy

Source: Ministry of Finance

37 Reform Tier 4: Increased self-suffiency through reform of the welfare benefits, the tax system and housing

The welfare state must be organised so as to function as Reform Tier 4: Increased self-sufficiency through reform a financial safety net for individuals. Public benefits must of welfare, the tax system and housing be allocated to individuals in greatest need, and at the same time the welfare system must create an incentive Targets for Reform Tier 4 towards self-sufficiency and participation in the labour market. Overarching objectives • Once fully phased in, working tax credits must cor- Figure 1.7: Main focus areas of Reform Tier 4 – increased self- respond to an income boost of DKK 1,000 per sufficiency through reform of the welfare benefits, the tax sy- month for a wage earner under an SIK collective stem and housing agreement. That corresponds to a tax break of approximately 10% for this group Key initiatives of Reform Tier 4 • Target for getting more people on welfare into Everyone must contribute to and have a stake in eco- work nomic growth • Target for reducing the number of people on long- • Tax incentives for low and medium income groups term benefits by 2030 – job allowance • Target for a larger proportion of the population to • Solution to interaction problems – focus on fami- have their own, substantial pension savings lies with children • Target for enabling more people to be self-suffi- • Solution to debt and liquidity problems in the pre- cient in housing on commercial terms in a home of sent system their own • Targeted welfare benefits • Publicly subsidised homes must be focused on peo- • Rate adjustment of all social benefits ple who are unable to provide themselves with a • Implementation of early retirement reform – Im- home on market conditions, and a target must be proved screening – increase the number of shel- established for reducing the need for subsidies for tered and reduced-hours jobs • Adjustment of deduction schemes between the housebuilding in the run-up to 2030. GoG and the municipalities Widening the tax base • Taxation of capital gains • Tightening up the PAYE tax concept • Ilanngasivik – efficiency improvements and simplification of the tax system Increased self-sufficiency in housing • Avoid future maintenance drag – secure funding for maintenance via rent • More people must have the opportunity to own their own home – gradual phasing out of staff accommodation • Targeting of housing subsidies – new construction of rented homes primarily for people on low incomes – small homes, disabled-friendly homes and homes for elderly people • Public borrowing options to be adapted according to the housing market – mortgage interest relief • Space for private investment in home building – use of PPP solutions being considered • Better organisation of public ownership and administration of the housing area Future-proofing of the pension system • Higher coverage of labour market pensions As many people as possible must have their own pension savings • Increased incentive to join the labour market – solution to interaction problems • Accelerating taxation of foreign labour market pensions

Source: Ministry of Finance 38 to identify whether economic policy is producing a sustainable development in the pub- The four Reform Tiers of the Sustainability and Growth lic finances in the run-up to 2030 – and beyond. Naturally, it is difficult to predict how these key figures will develop over so many years, but the Economic Council uses qual- Plan contain many efforts and initiatives to be regarded ified assumptions based on historical data and comparable economies. The deficit in as investments in our future. These may be investments in the public finances calculated by the sustainability model in 2030 are currently approximately 820 Million and are affected by demographic development as well as by improved infrastructure, producing a return and new op- the aforesaid key figures. Basically, the same key figures and population projections are used in the Sustainability and Growth Plan, unless specific reforms could nudge portunities. They may also be investments in creating bet- these in a positive direction. One such example is the proposal for a new budget and ter opportunities for the individual and thereby contribut- financial statements Act for the public sector that will reduce real-term growth in public spending and therefore contribute to reducing the otherwise projected deficit in the ing to each person achieving his/her full potential. public finances in 2030..

In practice, the four Reform Tiers would have to be imple- Figure 1.8 Status of the four Reform Tiers mented over a number of years. They will gradually generate increased income or savings in the public sector. The Reform track 4 1.110 bn 1.090 bn financial margin for manoeuvre thus created must be used Reform track 3 both for initiatives that uphold the basic core services of the public sector, and for investments to safeguard a con- 0.820 bn "gap between tinuing sustainable economy in the public sector and revenue and consumption" growth in the private sector, including in the longer term.

Combined effect of the four Reform Tiers Combined, the aforesaid four Reform Tiers could contribute DKK 1,110 million to improving the public finances by 2030; see Figure 1.8. Reform track 2 0.390 bn

1. Raising the level of education, DKK 120 million 2. Stimulating growth and conversion to a multifaceted economy, DKK 270 million Reform track 1 0.120 bn 3. Modernisation of the public sector, DKK 700 million 4. Increased self-sufficiency through reform of the welfare benefits, the tax system and housing, DKK 20 mil- Source: Ministry of Finance lion

With the help of the four Reform Tiers, the gap will be closed between expenditure and income – what is known as the sustainability problem in the public finances, currently approximately DKK 820 million, cf. Figure 1.8. The outcome of the four Reform Tiers is of course subject to uncertainty, and to some extent the same may be said of the exact magnitude of this gap between expenditure and income1. Nevertheless, reforms are undoubtedly needed to plug the large gap between income and expenditure. In other words, negotiation must take place to balance the economy and, in so doing, safeguard future welfare and prosperity.

1 The sustainability model used by the Economic Council is based on a number of assumptions when it comes to projecting expenditure and income in the public sector over a large number of years, including key figures for the development of GDP, the rate of inflation and the growth rate of public consumption. The sustainability model is used 39 LONG-TERM POTICAL OBJECTIVES AS CONTROL TOOLS

Internationally, there is a growing focus on long-term ob- cluding here in Greenland. Among other things, this can jectives. They are increasingly being included in the polit- contribute to seeking inspiration from countries other ical governance of socio-economic development in Green- than those we normally compare ourselves with, and thus land in the individual sector areas and across the spec- to new ways of tackling problems. trum of economic policy. The Sustainability and Growth Plan is for the long term, In the field of education in particular, for more than a dec- and emphasises the most important areas that require a ade, in among changing education strategies and plans, steady focus in order to create sustainable development. long-term policy targets and selected indicators have Some of the effects can have a longer perspective, while been set to measure progress. The targets are formulated others take effect sooner. What matters is that the long- by Naalakkersuisut and approved by Inatsisartut, but are term effects and structural improvements are taken into also included in the EU Partnership Agreements. At the account in all major initiatives so that they can contribute same time, it follows from these that a number of set tar- to sustainable economic development, and there will be gets must be met in order to receive full payment from the ongoing advancement within the individual sectors. EU. Greenland participates in various contexts international- The EU works similarly with long-term objectives, includ- ly: in the Nordic region, the Arctic Council and the UN. In ing what are known as the Europe 2020 targets against some contexts, agreements have been entered into with poverty and social exclusion. Additionally, such targets other countries, or conventions have been signed which are used to benchmark developments across national commit Greenland. Therefore, it is appropriate both to be boundaries, also including in relation to inter-country able to benchmark Greenland in these contexts and to be competitiveness. This happens, for example, in the field of able to continuously report, inter alia in relation to the UN mineral resources at the Fraser Institute and, more widely, Conventions that have been acceded to. Text Box 1.1 de- in relation to commercial development via the World Eco- scribes the link between the 17 UN sustainable develop- nomic Forum’s annual reports on competitive capability. ment goals and the work on sustainable development in Greenland, which, inter alia, is part of the Sustainability Such measurements can be useful for putting into per- and Growth Plan. spective the political discussions and prioritisations, in-

40 Text Box 1.1 The UN’s 17 sustainable development goals are linked to Greenland’s goals for sustainable development

On 25 September 2015, the UN General Assembly adopted 17 new, global Sustainable Development Goals (SDG). The 17 development goals are global and will apply to all countries.

It is expected that the countries will formulate national goals and sub-goals on the basis of the global goals and informed by the global level of ambition. The goals of the new UN 2030 Agenda for Sustainable Development are by their very nature very broad and general, but they do at least provide some distinct milestones for the initiatives and the setting of priorities that the global community has now put on the agenda worldwide.

These are about equality, children’s rights, education for all, peaceful societies and justice for all, water, energy, the environment and climate, debt trend, sustainable inclusive growth, sustainable utilisation of resources, cultural diversity and the power of social cohesion in the face of major reforms and major changes to business structures. This is absolutely relevant to Greenland.

From an international and Nordic perspective, work has been ongoing for many years with three dimensions of the concept of sustainability: economic sustainability, social sustainability and environmental sustainability. Greenland has added its own cultural dimension, so sustainability work in Greenland includes economic, social, environmental and cultural dimensions.

Sustainable development can be described as a vision for the future. Sustainable development is about taking responsibility for the results of what we do here and now, which at the same time has consequences for other people far into the future, or for other people living elsewhere. It is a matter of ensuring development that accommodates the immediate needs of a society without compromising on scope for future generations to safeguard their needs.

In Nordic collaboration under the Nordic Council of Ministers, the work of sustainable development has long been a high priority. For a number of years, the Nordic durability and sustainability strategy with its associated indicators has served as a milestone for collaboration. Following up from the UN SDG agenda, it was resolved that sustainable development work in the Nordic partnership would be coordinated with the 17 new sustainable development goals. As part of this, light must be shed on whether the existing Nordic sustainability indicators need to be revised.

Greenland’s national follow-up and implementation of the SDG 2030 agenda will initially focus on systematic charting of existing initiatives and strategies.

The 17 UN development goals have been presented to a group of planners from the municipalities and the sector managers of the GoG specialist departments at a cross-public sector seminar in February 2016.

It is natural to integrate the work of ensuring sustainable development into ordinary strategic development. If the political objectives of sustainability are going to be converted into concrete action, this is not some disengaged task for those with a particular interest. The 17 UN global development goals are good when it comes to ensuring greater transparency and context between short-term and long-term initiatives and efforts in all sectors, so sustainable development is the starting point and is included as an integral part of the sector strategies.

Source: Ministry of Finance

41 42 Reform Tier 1:

BOOSTING THE LEVEL OF EDUCATION

Targets for Reform Tier 1 • At least 85% of all children must be in daycare by 2024 • 70% of all daycare staff must be qualified by 2024 • 92% of all primary and lower secondary school staff must be qualified by 2024 • The proportion of pupils completing their primary and lower secondary education and beginning a youth study or training programme the same year must be 30% by 2024 • All 16–18-year-olds must be activated via organised training opportunities, and the goal is for the target group of young people (not in education or work) to be reduced to a maximum of 25% by 2024 • By 2024, there must be at least 246 more traineeships than there were in 2015, corresponding to an increase of 32%, and the number of vocational programmes must increase by 98 people, corresponding to 22% from 2015 to 2024. • Completion percentage must rise in the run-up to 2024: from the current figure in 2015; • Upper secondary school – 75% by 2024 from 50% • Vocational programmes – 65% by 2024 from 47% • Short-cycle higher study programmes – 60% by 2024 from 59% • Bachelor’s – 60% by 2024 from 45% • Master’s – 85% by 2024 from 71% • The average age of completing a study programme must be reduced from today through to 2024 • Upper secondary school – 20.5 by 2024 from 22 • Vocational programmes – 26.0 by 2024 from 29.1 • Short-cycle higher study programmes – 26.0 by 2024 from 33.3 • Bachelor’s – 26 by 2024 from 33.3 • Master’s – 28.0 by 2024 from 31.4

43 People are Greenland’s most important resource. This will be on improving compulsory education and on encour- should be reflected in efforts within a number of sectors, aging more people to acquire vocational-skills training. including through labour market initiatives, the way the This is a top-priority national task. social welfare system is organised and, not least, in the education sector. A very low population figure makes it vi- Figure 1.1. Number of students completing a study programme: tally important to be able to draw on the resources and 2005 + 2014 potential of each individual.

Both for society and for the individual, therefore, it is important to offer everyone in Greenland opportunities of gaining a good education. The education system must be cohesive and without dead ends, and there must be a stronger focus on the quality of study programmes. A stronger economy and strategic planning will enable us to make the most of Greenland’s human resources.

A key parameter for improving Greenland’s competitiveness is for companies to have access to a skilled workforce. Accordingly, the education system must comply Source: Statistics Greenland with international standards for the quality of study programmes, and those taking a study programme must pos- We have a nationwide labour shortage, and all sectors sess skill-sets on a par with people educated in the coun- therefore need to import a workforce for a lot of jobs. In- tries with which we compete. Increased internationalisa- dividuals, families, society and the educational institution also means it is increasingly relevant to complete tions as well as businesses must all take responsibility for some parts of a course of study abroad. This will make stu- raising the bar of education and skills to prevent us from dents stronger in terms of competing in the labour market becoming onlookers to development and equip us to fill with foreign workers, and make them more attractive these vacancies ourselves to a larger extent. when foreign businesses invest in Greenland. Greenland is close to having the highest per capita ex- The first education plan came into being in 2005. Since penditure for education of anywhere in the world. Al- then, the number of people completing a study programme though progress has been made in this area, the results of has risen markedly. In 2014, 86% more people completed these investments are not yet satisfactory. We are a long training to provide them with qualifications than was the way behind the countries we normally compare ourselves case in 2005. As a result, the proportion of the population with. Therefore, redoubled and more focused investment with vocational-skills training in the same period has risen is required to make our education system more cost-ef- by 4 percentage points. That is a positive development, fective in order to raise the bar of education in general, and we must ensure that this continues, going forward. and achieve more of a match between the skills of the population and labour-market demand, with higher and It is important for us to further develop this area, system- higher requirements being placed on workers. atically and in a targeted way, in order to build on the progress made so far, as education plays an absolutely crucial For that reason, study programmes must evolve concomi- role in the development of society. tant with the needs of the labour market to create correlation between skills and labour-market demand. This ap- Naalakkersuisut will work to ensure that even more people plies in relation to existing companies and institutions complete a study programme and are thus better equipped based on current and expected needs, and it also applies to provide for themselves and their family. The main focus in relation to establishing new growth industries.

44 A higher level of education can also help to generate Upgrading skills today in the form of attending continua- growth and develop private enterprise through more inno- tion school and Piareersarfiit costs the Treasury of Green- vation. land approximately DKK 100 million each year. In addition, there is the municipalities’ annual expenditure on Piareer- Figure 1.2 illustrates that just 32% of the population aged sarfiit of DKK 50 million. These funds for bridge-building between 15 and 69 have vocational-skills training, while measures are spent not only on the 16–18 age group but 63% have primary and lower secondary schooling as their also on older people. Whatever the target group, however, highest level of education. Although the level of education this is a large sum which basically has to take priority as has been rising in recent years, major challenges remain in long as such a high proportion of school leavers from pri- the education system. mary and lower secondary school are unprepared to proceed directly to a youth study or training programme. The Figure 1.2. Highest level of education completed among the po- large amounts spent on bridge-building measures are part pulation, aged 15–69 (2014) of the high price that society pays continuously for inadequate results from primary and lower secondary schooling.

When funds of this magnitude are being spent on upgrading skills, naturally it must be ensured that the provision of study programmes is systematically developed and revised. An important aspect here is to systematically record who participates in which development process as a way of being able to monitor participants in the years after upgrading their skills. Source: Statistics Greenland A means must be provided for correlating information Challenges in the education system today about those participating in the upskilling processes with Too many young people leave primary and lower second- information about the same people from other statistical ary education with poor language and mathematics skills. registers. For example, it is relevant to see whether par- In 2015, more than 60% of young people leaving primary ticipants in upskilling processes find it easier to obtain and lower secondary school got a Grade E or worse in writ- employment or whether more of them commence youth ten English and mathematics. That means many of these education or training programmes. young people need to upgrade their skills before they proceed to further education. When many young people either never undertake a study programme or only do so very late, the individual is finan- As a result, 41% of pupils in 2014 did not begin either a cially impacted in terms of so-called lifetime pay, while youth study or training programme or continuation school society receives lower tax revenues and incurs higher so- directly after primary and lower secondary school. Only cial welfare costs. The late stage at which young people approximately 15% of our school leavers proceed directly complete their education contributes significantly to ex- to a youth study or training programme (vocational pro- acerbating the sustainability problem in the municipali- grammes or preparatory courses before further study) im- ties and the GoG’s economy. The high average age on com- mediately after primary and lower secondary school. pleting a study programme is illustrated in Figure 1.3. From an international perspective, this figure is still very low. The target group of young people, aged 16–18, who are not in a youth study or training programme or continuation school was 63.5% in 2014.

45 Figure 1.3. Average age on completing a study programme individual areas of the education system. Naalakkersuisut is working to upgrade the level of skills throughout society and to ensure there is an effective education system that guarantees young people leaving school equal opportunities to progress rapidly through their study programme and gain the right skill-sets for a successful start in the labour market. The overarching goal for education is:

70% of year groups leaving primary and lower secondary school in 2015 must gain qualifications by the age of 35.

Source: Ministry of Education, Culture, Research and Church (Education Education Plan II contains the initiatives that must be im- Strategy 2014) plemented in the work of making this vision a reality and achieving the objectives of the Education Strategy. To get young people to undertake a study programme, it is important to improve the quality of primary and lower sec- 1.1 Raise pupils’ academic skills – so that mo- ondary school, and to keep young people in the education re people undertake a study programme system and continue their education after primary and lower secondary school. To raise the level of education throughout society, early and holistically oriented efforts are key. Pre-school as In addition to getting young people started on a study pro- well as primary and lower secondary school are among gramme sooner, it is also important to get young people to Naalakkersuisut’s focus areas, as they are absolutely cru- complete a study programme. The drop-out rate from cial to the development of children’s academic and social study programmes is currently very high, averaging over skills, and must pave the way for the rest of their progres- 50%, as shown in Figure 1.9. sion through the education system.

At the same time, time spent studying on higher education Preschool programmes is far higher than the prescribed period of Naalakkersuisut wants to ensure public daycare for all study (see 1.10). The high drop-out rate and delays preschoolers in order to give children the best prerequi- throughout the education system are costly both to stu- sites for learning during their school career and subse- dents themselves and to the Treasury of Greenland. The quent further study and training programmes. Wherever high drop-out rate means wasted educational resources, there is currently no daycare provision, especially in the while delays result in more expenditure on educational settlements, work therefore needs to be done to develop support (student grants and loans scheme – SU) and hall- daycare, including through adaptation and expansion of of-residence capacity. Furthermore, students lose out on existing frameworks. Naalakkersuisut intends to enter in- the higher income they would have if fully qualified, and to dialogue with the municipalities about this, including the Treasury of Greenland loses the associated higher tax about the most appropriate ways to organise and fund the payments. Accordingly, systematic work is required to expansion of preschool provision to many more, as the identify the background to the high drop-out rate in the municipalities, too, must be expected to share the financ- education system with a view to focusing on how to reduce ing burden. Without investment costs, it will cost DKK 43 this. million annually to have 85% of all children in daycare by 2024. The calculation also includes a cost of DKK 86,000 Naalakkersuisut’s Education Strategy per child. 500 are without a place in 2024 compared to the The Education Strategy embodies Naalakkersuisut’s over- target of 85%. arching vision for education as well as objectives for the

46 It is important for the staff in institutional childcare to Preschool – initiatives have the necessary tools and skill-sets to support the chil- • Day-care provision for all dren’s development, particularly with reference to chil- • Education and upskilling of staff dren with special needs. Work is therefore being done to • Implementation of good institutional childcare train more social educators, as well as to ensure that their (Meeqqerivitsialak) training equips them with the right skill-sets to be able to • Holistically oriented early intervention accommodate all children, irrespective of social background. Today, only 56% of institutional childcare staff Primary and lower secondary school are qualified, and the municipalities report difficulties re- Primary and lower secondary school is the most important taining staff. Therefore, it is important to look at staff focus area when it comes to education. Primary and lower (pay) conditions, and to investigate how we can retain and secondary school is the foundation on which all further secure more staff qualified to work in institutional child- education builds. When young people leave primary and care. A dialogue to this effect should also be entered into lower secondary school, they need to have acquired the with the trade unions in this regard. necessary skill-sets to commence a youth study or training programme. To ensure optimised teaching and development in institutional childcare, tools must be developed for screening After evaluation of primary and lower secondary schools child health, development and readiness for school. Stud- in 2015 and follow-up on this, the following investments ies have shown that efforts involving vulnerable children and initiatives can be established to ensure improved pri- have the greatest effect if started early with preschoolers mary and lower secondary schools capable of fulfilling the – see Figure 1.4. An economic investment in preschooling intentions of the 2003 Primary and lower secondary would produce long-term benefits for society and for the school reform: individual children. Primary and lower secondary school – initiatives Figure 1.4. Return on investment in human capital at vari- • Quality and school development – school structure ous stages (Heckmann curve) • Training for head teachers – training and upskilling of educators Betydningen af tidlig indsats • Development of action plans/pupil files Less visible – • Stronger focus on foreign languages and mathe- Return on Prevention easier investment matics – greater use of ICT in teaching of human • Special initiative aimed at the oldest grade capital Visible repair of • Coordinated investments – enhancing school– Preschool problems home cooperation Difficult

Primary school Secondary education To raise the quality of teaching and pupils’ academic skills, Alder Naalakkersuisut will work towards having qualified, edu- Source: The Economic Council (as per James Heckman) cated staff as teachers in primary and lower secondary Reform Tier 3, modernisation of the public sector, has schools. We must recreate respect for the activity of sub-sections on early, preventive investment in health and learning and respect for primary and lower secondary social care, which is also expected to produce a beneficial school. This is a joint responsibility for all stakeholders in effect in relation to initiatives in Reform Tier 1 – educa- primary and lower secondary schooling. tion. It is important for primary and lower secondary schools to prepare learning targets by means of action plans so that all pupils encounter the necessary academic challenges. The intention of preparing action plans is to document

47 Figure 1.5. Young people not in education

Graduating students from elementary school in 2012 760 students who took final exams

Education Boarding school Not educationally active 44,8 %

2012 12,3% 39,4% elever 3,29%

Boarding Labor market and stu- Education Not educationally active school dy preperatory training 30% 2013 7,8% 17,2% 44,8% elever

Education Not educationally active 37,5% 15,2% 46,8% elever 2014

Education 8,4% Not educationally active 36% 55,9% elever 2015

Labor market and study preparatory training Source: Ministry of Education, Culture, Research and Church

how the individual pupil achieves the key established The evaluation shows that the study programme currently learning targets. has a number of serious quality challenges and does not satisfactorily meet the need for qualified teachers in pri- In the settlements, just 51% of educators were qualified mary and lower secondary school. The appointed panel of in 2014. Therefore, in the years ahead, there needs to be experts recommends that the university should take the a stronger focus on upskilling as well as on the use of re- initiative for wholesale further development of the study mote learning, and it will be necessary to look at how to programme to make it a modern, profession-oriented achieve the best possible utilisation of the resource rep- teacher training programme with far better practical an- resented by good, qualified teaching talent. This will in- chorage in primary and lower secondary school and with a clude looking at options for having more teachers teach focus on acquiring sound academic knowledge, didactic their main subject as much as possible, and having suffi- skills and professional skills in students. cient numbers of qualified main-subject teachers for core subjects like Greenlandic, foreign languages and mathe- This recommendation is based on the following conclu- matics. sions from the evaluation: • Recently trained teachers with insufficient skills In addition, the recurring reports of high teacher absen- • Teaching at too low a level and with too little didactic teeism and fluctuating levels of commitment must be tak- content en seriously. Dialogue with the teachers’ union, IMAK, re- • Weak research base and scant contact with the profes- garding the working environment in primary and lower sion secondary school must be given high priority and lead to • Intake of too many students with poor qualifications improvements. It is important to recreate respect for • Unclear leadership and non-committal culture teaching and make it an attractive career choice for capable young students. The report highlights a number of detailed recommendations to turn this trend around, including many with rapid Ilisimatusarfik has taken the initiative to evaluate teacher effect and simple implementation. Naalakkersuisut and training programmes by appointing a panel of experts and relevant parties will follow up on this, as teacher training obtaining data and assessments that shed light on the has a tremendous impact on primary and lower secondary quality of the training. school and hence on society as a whole. Today, many pupils do not acquire the necessary academic skills in prima-

48 ry and lower secondary school to proceed with their stud- Development of the use of ICT in teaching cannot and ies. Lack of skills, particularly in foreign languages, means must not be managed solely from the top down. It is also that young people today are unable to pursue a study pro- based on initiatives adopted by enthusiasts and by initia- gramme after primary and lower secondary school, includ- tives that arise from cooperation involving vastly differing having difficulty obtaining traineeships. Therefore, ent players, including participation of players abroad, Naalakkersuisut will appoint a group of experts who, to- where such developments are far advanced in many plac- gether with the municipalities and the schools, will pro- es. Text Box 1 describes an initiative using iPads in teach- duce specific recommendations for strengthening and de- ing, driven by two of the municipalities in cooperation with veloping foreign language teaching, attitudes towards various players and part-financed by the Villum Fund. languages, and attitudes towards learning. Qeqqata Kommunia has already had positive experience from this project, but points out the need for a systematic, Naalakkersuisut firmly believes that Greenland will be in a holistically oriented effort to bring to fruition the under- stronger position if it has a world language as a second lying intentions, which will also require centralised sup- language. A change like this could promote the objective port. of giving Greenland more options globally and in terms of trade. At the same time, Nalakkersuisut wishes to retain the option to make use of the Danish and Nordic system of education. Part of a future decision-making basis will be a report with a more detailed description of the expected economic and administrative consequences associated with any change. Furthermore, identification of the number of children who would receive supplementary mother-tongue teaching in Danish and other languages. This must contribute to a robust decision-making basis for Inatsisartut and put in place careful preparations for any subsequent change.

Each year, courses are offered in this area, and an academic diploma study programme with Danish as a foreign language began in August 2015. At the same time, teacher training is under review to ensure the quality of trained teachers, going forward.

It is important both for the individual and for society that everyone is skilled in the use of information and communications technology (ICT). Therefore, all pupils must be fluent users of ICT on leaving primary and lower secondary school.

To guarantee primary and lower secondary schools improved scope for using ICT in teaching, it is important to boost the capacity of the schools’ computer network. At the same time, continued expansion of the telecom infrastructure will help support distance learning options. At the moment, work is also being done to expand a teaching portal.

49 Text Box 1.1 Example of a municipal initiative to get more ICT It is vital to the development of the primary and lower sec- into the classroom ondary system for there to be a positive interplay between the key stakeholders, including, particularly, for Taking up the challenge – part of the world school and home to have common goals in relation to the In 2013, the VILLUM FUND granted DKK 17 million for pupils’ learning. In the years ahead, Naalakkersuisut wish- the iPad project in Qeqqata Kommunia and Kommune es to focus on how expectations and frameworks in the Kujalleq. This involved buying iPads for all primary home and in the school environment can help to shape the and lower secondary school pupils and teachers in results, especially for the oldest pupils in primary and low- the two municipalities. In addition, each classroom er secondary school. Proficiency assessments in Class 7 was equipped with a projector and each institutional show that the trend in pupils’ academic skills has not im- childcare centre was given ten iPads. Finally, Wi-Fi networks were established in all settlements in the proved in recent years. The subsequent results at the two municipalities so as to maintain access to the highest age level show the same result and indicate that school servers and the Internet outside school too. academic skills are not being increased in the run-up to the final exams. Here the trend in Greenland differs from Qeqqata Kommunia and Kommune Kujalleq contrib- the trend in most other countries, where academic skills ute annual operational funding of DKK 2 million and also increase at the highest age level in primary and lower DKK 1½ million to employ IT administrators, operate secondary school. Therefore, this oldest age group needs Wi-Fi networks, replace iPads and, not least, provide special, targeted investment. continuing professional development for teachers and educators in the field of ICT. Responsibility for operation of primary and lower secondary schools currently lies with the municipalities, while the The aim of the iPads project was to improve teaching GoG, via various entities, is responsible for teacher train- and to make access to ICT and the Internet available to pupils and teachers at all times. It is easier for the ing and in-service training of teachers, legislation and de- surrounding society and the rest of the world to be- velopment initiatives aimed at preschool and primary and come a part of schooling when there is digital access lower secondary school, inter alia through publication of to it. Educational differentiation becomes easier teaching materials, course activities, evaluation meas- when the pupils can use apps and photo or video cam- ures, analysis, information and supervision of statutory era functions on their iPad either individually or in activities in the municipalities in preschooling and prima- groups. ry and lower secondary schooling. The evaluation of the Cooperation between school and home improves with primary and lower secondary school system has demon- the parents’ direct access via iPad to a school in- strated a need to ensure holistically oriented control tranet where teaching plans, homework, absence and mechanisms, clear delineation of responsibilities be- other information is available. In some places, the tween the players and good coordination so that clear de- school governors take the lead in this work. School velopment needs can be met in primary and lower second- administration is simplified when teacher and pupil absences are recorded online and the information is ary school. This has led, among other things, to the estab- disseminated. lishment of an education board under the Ministry of Edu- cation, and stepping up the dialogue between the munici- The iPads project is being continuously developed, palities and the GoG regarding prioritisation of initiatives and in 2015 a Granny Cloud was started up in two set- and resources in relation to primary and lower secondary tlements, Atammik and Kangaamiut. Here, children schooling. are taught English by retired teachers from Canada, Hong Kong, the UK, South Africa and elsewhere. It is important for the municipalities now to take a stance Greenland’s primary and lower secondary schooling on the structure of schooling in each individual municipal- is increasingly being put on the world map. ity. This is significant, for example, in relation to construc- Source: Qeqqata Kommunia tion sector planning with regard to the capacity of schools in the individual settlements and the need for a boarding

50 house for school children. There is also a need to weigh up subjects, and longer-term programmes for young people the consideration of options to secure qualified teachers, who are lagging behind academically more significantly or the economics and quality of the teaching, as well as con- have other problems. The goal is to upskill the young peo- sideration of the wishes of the children and their families. ple so that more of them can continue to pursue and complete their education. Young people not in education Too many young people leave primary and lower second- Text Box 1.2 Example of possible cooperation to ease the tran- ary school without sufficient academic and perhaps even sition to vocational programmes personal skills to proceed to further education. That means a large proportion of young people aged 16–18 are Taking up the challenge – Possible cooperation be- not on a study or training programme. This is illustrated in tween primary and lower secondary school and Cam- Figure 1.5., which shows the result of an analysis of con- pus Kujalleq tinuing education programmes for the primary and lower secondary school class year who left school in 2012. As elsewhere in the country, Kujalleq Municipality has observed that too many young people do not get Figure 1.5 shows a gratifying rise in the proportion of started on a programme leading to relevant qualifi- those who have begun a study programme within the first cations. The existing transitioning problems from pri- few years, but afterwards the trend has stagnated, so mary and lower secondary school to a youth training that, three years after leaving school, a very high propor- programme remain to be dealt with. tion are not pursuing a study programme. This is untena- ble, going forward. November last year saw the germ of an idea to create a new partnership between the local centre of educa- A late start to a youth study or training programme means tion, Campus Kujalleq, and Qaqortoq primary and the individual will be delayed in starting to contribute to lower secondary school. At the start of December, a his/her own finances and those of society. Another upshot project committee met to bring to fruition a pilot proof this is that too many people never get started on a ject from the very start of primary and lower second- study programme and have difficulty gaining a foothold in ary school, preferably beginning in August 2016. the labour market. Statistics Greenland has developed an overview to enable monitoring of the trend in the target A project group was formed under municipal auspic- group of young people over the years. The most recent fig- es, but with the president of Campus Kujalleq as pro- ures show a decline in the proportion of young people ject manager. Towards the end of January, a baseline aged 16–18 on a study programme, in continuation school study was proposed as the basis for developing new or in employment. The proportion of young people aged bridge-building measures. The main intention is for 16–18 who are either not studying or in employment has the local primary and lower secondary school and risen, overall, from approximately 44% to approximately Campus Kujalleq to integrate some of their efforts. 52% from 2009 to 2014. This must be deemed critical – for the young people themselves, from the point of view of The work of developing the pilot project, including in- the objectives in the Education Plan and, ultimately, for volvement of the municipal schools administration our society. and the GoG Ministry of Education is not yet finally in place. Work is currently under way to put in place the Working with the municipalities, therefore, Naalakkersu- last agreements and to make the necessary decisions isut wishes to give higher priority to investing in this tar- to enable the project to go ahead. get group of young people through various initiatives, including better guidance, solving the problem of the lack of Source: Kommune Kujalleq traineeships, fast-track upskilling programmes designed for young people with academic difficulties in individual

51 Fact-finding work undertaken collaboratively by the mu- pupils the opportunity to attend a folk high school. nicipalities and the GoG between 2015 and 2016 indicates the need for better guidance on options for intro- The aforesaid fact-finding work also proposes removing ducing a Class 11 programme for young people who do not the parental minimum payment to send young people on a go on directly to continuation school or a youth study or continuation school stay in Denmark in order to improve training programme after primary and lower secondary the chances for financially disadvantaged families to school. Specifically, it has been proposed that pupils in study abroad. the new Class 11 be brought together at four boarding schools, where the focus will be on upgrading their skills These and any other bottleneck issues must be eliminated in the four main subjects (mathematics, Greenlandic, Dan- as far as possible in order to enable more young people to ish and English) as well as in social and personal develop- acquire qualifying vocational training. Construction sec- ment. The objective of this initiative is for more of these tor planning in relation to education must therefore also young people to be subsequently more prepared to pur- be adapted to take account of a more ambitious invest- sue their education. ment in the target group of young people. At the same time, youth study and training programmes offer the opportunity to expand on upskilling programmes Target group of young people – initiatives for young people who only need to upgrade their skills in a • Better guidance throughout the education system few areas. That will ensure a smoother transition to youth • Option of Class 11 for pupils who lack the qualifi- study and training programmes, and ensure that young cations to proceed directly to further education people are able to progress more rapidly and therefore • Rapid upskilling programme in connection with not waste time for several years waiting to upgrade their sector schools skills. Unfortunately, this is almost endemic today, with • Simplification and focusing of the structure of up- many young people becoming accustomed to an unpro- skilling programmes of longer duration ductive existence of idleness. • Better legislative frameworks to enable more young people to attend college To simplify and focus the structure of bridge-building • Removal of economic barriers to young people be- measures for the target group of young people, it is fur- ing able to attend continuation school in Denmark. thermore proposed only to expand on FA (Folkeskolens • Dealing with the issue of traineeships – school- Afgangsprøve) programmes going forward (AEU – Anerk- based practical training, more traineeships and endt Erhvervsuddallensesintroduktion – tests will be greater flexibility abolished) and to restrict the number of years that young • Adaptation of the construction sector plan to elim- people can spend on academic upskilling programmes. inate capacity problems in relation to the effort

In addition, more traineeships must be guaranteed for young people, including through expansion of options for Objectives and outcomes school-based practical training for young people who are The above initiatives will result in higher quality and bet- unable to find a traineeship on their own, the option of ter academic/technical content to prompt more pupils to short apprenticeship contracts and expansion of the num- embark on a study programme. ber of short, modular commercial study programmes. Naalakkersuisut’s specific objectives in the Education Moreover, a review of the Folk High School Act (højskolel- Plan and Partnership Agreement with the EU regarding the oven) is being prepared with a view to preparing more peo- proportion of qualified staff, and the proportion who pro- ple to pursue a study programme. The folk high schools ceed directly to another study programme after primary charge a high average price per pupil per year. The review and lower secondary school, are shown in Figure 1.6 and is designed inter alia to ensure a better incentive struc- Figure 1.7. Basically, Naalakkersuisut wants all young peo- ture to utilise folk high school capacity and thus give more ple aged 16–18 to be activated via organised educational

52 provision, and the goal is for this target group of young 1.2 Optimise and boost capacity – have more people to be reduced to a maximum of 25% in 2024. people complete a study programme

Figure 1.6. Objectives for the proportion of qualified staff Providing the opportunity to enable a larger proportion of the population to receive an education will require capacity expansion and optimisation of capacity. This applies especially in relation to traineeships, where there is currently strong demand and a lack of internships.

The lack of internships limits the number of pupils accept- ed for vocational programmes, as described in the section on the target group of young people. Naalakkersuisut is therefore focusing on acquiring more traineeships for both public sector and private sector jobs, as well as in Denmark. Work is also being done to boost capacity for Figure 1.7. Objectives for the proportion of pupils leaving pri- school-based practical training. mary and lower secondary school who proceed directly to a study programme There is also a desire to boost capacity for study programmes in Greenland. To get more people to undertake an academic study programme, Naalakkersuisut wishes to expand capacity on the profession-oriented bachelor programmes and to expand the provision of study places with structures like Arctic Technology Centre (ARTEK), where study programmes are provided in cooperation with an educational institution abroad. Naturally, this must be done in a way that ensures the necessary quality and responsible finances in an expansion of capacity, and it must also be incorporated into the civil-engineering-sector planning in the field of education. Source: Ministry of Education, Culture, Research and Church (Education Strategy 2014) In addition, new, short vocational programmes are being introduced, particularly with a view to upskilling the un- This can be debated, along with what it would take to skilled workforce in the construction industry. To encour- achieve such an ambitious goal by 2024. Society stands to age more people to undertake a study programme, use benefit to such a great extent from improving outcomes must also be made of the educational opportunities from primary and lower secondary school and giving young abroad in Denmark and elsewhere, as it is neither realistic people qualifications suitably rapidly afterwards, that it nor desirable for all young people to complete their edu- ought to be possible to reach broad-based political con- cation in Greenland. Young people must therefore be in- sensus about creating the prerequisites and setting the formed about their options for studying in abroad in Den- necessary priorities for this. mark or elsewhere.

With that in mind, Naalakkersuisut will bring in the ques- Today, there remains a great lack of halls of residence due tion of increasing the level of ambition in connection with to a rise in the number of people seeking to pursue a study planning a future review of the Education Plan. programme, insufficient prioritisation in this area, and because many older halls of residence have been attacked by mould. The lack of halls of residence may often be an ob-

53 stacle to embarking on a study programme. Each year, Figure 1.8. Objective for the number of traineeships in compa- therefore, the Treasury of Greenland pays a large sum of nies money to hire external apartments for new students. A reform in the area of halls of residence will improve utilisation of existing capacity in halls of residence so that more people have access to halls of residence. At the same time, the reform must include real-terms regulation of rents. To boost capacity for halls of residence, partnerships with funds and foundations have been entered into to establish new halls of residence.

Notwithstanding partnership with funds and foundations, as part of the sector planning for halls of residence, Naal- akkersuisut wants to seek to divert operating costs of between DKK 12 million and DKK 15 million, currently being Figure 1.9. Proportion completing a programme spent on hiring halls of residence capacity, to building halls of residence capacity. This could be by way of prioritising the construction budget, loan-financed public buildings, public–private partnerships, including cooperation with pension funds or similar. In the best scenario, this could contribute to raising the level of investment in education and improving sustainability in the public budgets.

Objectives and outcomes The above efforts are intended to encourage more people to gain qualifications and thus contribute to raising the level of education in society. Source: Ministry of Education, Culture, Research and Church (Education Strategy 2014) Naalakkersuisut’s specific objectives for the individual parts of the education system can be seen in Figure 1.8 and Figure 1.9. Naalakkersuisut’s goal is that by 2024 there will be 246 more traineeships in companies than there were in 2015, and for the number of vocational programmes completed to increase by 98 people, corresponding to a 22% increase from 2015 to 2024.

54 1.3 Increase the efficiency of the education Figure 1.10. Duration of study beyond the prescribed study pe- system – get people out into the labour mar- riod (number of months) ket faster

To get more people through the education system, it is important to focus on reducing the drop-out rate. Today, too many young people do not complete their study programme. One of the key instruments for changing this is to ensure that young people get good guidance both in connection with their choice of study programme and during their study programme. Students need guidance and information about their options in the education system before they start to ensure that they choose a study programme that suits them. It is also important for students during their studies to be able to get support and help with both academic and social problems. High priority is Source: Ministry of Education, Culture, Research and Church (Education given to guidance, and that is why a Center for National Strategy 2014) Guidance has been set up, which among other things is intended to offer psychological and social advice and a se- Note that, here, the bachelor’s category covers both pro- ries of therapy sessions to students. At the same time, ex- fession-oriented bachelor’s degrees and academic bach- traordinary funds have been earmarked to combat drop- elor’s degrees. A large part of the latter will typically pro- ping out by establishing a fund that the institutions can ceed to pursue a master’s degree. As with higher educa- apply to for initiatives that may reduce the drop-out rate. tion programmes, the average age and drop-out rate for pupils on a vocational programme is high. Young people The Center for National Guidance is also in the process of have difficulty finding an apprenticeship because compa- improving guidance to young people at primary and lower nies prefer older apprentices. The introduction of a one- secondary schools and to those who did not progress in year basic programme for vocational programmes and their education. A large proportion of the young people short vocational training programmes will mean that more do not proceed directly to a study programme after finish- people start a vocational programme at a younger age. A ing primary and lower secondary school, and this contrib- basic programme will create greater awareness of differ- utes to delaying young people in the education system. ent directions that can be pursued and will, at the same time, give them one year to find an apprenticeship with Naalakkersuisut also wants to create economic incentives the help of the educational institution. At the same time, for students to complete their studies within the pre- the expectation is that fewer transitions between attend- scribed period. This will be accomplished by reforming ed- ing school and apprenticeship and a larger youth milieu ucational support. The reform is designed to ensure that, will contribute to keeping the young people in education, no matter where they live and irrespective of their social while saving on travel costs. background, all young people have the opportunity to undertake a study programme; at the same time, they are in- It is not solely the responsibility of society to ensure that centivised to finish their studies to prevent educational young people pursue a vocational programme. It is very support from becoming “passive” welfare for young peo- much also in the interests of the young person and his/her ple. Figure 1.10 shows the targets in the Education Plan family for society to rightly expect the young person to for duration of study beyond the prescribed period as the make a life where, as far as possible, young people are number of months spent on different study programmes. able to be self-sufficient by pursuing a study programme and then finding a place in the labour market and thus being able to contribute to financing the welfare state. Ac-

55 cordingly, there needs to be a healthy balance between That is why, currently, the potential for perhaps collabo- the rights and the obligations of the individual. rating with Young Enterprise is being examined, rather like the partnership the Fund has in its formalised collabo- Study programmes, from primary and lower secondary ration with the Faroe Islands. school to university, must do more to give young people the knowledge and desire to start their own businesses. Objectives and outcomes Accordingly, a stronger focus is required on entrepreneur- The above measures, among others, must result in a more ship in the education system in general, and coordinated, effective education system, where more students com- systematic efforts are needed in this area. This could pro- plete their study programmes and where more do so with- vide a range of positive effects and support a goal of in- in the prescribed period. Naalakkersuisut’s specific objec- creased innovation in both the public and the private sec- tives for the completion percentage, the duration of stud- tor, including contributing to paving the way for more dy- ies for the individual programmes as well as the age of the namic business development. students on completing their study programme are illustrated in Figures 1.9, 1.10 and 1.3. The overall effect of Text Box 1.3. Entrepreneurship in study programmes is impor- Reform Tier 1 is approximately DKK 120 million by 2030. tant for socio-economic development

Targeted educational activity to promote entrepreneurship

Research indicates that entrepreneurship in study programmes has a major impact on young people’s patterns of behaviour in relation to starting their own business and being innovative employees. Analyses also show that the more times and the earlier young people encounter this teaching, the higher its quality and the greater its effect.

Among some of the more striking and documented effects are that teaching about entrepreneurship: Increases the desire in pupils and students to become an entrepreneur and a contributing member of society. Increases motivation to attend school and pursue further education. Affects pupils’ and students’ entrepreneurial behaviour outside school and outside their studies. In compulsory schooling, leads to more entrepreneurship teaching at subsequent levels of education. Leads to higher income later in life – for both self- employed people and wage earners. Boosts the confidence of pupils and students in their ability to contribute to society.

Source: Young Enterprise

56 Figure 1.11 Expected combined effect of Reform Tier 1 by 2030.

0.820 bn “ gap between renvenue and consumpton”

0.120 bn

0 bn

Source: Ministry of Finance

Reform track 1 DKK Million More students and faster completion rate 195 Consumption for more kids in daycare institutions -17 11th grade offer -31 Reduced intake of students 4 Internships - school internship -9 Short vocational training -2 New scientific educations + law -14 Total net effect 126

Breakdown of the individual contributions to Reform Tier 1

57 58 Reform Tier 2: STIMULATING GROWTH AND CONVERSATION TO A MULTIFACETED ECONOMY Targets for Reform Tier 2 Overarching targets for Reform Tier 2 • Target for improving the benchmarking of Greenland’s attractiveness in relation to attracting foreign investments for growth industries and infrastructure, including ongoing modernisation of trade legislation • Increased application of new funding instruments to promote commercial growth industries without damaging the Treasury of Greenland • Measurable targets for ice and water exports in the water export strategy by the end of 2016 Targeted infrastructure investments • Direct flights between main cities in North America and Europe and Disko Bay and the capital Nuuk by 2020 • Energy from renewables must account for at least 90% of Nukissiorfiit’s energy production by 2030 Raw materials • Establishing 2–3 mines within a period of five years, including a large mine • Exploration activities in the field of minerals and oil at least on a par with 2015 Tourism • Land-based tourism must rise to 74,500 tourists by 2040 • The number of cruise ship tourists must increase to 39,000 by 2040 Fishery • Revenue from coastal fishery should, as a starting point, not develop any more slowly than income within the onshore fisheries industries The labour market • A larger proportion of registered job-seekers must be able to be included in Match Group 1 and thus be, or be made, work-ready • A cohesive labour market, measured by increased mobility across Greenland • Full implementation of new Job, Guidance and Upskilling Centres in all towns/villages • Better connection between available jobs and available posts through effective utilisation of the Suli.gl jobs portal • By 2030, unemployment among young people aged 18–29 must be halved compared to 2015

60 Increased growth and employment in the private sector is Improvement of the investment climate and increased vital to securing the foundation for future welfare and competitiveness prosperity. Growth and employment must not be created The necessary business development will not happen by in just one sector, but in several sectors, to make Green- itself. It requires new investments and a systematic im- land less vulnerable to fluctuations in export trends – cur- provement of competitiveness. At a seminar for planners rently, in practice, from fisheries. from the public and private sectors in February 2016, the Greenland Business Association was invited to give the Development of multiple leading industries will provide organisation’s view on how to promote investment here in better scope for a more balanced development of Green- Greenland. This is reproduced in Text Box 2.1. land and will, at the same time, reduce the risk of major fluctuations in employment and in economic activity in general.

Text Box 2.1. How to promote investment in Greenland

Greenland has the potential to attract major foreign investments, notably in the following areas: • Mineral resources (rare earth metals, gold, nickel, iron, zinc, rubies, etc.) • Great potential for energy in the form of hydro-electric power • Great potential for tourism • Expanding infrastructure

The level of foreign investment is generally low in Greenland, and generally speaking it has only been high internationally in the years when there has been extensive oil exploration. The challenges are: • Generally little awareness of Greenland in the investor milieu • Very fragile economy (revenues derive primarily from fisheries and the bloc grant) • An economy with “lots of islands” (small markets) • Small private sector • Low level of education • High operating costs

Barriers to attracting investment: • Lack of understanding of the capital structure of foreign investments • Fear of being cheated – will we get our rightful share of the returns? • A lack of fixed frameworks (regular changes of legislative prerequisites for investments) • Lack of skills and resources in the administrative apparatus • Relatively high corporation tax

Action 1: Raise general awareness that foreign investment also • creates jobs for Greenland, • raises the level of education, • creates a more differentiated business structure, • produces more tax revenues, but this must be counterbalanced by an acceptable return for investors

Action 2: Create better frameworks to secure long-term investments

Source: Greenland Business Association

61 Looking around at other countries in the North Atlantic, it keting activities targeting the key business sectors and is scarcely in doubt that Greenland has untapped poten- areas of potential, as well as an active labour market pol- tial for commercial development, especially in the fields icy. of mineral resources and tourism. In order to be able to benchmark Greenland, consideration To tap this potential, it is vital to make a targeted effort could be given to seeking to participate in a monthly to improve competitiveness in order to promote dynamic measurement of Greenland’s competitiveness, such as the business development. survey conducted by the World Economic Forum, cf. Text Box 2.2. This demands improvement of the cross-sector framework conditions, specific business development and mar-

Text Box 2.2 The World Economic Forum’s annual measurement of a country’s competitiveness

The World Economic Forum (WEF) produces an annual report measuring the competitiveness of more than 140 countries. This is done by means of an index that measures a total of 12 basic parameters significant to competitiveness.

These countries are listed below based on categorisation used by WEF where the significance of the competitive parameters changes concomitant with the country’s level of business development and average income in the countries. The index gives a breakdown of the countries (economies) at the following three levels: 1. basic resource-driven economies using a largely unskilled workforce, 2. economies based more on efficient production and sale of refined, quality products and with extensive use of a qualified, specialised workforce, and 3. innovation-driven economies where goods and services usually have a high knowledge content and must be continuously renewed in order to be competitive in the global market.

The countries’ economy develops gradually. Some countries are therefore in a transition phase between levels 1 and 2 or between levels 2 and 3.

The 12 parameters of competitiveness are determined according to which of the three listed levels of economies they are most important for. The parameters are as follows: A. Institutional frameworks, infrastructure, macro-economic stability, primary/secondary schooling/health B. Higher education, effectiveness in the markets for goods and services and in the labour market, the level of development in the financial market, technological readiness and market size C. The quality of a country’s business network and the quality of individual companies’ operation and strategies and innovation in the business community.

Greenland is not (yet) currently included in the WEF’s benchmarking, and, with its economic structure, might actually be difficult to fit directly into the descriptions of the three different levels of economies. This is because a disproportionately large part of Greenland’s economy is based on external revenue transfers and not on Greenland’s own production. To improve competitiveness in an economy like Greenland’s, it would be particularly relevant to make progress within the group of parameters listed in A and, to some extent, B.

Source: World Economic Forum

62 There could also be other relevant ways of benchmarking nity in Greenland. Naalakkersuisut intends to uphold this Greenland in this context, cf. the Economic Council’s topi- Reform Tier and continue it in future sessions. This relates cal seminar in April 2016 on productivity and efficiency to all aspects of company legislation, accounting legisla- improvements. The World Bank has been publishing “Doing tion, competition legislation and trade legislation. Business” reports since 2003.

These are an annual comparison of business conditions across 189 economies – countries, regions and major cities. “Doing Business” compares the quality and effectiveness of business regulation, both how the formal laws and rules are organised and how their administration works in practice. How difficult is it, for example, to start a new business? How many public authorities are involved, and how long does it take to obtain the necessary approvals? How much does it cost to register a company?

Overall, business conditions are benchmarked in 11 areas of significance for business dynamics: start-up of new businesses, administration of building permits, access to electricity, registration of property rights, financial conditions, administration of the tax system, administrative barriers linked to international trade, shareholder protection and the effectiveness of the legal system in commercial disputes, and labour market regulation. These questions are, of course, also relevant if Greenland is to attempt to attract foreign investment in order to create dynamic business development. For that reason, Naalakker- suisut wants to investigate the possibility of having Greenland included in the World Bank’s “Doing Business” benchmarking.

As Text Box 2.2 shows, there are a number of basic conditions that impact a country’s competitiveness, including conditions formed within the education and health care sectors and management of the public finances. These are dealt with in more detail in Reform Tiers 1 and 3 in the Sustainability and Growth Plan.

Reform Tier 2 deals with some of the other key competitive parameters, including infrastructure, matters relating to competition and the labour market, and good institutional frameworks.

In recent sessions, Inatsisartut has addressed and adopted a number of proposals with a view to a major overall modernisation of the framework for the business commu-

63 Targeted infrastructure investments socio-economic sustainability and operational viability. To accommodate the need for a more reliable, up-to-date An effective, successful infrastructure must bind Green- and cohesive infrastructure for the benefit of the general land together and safeguard the transportation of goods public as well as the business community – notably tour- and passengers. The current infrastructure is functional, ism – Inatsisartut has resolved to construct the following but there is clearly a great need for modernisation in or- airports which will also be included in the future sector der to better support exploitation of Greenland’s business plan in relation to airports: development potential. • Nuuk: Extension of the runway for the international air- A large number of studies have concluded that there is a port (2,200 m runway) positive link between infrastructure and growth. A better • Ilulissat: Extension of the runway for the international and less expensive infrastructure could contribute to airport (2,200 m runway) higher growth, for example by creating opportunities to • Qaqortoq: Construction of a North Atlantic airport. boost productivity, improve competitiveness and give rise (1,499 m runway) to an increase in the number of people travelling. A better • Tasiilaq: Construction of a North Atlantic airport. (1,499 infrastructure will thus pave the way for the desired m runway) growth in the tourism and mineral resources sectors. • Ittoqqortoormiit: Construction of a regional airport.

At the 2015 autumn session, there was strong political Concurrently, there is to be further qualified information support for prioritising targeted investments to modern- and surveying of the need for reinvestment in relation to ise the runway structure to interconnect Greenland better the airport in Kangerlussuaq. and to promote business development. Taken in isolation, new investments in airports will often Air transport only pay economic dividends over the long term. Besides, Today’s air transport infrastructure is outmoded and exit is important to remember that the objective is not just a pensive to operate. Passengers often have to make inter- number of stand-alone infrastructure projects, but the mediate landings in one or more places before they reach creation of a cohesive infrastructure that brings the whole their final destination. This applies whether they are on of Greenland together. This means that an individual neg- domestic or international flights. For the business com- ative business case could well be outweighed by focusing munity in particular, long transportation times are costly. on the big picture and the power of cohesion as well as perhaps other, related positive outcomes, such as doing The airport structure is another obstacle in relation to de- away with subsidies for public service contracts. veloping the tourism industry. Looking around at other countries in the North Atlantic, such as Iceland and the Formation of a company to take charge of airport invest- Faroe Islands, investments in a good airport infrastruc- ments in Nuuk, Ilulissat and Qaqrtoq ture have helped to boost the tourism industry and the in- Naalakkersuisut deems it appropriate to set up a new flux of foreign currency. Naalakkersuisut’s vision isto GoG-owned limited liability company and to use it to carry make tourism a leading industry in Greenland, as de- out ongoing work on a number of airport projects, going scribed in more detail in a separate section on tourism in forward. Such a company will enable the establishment Reform Tier 2. and use of a combined expert, professional organisation with relevant experience to implement the airport pro- Therefore, in the air transport sector plan, due account is jects. The owner expects the company’s board to be re- taken not only of population development but also of de- quired from the outset to accelerate this work as much as velopment opportunities for business and tourism. As a possible with a view to starting construction works soon. tool, the sector plan must provide an overview of and a foundation for prioritising construction projects based on The GoG-owned limited liability company, proposed to be

64 established according to a model similar to that used for company is the fastest possible construction of airports constructing a new port in Nuuk with SIKUKI Nuuk Harbour in Ilulissat, Nuuk and Qaqortoq with runway lengths of A/S, must initially continue working on multiple possible 2,200, 2,200 and 1,499 metres respectively, taking due models for the financing, construction and operation of account of the budget and overall economy in relation to the airports in Ilulissat, Nuuk and Qaqortoq. their construction.

The overarching goal of airport construction is to achieve Having obtained Naalakkersuisut’s approval, the company transport structures capable of leading to more competi- may also choose to enter into partnerships with private tion, reductions in total costs of transportation and re- players if its board considers that this would advance the duction in ticket prices for the benefit of the local popu- construction works or ensure improvement of the overall lace, the business community and, especially, the develop- finances for the project. ment of tourism, which today is restricted by high transport costs and awkward access. Moreover, a new air trans- Potential external participants in the form of municipali- port structure will lead to savings in the public sector in ties or other private companies, for example, would later the form of lower costs of subsidising transportation to be able to participate in the ownership of the company by and from sparsely populated areas, as well as lower ticket buying shares with a view to boosting the company’s capi- prices for public purchasing of airline tickets. tal or knowledge base or local anchoring.

The need for financing in connection with the construction The public participant in a possible PPP partnership for of the future airports will be clarified in more detail under airport construction could be the future publicly owned the auspices of the future airport company. The company limited liability company. The work of assessing whether is expected to negotiate and, following approval by Naal- it would be advantageous to enter into PPP partnerships akkersuisut, take out loans to establish the airports cov- in the airport project preparatory phase, during the con- ered by the plan. The final overall capital requirement still struction phase or in the operational phase will be left to remains to be clarified. Against the backdrop of technical the company’s professional board which, following ac- surveys initiated so far for the airports and the company’s ceptance by the owner, could be included in the necessary negotiations with relevant parties and sources of finance, agreements in the matter. it is to be expected that there will be further clarification of the company’s capital requirements. This capital will Further investments in a cohesive, effective airport presumably have to be acquired either as a capital injec- structure tion from the owner or by borrowing by the company. In addition to the aforesaid investments, Inatsaisartut has resolved that, during this election period, Naalakkersuisut The company will be expected to negotiate and take out must put forward a proposal for an Inatsisartut Act on the loans for construction of the future airports. This borrow- construction of runways with a view to reducing Green- ing would need to be approved by Naalakkersuisut and land’s overall transportation costs, increasing the regular- would have to respect the provisions and principles re- ity of flights and paving the way for increased competi- garding borrowing incorporated into the new proposal for tion. the budget and financial statements Act, which Naalakker- suisut presented to the Spring Session 2016. This will be accomplished by scaling back or, as the case may be, upgrading existing airports and heliports/heli- Final model of ownership – possibility of a PPP for airport pads to pax-19 runways. This also means smaller, regional investments runways will have to be constructed in a number of other As early as possible in the process, a decision will need to villages to make it possible to phase out public service be made as to what model to use for the continuing pro- contract subsidies. The future work of preparing legisla- cess. The purpose clause in the company’s future articles tion must shed light on the associated economic costs and of association is expected to state that the purpose of the benefits.

65 Ports er port in Nuuk, further investments will have to be made To bind all regions and the whole of Greenland together in ports. There are two sequences of priorisation here. better in a more cohesive infrastructure and give Green- Both are based on assessments of the necessity for the land good infrastructure conditions for a better trading physical existence of the ports, and how expansions can pattern, the future infrastructure must be considered as a contribute to business opportunities – particularly when whole, including when it comes to multimodal transport. it comes to tourism. Therefore, airports are not the only area in need of investment. Prioritisation 1 Ilulissat. Expansion of the port for the benefit of the tour- Along with the airports, the ports are the most important ism industry, the fishery industry as well as passenger approaches to the transport infrastructure in Greenland. transport. The first of these should be viewed in the light Therefore, the matter of ports is important, too, in rela- of the construction of the Ice Fjord Centre as well as po- tion to creating more dynamic business development. tential expansion of the airport. A working group has been Greenland’s ports are absolutely vital. Businesses such as established to investigate the socio-economic conse- fisheries, tourism, logistics companies and contractors quences of any such expansion. are highly dependent on well-functioning ports. Cruise lin- Tasiilaq. Expansion of the Atlantic Quay as well as the er transport and deliveries of goods to the business com- storage yard. This is because Tasiilaq is experiencing munity and to individuals in villages and settlements are, growth both in both the number of tourists and in its pop- of course, also dependent on an effective structure for ulation. ports and services. Kangerlussuaq. Upgrading of the facility. Plans for the airport will, however, play a part in the adaptation of the har- The sector plan for ports will form the foundation for an bour facility. The village receives large numbers of tour- overall decision-making basis in relation to the future de- ists as well as quite a lot of container goods. velopment of Greenland’s ports. The priorities of the sec- Sisimiut. Possible amalgamation of the municipal port and tor plan are based inter alia on the population figures of the GoG-owned harbour facilities. A working group has es- the individual communities and expected developments tablished that there are no major technical obstacles to here, commercial matters relating to a settlement and po- amalgamation. tentials for development and growth. Prioritisation 2 At the same time, the sector plan provides for the disman- Narsaq/Qaqortoq. Construction of a facility on the north tling of harbour facilities or for their transfer to either side of Qaqortoq peninsula to accommodate the desire municipal authorities or private companies. This is against for a ship solution between Narsaq and Qaqortoq. the backdrop of 70 harbour facilities being outdated or Narsarsuaq. Renovation and modernisation of the port. ripe for demolition, and hence potentially being a damper The scope needs to be coordinated in relation to airport on growth in several villages and settlements. planning for the region. Uummannaq and Upernavik. Shore protection, as tsunamis Of the total of 165 harbour facilities currently in exist- and swells have a negative effect on the potential for port ence under the GoG, it is recommended that 95 harbour development. facilities should continue to be prioritised under the GoG’s maintenance strategy. Within a period of 10+ years, these Developments in the area telecom area 95 facilities will require modernisation, and will then func- Like other aspects of infrastructure, the telecommunica- tion as multi-purpose facilities. In other words, the facility tions infrastructure is essential to the development of so- will be usable for various different purposes such as fish- ciety. Therefore, it is necessary to continue to focus on eries, tourism, etc. secure frameworks capable of creating the best and most efficient utilisation of telecom resources. Following on from the current establishment of a contain-

66 Section 2(1) of the Greenland Parliament’s Regulation no. 17 of 20 November 2006 on telecommunications and Everyone in villages and settlements must have access to telephony services (the Telecom Regulation) gives Naal- telephony and the Internet at a certain level. Therefore, akkersuisut a basis for liberalising mobile and landline tel- there will still need to be suitable development of the in- ecom services. Section 2(3) of the Telecom Regulation fur- frastructure throughout Greenland, as this helps to bring ther provides for Naalakkersuisut to liberalise telecom in- Greenland together. It is an important task for Naalakker- frastructure based on wireless transmission within an in- suisut to establish the level of universal service obligation dividual village or settlement. for locations where competition does not ensure a good level of service for users, even if it is not commercially vi- That means there is a basis for liberalising all telecom ser- able to run this as a business. Accordingly, Naalakkersu- vices under current legislation, but telephony services isut will establish the level of the universal supply obliga- must be delivered to customers via Tele Greenland’s wire- tion. less transmission or by having new operators purchase access to Tele Greenland’s infrastructure (peering), e.g. Tele Ultimately, therefore, it may become a political task in the Greenland’s copper or fibre-optic cables in the individual longer term to impose requirements for a higher level of village or settlement, the radio link, satellite or submarine service – and to establish non-competition-distorting cable. frameworks for the financing of this – aimed at parts of Greenland that are covered by the universal supply obliga- Naalakkersuisut has set in motion an analysis of the socio- tion if the level of this is to increase in the future. economic consequences of liberalising mobile and landline telephony. The analysis is being carried out by the Tel- It is important to weigh consideration of the choice in the ecom Agency and will be part of the decision-making basis level of supply here. Weighing this up involves that Naalakkersuisut will use as a basis for any decision on taking account of the need for the level to be sufficiently potential liberalisation of mobile and landline services. high so that everyone can participate in society via telecommunications, and that it is possible to utilise digitisa- Naalakkersuisut expects the analysis of the socio-eco- tion to improve services to the public and to enhance so- nomic consequences of liberalising mobile and landline cio-economic growth. A sufficient level is, furthermore, a telephony to be potentially completed during the first six decisive factor in the ability to complete digitisation months of 2016, so that a decision can be made on liber- strategy projects and harness the benefits of more exten- alisation with effect from the end of 2016 or the begin- sive computerisation, and ning of 2017. the fact that a high universal service level obligation can inhibit use of the Internet and other telecommunications Naalakkersuisut is planning to allocate approximately one for people and companies in major urban areas where the year from the time of making any decision to liberalise funding for the subsidy originates. mobile and landline telephony before the markets are re- leased, to ensure there is time to prepare the necessary In practice, the level of universal service obligation that regulation of the markets and to give the operators time Naalakkersuisut establishes should result in requiring a to adapt to a new market situation. company – presumably Tele Greenland A/S – to be the telecom provider. The universal service obligation is de- Considerations regarding any further liberalisation signed to ensure a reasonable level of telecommunica- Parts of the telecom market are already liberalised. tions at prices that should be no higher than today’s, and preferably lower. In parts of Greenland, it will not be possible to offer the Internet and other telephony services on a commercial The company in question must be remunerated for any footing. Therefore, any further liberalisation cannot stand deficit arising from being subject to the universal service alone. obligation. A deficit from financing the universal service

67 obligation is expected to be funded via a duty on long-dis- dio link from Asiaat to Qasigiannguit and Ilulissat is expect- tance communication, which all telecom providers must ed to generate a negative financial return over the service jointly and severally contribute to. This levels the compet- life of the assets, compared to not expanding capacity, but itive playing field for the telecom providers, while ensur- would be more advantageous than expanding capacity for ing a decent level of telecommunications service at the the radio link north from Nuuk towards Disko Bay. same time. As a starting point, therefore, the telecom customers will still be financing the expansion of the infra- For those reasons, Naalakkersuisut takes the view that in- structure. This model implies a redistribution from larger vesting in a significant increase of capacity via a subma- to smaller settlements and more direct political control of rine cable as well as substantial improvements to the ra- this than is currently the case. dio link would definitely be preferable. This way, the improved infrastructure would open up possibilities for the The extent of such redistribution will be determined by use of ICT in the area between Nuuk and Ilulissat. The ex- political setting of the universal service obligation. In a pectation is for two-thirds of the population subsequent- liberalised market, Naalakkersuisut could therefore de- ly to have access to a high-speed broadband connection termine the level for telecommunications and redistribu- within 1–2 years. At the same time, regulation in the tel- tion from areas in surplus to areas in deficit in the area of ecoms area must contribute to increasing the utilisation telecoms. rate compared to the submarine cable connections.

To create a robust decision-making basis for the political The intent of all this is to produce far better scope for a adoption of any further decisions on liberalisation, work is number of sectors to go digital for the benefit of private currently being done on a socio-economic impact analysis individuals and companies and for the public sector (in- of liberalisation of mobile telephony as well as an analysis cluding education, health, as well as services to end-us- of the universal service obligation. Analysis results are ex- ers), which could produce a great deal of positive socio- pected in May/June 2016, but provisional results are al- economic benefit in the longer term. ready available. Sector plan and energy investments The provisional results of the socio-economic analysis in Energy policy is based on many years of broad-based po- relation to the possibility of liberalising the area of mo- litical consensus for the establishment of socio-economic bile telephony indicate that liberalisation of mobile te- and eco-friendly energy supplies. This is based on a desire lephony could, under the right conditions, generate sig- to reduce dependency on imported oil, reduce pollution nificant socio-economic gains. Liberalisation would also and help fight climate change. entail costs, however. It is therefore essential for liberalisation to proceed under the right conditions to ensure These objectives must be achieved primarily through sav- that society not only incurs the costs but also reaps the ings in energy consumption, improving the efficiency of benefits. In other words, liberalisation must benefit soci- existing production and supply systems and increased use ety too. of renewable energy sources.

The question of any further liberalisation is somewhat sig- All this demands long-range energy planning that takes nificant to Tele Greenland financing considerations in re- account of the challenges and opportunities pertaining to lation to investing in a new submarine infrastructure con- energy supplies. Sector planning in the area of energy necting Nuuk, Maniitsoq, Sisimiut and Aasiaat as well as in must create a common framework for the supply and con- a high-speed radio link between Aasiaat and Ilulissat. sumption of energy in order to optimise utilisation and achieve appropriate prioritisation of available energy High-speed broadband for two-thirds of the population sources as well as to future-proof the energy system. Investing in an extension of the submarine cable from Nuuk, Energy planning must, at the same time, be based on rec- via Maniitsoq and Sisimiut to Aasiaat and a high-speed ra- ognition of the fact that, right now, it is not possible to do

68 without imported oil as an energy source. The ambition is Hydro-electric power stations to restrict oil imports in order to create an energy supply Commen- Total that is less dependent on fossil fuels. An increase in the Name Supply area ced opera- capacity level of self-sufficiency will reduce the risks associated tion with frequent and inevitable fluctuations in the price of oil Buksefjorden Nuuk 1993 45 MW seen in the global marketplace. Tasilaq Tasiilaq 2004 1,2 MW

Qorlortorsuaq Narsaq og Qaqortoq 2008 7,6 MW To achieve the objective of the vision of greater energy self-sufficiency, it is necessary to undertake significant, Sisimiut Sisimiut 2010 15 MW but gradual investments in renewable energy. Naalakker- Pakitsoq Ilulissat 2013 22,5 MW suisut’s goal is for energy from renewables to account for at least 90% of Nukissiorfiit’s energy production by 2030. In connection with current exploitation of Greenland’s hy- In 2014, the proportion of renewable energy in Nukiss- dro-electric power resources, for the 2016 Finance and iorfiit’s energy production was 67.8%, while Greenland’s Appropriation Act Inatsisartut decided on an expansion of overall level of self-sufficiency was 17.4%. the hydro-electric power station in Qorlortorsuaq, and is also considering expanding the Tasiilaq hydro-electric Although considerable investments have been made in re- power station. newable energy over the last 30 years, including investments in hydro-electric power in some years equal to ap- Any major new infrastructure investments in the energy proximately 1% of GDP, there is a need for an ambitious sector, too, must be illustrated by applying the approved energy policy going forward. guidelines from Naalakkersuisut in the preparation of the socio-economic impact assessment (April 2015). Naalakkersuisut has therefore initiated work on a new plan for the energy sector designed to chart the course of Further expansion of hydro-electric power for the supply Greenland’s energy supplies in the years ahead. of power and heat in the towns is possible, as there is still a great deal of untapped potential for hydro-electric pow- A significant element of sector planning for energy is the er. In setting priorities for the expansion of urban hydro- transition to a larger share of renewable energy. Accord- electric power, consideration must be given not only to ingly, future investments in renewables will still be need- the construction costs and current and future sales base ed. Renewables include waste-to-heat, solar and wind en- in the town, but also to when to refurbish the existing die- ergy, but the most obvious choices in Greenland are sel power stations. waste-to-heat and hydro-electric power. Specifically, the possibility of establishing hydro-electric Greenland is well-endowed with water resources. To ex- power stations at Aasiaat and Qasigiannguit is now being ploit some of the total hydro-electric power resources, re-examined in 2016. Concurrently, there will be investi- five hydro-electric power stations have been built to date. gations into whether there are other possibilities for pro- The latest hydroelectric power station was commissioned moting the use of green energy in this area. in Ilulissat in 2013. In addition, hydro-electric power may be relevant for urban areas such as Maniitsoq, Paamiut and Nanortalik. However, there is a need for thorough feasibility studies in these areas before any decisions can be made about establishing hydro-electric power stations.

Feasibility studies are also in progress regarding the potential for large-scale and small-scale hydro-electric pow-

69 er stations in Greenland. So far, feasibility studies have (including Nukissiorfiit) and the municipalities. concentrated on the potential for hydro-electric power near urban centres where it is possible to supply a large Overall, there is a need for ongoing improvements and de- number of people without too much loss of energy. Going velopment of existing energy-saving and energy-optimis- forward, however, feasibility studies will also include the ing measures in society. Within all sectors, it is relevant to potential for small-scale hydro-electric power stations think along new and different lines that may help to re- and the possibility of supplying villages and settlements duce energy consumption in general and hence reduce the via hydro-electric power. This could reduce the need for cost level. Improving energy efficiency must be incorpo- fossil fuels still further. rated into all relevant contexts – in private households, in the public sector and in the business community. Several of the existing hydro-electric power stations have so much capacity that it is possible to use some of the In connection with work on the new sector planning, Naal- electricity for heating by means of the district heating akkersuisut is working to change how the prices of power, grid. Using electricity produced by hydro-electric power water and heating are established in order to provide in- for heating would reduce the need for fossil fuels further centives first to increase the use of renewables and sec- still. As a secondary benefit, greenhouse gas emissions ondly to reduce energy consumption in general. would also be reduced. Energy prices can be set to promote investment in renew- As regards surplus capacity from hydro-electric power, ables and in energy savings. For example, lowering the further investigation is required to establish whether this cost of heating could incentivise consumers to want to capacity can be used for trade development initiatives. A connect to district heating or to use electric heating that text note in the 2016 Finance and Appropriation Act pro- can be switched on and off instead of an oil-fired boiler. vides for this, but some development work would presum- Accordingly, renewable energy sources – hydro-electric ably still be required here. power and waste-to-heat – in urban areas can be exploited even more effectively than is currently the case. At the Waste incineration is another important source of energy same time, as far as possible, it must be ensured that the that counts as a renewable source. Allocating more waste- development of energy prices is somewhat stable and to-heat for heating homes, for example, would reduce the does not change significantly year on year for people liv- need for imported oil correspondingly. This requires a dis- ing in the individual settlements. trict heating grid and connection to a waste incineration plant. Coordinated energy planning in this area, including Greater use of renewables, ongoing efficiency improve- in relation to the interaction between waste incineration ments in power consumption and discouraging the use of and other renewable energy sources, is another central oil are vital factors for meeting the overarching objective action area for future energy supplies. of meeting Greenland’s total energy consumption through green energy. In many cases, it would cost less to save one kilowatt-hour than to produce one. Energy-saving measures help to cre- This is also a necessary change from a more global per- ate more modern, cleaner energy supplies that make bet- spective. In December 2015, a majority of the world’s ter economic sense. countries signed up to a new global climate agreement. Future investments in renewables and energy efficiency In addition, it is important to invest in sensible use of ex- improvements will therefore have a positive impact on the isting energy. This can be done by improving energy effi- climate globally and locally, while reducing air pollution. ciency, including by individual billing for power and heating in flats, installation of new low-energy components Greenland is fully supportive of the objectives of the cli- and better insulation of buildings. This demands construc- mate convention and will continue to work on reducing its tive cooperation among stakeholders in this area, the GoG emissions of greenhouse gases as well as on delivering

70 annual reports under the climate convention. The over- Better maps also count as relevant infrastructure – new arching goals of the new climate agreement will also ben- topographical mapping efit the Arctic countries. The actual design of the new cli- Good maps are a cornerstone of a modern society and a mate agreement makes it necessary for Greenland to framework condition for new growth and development in maintain some territorial reservations in relation to the a vast array of activities in society, from urban planning to agreement, as, in its present form, the deal inhibits Green- exploration for or extraction of mineral resources, build- land’s scope for economic growth through trade developing new infrastructure, utility or energy production facili- ment based on the field of mineral resources, for example. ties, climate adaptation measures, conservation, outdoor pursuits, tourism, etc. In connection with the question of future exploitation of hydro-electric power resources, increased use of renewa- Greenland is in tough competition with other countries to bles and energy efficiency improvements, consideration attract foreign investment for exploration and extraction will continuously be given to how most appropriately to of oil and other mineral resources. Up-to-date, detailed finance this. The basis for decision-making will include the maps are an important competition parameter in this con- question of possibly funding this through external financ- text. ing, e.g. in the form of public–private partnerships. Maps are a fundamental prerequisite enabling investors Greenland has invested large sums in hydro-electric pow- to estimate costs, plan operations and establish the often er over the past 25 years. This made good sense while oil extensive local infrastructure required, for example, for prices were high. Today’s lower oil prices, which cannot be operation of a mine. At the same time, maps are a prereq- expected to remain at such a low level permanently, give uisite enabling the GoG to develop its administration of rise to considering preparing new profitability and sensi- mineral resources and to accurately record matters of li- tivity analyses. censing and rights so that companies can protect their investments. Expectations regarding future oil price development are not the only relevant aspect here. There is also the matter Up-to-date, accurate aeronautical charts and maps make of expectations as to how much energy consumption can it possible to identify the extent of any pollution spillage be converted from oil and petrol engines and systems to at sea and to access its onward spread towards the ocean electric motors and systems, and how ways of storing en- and along the coasts. This will make combating pollution ergy will develop in the future. Energy sector planning is more effective, making it possible to restrict the damage therefore a dynamic quantity, too. to the fragile Arctic environment.

Climate change moves the goalposts for Greenland Melt- ing ice and rising sea levels create new risks to be dealt with, but also new opportunities for development. Climate change creates a greater dynamic in the society and landscape of Greenland. Accordingly, maps need to be updated constantly to reflect this.

A large number of institutions conduct research in Green- land. Research is one facet underpinning Greenland’s own administration. However, Greenland’s landscape, flora and fauna also offer very special opportunities for basic research-type activities of global interest. Some of the main players are the Greenland Institute of Natural Resources, Greenland Survey (Asiaq), the Geological Survey of Den-

71 mark and Greenland (GEUS), Aarhus University and Techni- Text Box 2.3. Cooperation to develop state-of-the-art satellite- cal University of Denmark (DTU Space and the Arctic Tech- based maps nology Centre). Institutions and research activities will benefit immensely from access to up-to-date maps and The challenge has been taken up – promising partner- the underlying data used to produce them. ship to develop state-of-the-art, satellite-based maps Up-to-date maps are the basis of effective, smooth-running land management that supports local business devel- A new pilot project will lay the groundwork for development in relation to both tourism and other industries. oping state-of-the-art, satellite-based maps in Maps are the basis of recording the right of land use and Greenland. The “A.P. Møller og Hustru Chastine McKin- title to private property, facilitating secure borrowing and ney Møllers Fond til almene Formaal” Fund has agreed investments. to provide financial support of DKK 15 million for new mapping of Greenland. Finally, Greenland and the Arctic have increasingly gained significance in a geopolitical context. This increases the The three-year pilot project (2014–2017) will use need for the Kingdom of Denmark to intensify the en- new, state-of-the-art, satellite-based imaging tech- forcement of sovereignty in this area. This is accom- nology to map four selected test areas of parts of plished by means of over-flying and by physical presence Greenland – Tasiilaq, Zackenberg and Daneborg in of ships and shore-based personnel. Up-to-date maps and eastern Greenland, southern Greenland and Disko Bay aeronautical charts are a prerequisite for undertaking in northern Greenland. systematic, effective enforcement of sovereignty in the desolate, difficult-to-access areas. It is hoped that this pilot project will be just the first part of a major endeavour for the purpose of creating As also described in the 2015 Report on Country Planning, new, state-of-the-art topographical mapping of the based on a grant, a large-scale specific pilot project has ice-free area of Greenland. been initiated with a view to identifying better methods of preparing up-to-date maps for Greenland. This is de- Today’s maps of Greenland were produced based on scribed in Text Box 2.3. aerial photography undertaken in 1937 and in the 1970s/1980s. The landscape has changed greatly in the meantime, due in part to climate change. There- fore, homogeneity, completeness and the level of detail of existing maps are extremely variable in quality. The map scales are small and there are inaccuracies in terms of contours, distances and positions. For example, they are not usable with satellite navigation.

Source: Ministry of Finance

Public–private cooperation PPPs and public–private cooperation are an expression of different types of partnerships between the public sector and private players. There are many different models of partnerships. Private parties can participate in partnerships to render various services, including design and planning, civil engineering, operation, maintenance and financing. In a public–private partnership (PPP), some or all

72 of these elements can be part of an overall agreement. Text Box 2.4. A successful public–private partnership: the If PPP models are only established to take the place of or- establishment of the Buksefjord power station dinary loan financing, this will usually not give value for money. First, higher interest would be payable via a PPP Public–private cooperation can contribute to innova- solution than with ordinary borrowing. Secondly, a PPP tion and upgrading of skills structure would include a number of legally binding commitments that could obstruct flexible solutions as the A good example of a successful public–private part- project progresses. On the other hand, PPP solutions can nership was the construction of the Buksefjord hydro- be advantageous if the parties to the agreement add value electric power station in 1990–93 – and the subse- to the project in other areas, e.g. with improved overall fi- quent operation of the plant. nances, additional commercial opportunities, knowledge accumulation, good standards of maintenance, etc. An agreement was entered into with the Greenland Home Rule at the time and a private consortium con- The price the public sector has to pay for deliverables sisting of a number of Norwegian companies. The con- from the private partner depends on the allocation of sortium was primarily tasked with being the main con- risks and benefits between the public-sector and private tractor with responsibility for building the power sta- partners. In an airport project, for example, if the public tion. In addition, the consortium had to take charge of authorities take on only a few minor risks in connection operation and maintenance of the plant for a period with construction sums, interest rate trends and demand of 15 years. for the airport’s services, the payments to the private partners will be relatively large. Private partners in a PPP This was arranged in order to provide security of pro- project want to be paid for risk-taking. The greater the duction at the plant and because at the time there risk, the higher the associated payment. was insufficient expertise in Nukissiorfiit to operate and maintain a major hydro-electric power station. By From one project to another, there has to be a specific as- the time of expiry of the 15-year contract term, exper- sessment of the choice of model for a public–private part- tise had been accumulated in Nukissiorfiit, which then nership. This includes whether the division of labour is ap- took over the operation and maintenance of the Buk- propriate and the payment reasonable. For example, there sefjord power station. could be risks associated with the construction sum, or risks in connection with future passenger numbers in an In the construction of subsequent hydro-electric pow- airport, which would impact the basis of the contract with er stations, Nukissiorfiit had the expertise to take a private partner. care of operation and maintenance from Day 1. Apart from that, public–private collaboration ventures may The best-known example of a major public–private part- also be relevant for construction of future hydro- nership in Greenland is the successful establishment of electric power plants. the Buksefjord power station; cf. Text Box 2.4. Source: Ministry of Finance

In a number of countries, notably in southern Europe, extensive use of PPP solutions has regrettably resulted in public debt actually ballooning beyond official calculations.

PPPs are therefore not a panacea, but a possible instru- ment to bring in expertise and capital from the private sector to get the job done.

73 A relevant alternative to PPP solutions will often be fi- mitments or risks for the Treasury of Greenland. It would nancing through borrowing either from the GoG or from a therefore also be relevant, going forward, for PPP con- GoG-owned limited liability company. Moreover, in cases tracts with the GoG as a direct or indirect party to be in- where major investments could lead to major socio-eco- cluded under contingent liabilities and in specifications nomic and budgetary/financial benefits, there is justifica- of debt accruing to the Treasury of Greenland and the lim- tion for entering into negotiations with current lenders to ited liability companies owned by the GoG in the Treasury adjust loan terms and conditions for borrowing in the light of Greenland’s financial statements. This will be incorpo- of the new economic situation. rated into the future PPP policy.

Preparation of an actual PPP policy As part of this, standards will need to be tightened up for Currently, the GoG and the municipalities generally only inclusion of PPP obligations in the public accounts. This have limited experience of PPP projects. Other Western means that debts in PPP contracts must be included in the countries have seen growing interest in PPP structures in public debt if more than half of the risks inherent in a PPP recent years, however, and under the impression of the structure rest with the public sector. general trend for economic reticence, the Organisation for Economic Co-operation and Development (OECD) expects Naturally, allocation approval is also required for PPP PPP-like structures to become more commonplace in the contracts, either as part of a Finance and Appropriation years ahead. Decision-makers often regard PPP structures Act or via submission to Inatsisartut’s Finance and Tax as a shortcut to funding major construction projects or oth- Committee. If the GoG accepts substantial risks in con- er projects, circumventing the usual financial commitments nection with an infrastructure project, clarification of any under the Finance and Appropriation Act. This is consid- such risks must be included in the overall basis for deci- ered to have most relevance seeing that PPP projects may sion-making. result in better overall finances than traditional funding under the Finance and Appropriation Act. Competitive situation Greenland is characterised by its many small markets. In- As in the rest of the Western world, Greenland needs and evitably, this does not make for ideal competitive condi- wants significant new infrastructure in a number of locations that could keep prices low, as seen in countries with tions. Naalakkersuisut therefore intends to build the a larger population and shorter distances. This also inhib- GoG’s institutional capacity with a view to being able to its the establishment of domestic market production. manage PPP projects, going forward, while at the same Concurrent with urbanisation, with a large part of the pop- time deploying and facilitating the management of re- ulation gradually settling in larger urban areas, this prob- sponsibility for entering into such agreements. lem will gradually reduce. However, there is no short-term way around the disadvantages of small-scale operation. Naalakkersuisut has now initiated preparation of an actual policy for the GoG (and, potentially, the municipalities) Nonetheless, it is highly relevant and necessary to seek to to enter into PPP agreements. Any such policy would, as a facilitate increased competition: starting point, be anchored within the Ministry of Finance • for the benefit of consumers in the form of pressure on in conformity with the OECD’s recommendations for the margins and improved tendering for goods and services, management of PPP partnerships. • to reduce costs for Greenland’s businesses, and • the need to attract external investment in areas such as Similarly, the Agency for the Modernisation of Public Ad- mineral resources and tourism. ministration in Denmark has prepared special rules for handling the accounting aspect of PPP contracts. Such Paving the way for improved competition could be a chal- contracts are dealt with in the context of financial leasing lenge, as Greenland seems to have, on the one hand, some agreements. natural monopolies and, on the other, major projects that This underlines the nature of PPP contracts as financial are currently operated under licence or covered by service instruments that can result in significant financial com- contracts which are generally not put out to tender. 74 Text Box 2.5 contains a list from the Consumer and Competition Authority of some potential problem areas for competition in Greenland.

Text Box 2.5. Examples of potential problem areas for competition Potential problem areas for competition

The packaging system for beer and soft drinks In 2012, the Competition Commission produced a report on competition and the deposit and return system.

In May 2015 the report culminated in an enquiry from the Competition Commission to the Naalakkersuisoq (cabinet minister) in charge, where the Commission pointed out the unintended consequences of the current packaging system for marketplace competition, including the disadvantages of high prices and limited choice of products.

The Naalakkersuisoq responded to the Competition Commission’s enquiry in August 2015 and set in motion an analysis of this area in 2015/2016 for Naalakkersuisut to use in making a final decision.

Business support In 2009, 8% of the GoG’s budget – proportionately more than five times as much as in Denmark – was allocated to business subsidies. It is essential to Greenland’s economy for business subsidies to be used effectively. The reality, however, is that knowledge of the effects of the many subsidies is extremely limited.

In 2010, the Consumer and Competition Authority presented a proposal for a new subsidy policy. The intention is to ensure that, going forward, society will benefit more from the many business subsidies: the Agency recommended that the GoG and the municipalities systematically map the purposes and effects of existing and new subsidies. The question is whether the subsidies are effective in achieving the established objectives and adversely affect competition and efficiency, counteracting the benefits? The agency proposes new guidelines which, going forward, could make the subsidy schemes more effective and focused on areas with potential socio-economic gains.

Fisheries The Consumer and Competition Authority has dealt with a number of cases of competition problems in the fisheries area in recent years. There are a number of structural barriers to achieving effective markets in fisheries. • In terms of competition law, there have been problems with tying, where the sale of bait, etc., was tied to compulsory procurement. • In addition, the quota system is not regarded as encouraging efficiency improvements in fisheries. Consideration should be given to whether to introduce a system of granting the quotas to the most efficient fishermen. • As with business support in Greenland, support for fisheries should be mapped to ensure that such support has the right socio-economic effect. Several of the applicable subsidy schemes do not ensure efficiency gains from the fleet, but keep inefficient fishermen in the fishing business to the detriment of efficient fishermen and the national economy.

GoG-owned monopolies operating in markets exposed to competition Many of the GoG’s limited liability companies have some form of monopoly to render services to the GoG. This could be Tele Greenland’s or RAL’s licences or KNI’s service contracts.

The companies often also undertake commercial business that is exposed to competition. Blurring the lines between (protected) monopoly activity and ordinary business operation gives rise to a (justifiable) suspicion of cross-subsidi- sation. This can lead to private companies refraining from investing if they believe that a GoG-owned company will also become established in the market.

Consideration should be given to whether all GoG-owned companies that enjoy any kind of subsidy or market protection should maintain separate accounting. In that way, they would be able to produce transparent financial statements for the monopoly portion of their business. Source: The Consumer and Competition Authority 75 Naalakkersuisut’s objectives and principles for economic port operation, but some of their activities are in the com- policy state inter alia that: mercial sector such as fisheries, maritime traffic and wholesale and retail trade. • business subsidies must be time-limited, and Naalakkersuisut gives regular consideration to whether it • the Treasury of Greenland must only provide subsidies would be appropriate to create new GoG-owned limited li- or furnish guarantees for projects where a credit rating ability companies and convert areas or AGAs into limited has been done by a bank or similar credit rating agency. liability companies – or vice versa.

Naalakkersuisut will follow up on this through regular sub- Concurrent with developments, there may also be oppor- sidy analyses in relation to business subsidies in the tunities to create competition. Once the ground has been broadest sense. Since the end of 2011, the furnishing of laid for competition, areas can be liberalised and other guarantees has no longer been in use as a general busi- players can enter the market. ness promotion activity. Once there is satisfactory competition in the marketplace, The latest Competition Act, from 2014, is based on the the GoG may (usually subsequently) choose to privatise its overarching objective of safeguarding free, effective company operating in that area. Competition is often cru- competition to the widest possible extent. While taking cial in determining whether areas can be left to the private due account of other important socio-economic consid- market, as competition helps to create natural pricing of erations, competition legislation must frame the restric- goods and services. tions that limit competition and efficiency in the marketplace. The Act seeks both to promote competition among Any such development must happen at a pace that does existing companies in the market and to ensure competi- not unreasonably impair prices and services for users dur- tion by means of free access to the market for new coming the transition from monopoly to competition. At the panies. same time, it is important for legislation and administrative aspects to be ready for the challenges that arise when Consideration of consumers is one of the many considera- a market is liberalised, with the capability to ensure a rea- tions involved in the general objective of the Competition sonable transition. Act, i.e. to promote use of resources that is efficient for society. There are many ways of giving consideration to Regardless of possible liberalisation or privatisation, consumers, including through a higher level of service or Naalakkersuisut expects companies to work towards be- quality, improvements in distribution and cost reductions. ing competitive, cost-effective and solution-oriented out of consideration for the consumers and companies they In addition, the most recent Competition Act is based on service. an objective of competitive neutrality designed to safeguard companies against unreasonable pressure on com- Several of the companies have monopoly-like status. petition from commercial business undertaken by public Here, any unnecessary costs and possible inefficient op- authorities and companies that are usually not subject to eration will adversely impact personal and business users. the same tough requirements of viability and profit-mak- Anything like this affects the country’s competitiveness ing as private players. and leads to a general loss of growth and prosperity for all. Therefore, it is vitally important for companies to be Role of companies in public ownership run as efficiently as possible. Greenland’s economy is characterised by the GoG-owned companies being very significant in relation to production, At the same time, an important focus area is for Naalak- income and employment in society. The GoG-owned com- kersuisut to avoid – and, if necessary, phase out – possible panies’ activities cover, on the one hand, traditional pub- over-capitalisation of the GoG-owned companies, i.e. to lic-sector activities such as telecommunications and air- avoid passive capital investment in the companies. Essen-

76 tially, the aim should be to use accessible financial re- has initiated work extending over many years with corpo- sources of this nature for active investments, e.g. socio- ration tax rules in cooperation with the Greenland Busi- economically viable infrastructure investments. ness Association, for example.

A number of the companies pay annual dividends to the As a direct consequence of this work, in the 2016 autumn Treasury of Greenland as a kind of interest payment on session, Naalakkersuisut expects to introduce a bill to the capital injected by the GoG. The dividend payment amend income-tax-return deadlines, designed to create must reflect this and the risk that ownership entails for better working conditions for accountants and, ultimately, the Treasury of Greenland. Ownership has proved risky on for companies. a number of occasions historically. Therefore, Naalakker- suisut constantly monitors and remains in ongoing dia- In this work, Naalakkersuisut’s overarching focus area also logue with the boards regarding profit and debt trends in includes promoting opportunities for the business com- the companies. munity to undertake business transfers as well as to promote incentives to invest in developing business. Greater With the companies’ central role in infrastructure services objectifying of the rules in the tax system, which is cur- in key areas and with a relatively large proportion of rently largely based on discretionary rulings, is another Greenland’s total employed workforce, it is vitally impor- focus area. tant to avoid artificially high pay, which is a risk in companies with monopoly status. Anything like that could result Legislation and administrative matters in relation to cor- in high costs of living for the people of Greenland, harm poration tax are generally very relevant to look at when it Greenland’s competitiveness and make it difficult for pri- comes to answering the question of how suitable the vately owned companies or the public sector to attract framework conditions are for promoting the desire to in- and retain a skilled workforce. vest.

In the years ahead, Naalakkersuisut will work with the There is a generalised global trend towards the tax basis company boards to formulate clearer objectives for the of individual countries being challenged more and more. individual companies, deal with matters of wage forma- New ownership structures and intracompany trade across tion, capital structure, dividend policy and continued own- national boundaries are contributing factors. Groups of ership or the opportunity to privatise companies or parts companies have “off-the-shelf” models designed to mini- of companies. mise the total tax load of the group. This is accomplished, for example, by relocating tax to a country with low taxa- In this context, Naalakkersuisut will prioritise the preparation or a zero-rate tax regime, partly by exploiting the in- tion of some clear strategies of ownership in relation to teraction of the individual countries’ tax rules, or rather the companies. the lack thereof. This trend is difficult to deal with, especially for a small country like Greenland. Corporation tax and other general legislative frameworks The legislative frameworks surrounding the business Corporation tax, depreciation and write-downs community are obviously of great significance to the in- Taxation of companies includes the nominal tax rate and vestment climate. Good, clear, stable frameworks are the “tax base” – including, in particular, the rules of depre- needed in order to make investment attractive, including ciation. reducing risks in order to produce a return on investments in the long term. The Danish Productivity Commission has concluded that corporation tax is relevant to the following decisions A thriving business community that invests and employs (Denmark): people is a significant factor in sustainable economic de- • The decision to invest (incoming investments from velopment. To promote business growth, Naalakkersuisut abroad)

77 • Preference for financing with (interest-bearing) debt At the same time, Table 2.2. shows that Greenland has rel- rather than equity atively high corporation tax compared to the other Nordic • Relocation of profits (including transfer pricing) countries. • A tougher tax regime weakens productivity and increases the tax burden on wage earners Table 2.2 Corporation tax rates in the Nordic countries, 2015 • The tax load on entrepreneurs Contry Corporate tax Iceland 20 % Although the Commission’s conclusions are not fully Sweden 22 % Denmark 23,5 %* transferable to Greenland, the effects of high corporation The Faroe Island 18 % tax can be observed. With possible exceptions in the do- Greenland 31,8 % main of mineral resources – because that domain was pre- Note: * 22% in 2016. viously favoured by high demand due to burgeoning global growth – we have generally encountered difficulty at- Therefore, it is clear that Greenland’s rate of corporation tracting foreign investment. tax is high compared to the other countries, while the rules of depreciation are regarded as being on a par with those High corporation tax leads to a general preference for fi- same countries. The rate of corporation tax would be the nancing investments via debt rather than equity. Accord- most relevant aspect to look at, therefore, if we want to ingly, there appear to be good arguments for reducing tax- attract more external investment. ation of companies. Corporation tax comprises a relatively small but neverthe- Today – even with the 2012 rules – the rules of deprecia- less gently rising share of the total tax revenue for the tion in Greenland are moderate. Treasury of Greenland and the municipalities, cf. Ta- ble 2.3. Table 2.1 below shows an overview of the rules of depreciation in countries we normally compare ourselves with. Here, the tax revenue from companies partly or wholly owned by the GoG has been included – the item “tax, GoG- Table 2.1 Comparison of rules of depreciation in the Nordic owned companies” in Table 2.3 includes only some of the countries GoG-owned companies; that is why revenue from corpora- Property Process Ships Immediate tion tax from GoG-owned companies is higher. depreciation Sweden 1,5-5 % 20 or ? For service life 30 % under 3 years Norway 2-4 % 20-30 % 14 % 15.000 kr. or service life under 3 years Denmark 4-7 % 25 % 12-25 % DKK 12.800 The Faroe 1-7 % 30 % 30 % DKK 20.000 Island approximately Green- 5 % 30 % 10 % DKK 50.000/ land 100.000 Source: Ministry of Finance

In Greenland, tax deductions for property and ships follow the straight-line method, while tools are depreciated in accordance with the reducing balance method (annual write-down of a portion (percentage rate) of the residual value of the assets).

78 Table 2.3 The corporation tax component of the total tax revenue for the Treasury of Greenland, 2010–2015

Category 2010 2011 2012 2013 2014 2015 Corporation and dividend tax ---DKK 1.000 kr. --- Corporate tax, the Treasury of Greenland 38.490 62.594 52.238 63.401 58.291 54.462 Tax, GoG-owned companies 21.569 20.688 52.026 25.108 34.408 42.254 Corporate tax, without the municipal portion 23.067 65.047 49.722 49.872 48.444 48.732 Corporate tax, municipal portion 67.369 83.250 74.817 102.171 122.313 95.978 Total corporation tax 150.495 231.579 228.803 240.552 263.456 241.426 Dividend tax, the Treasury of Greenland 11.019 17.555 23.376 27.405 24.135 32.141 Dividend tax, municipal portion 25.142 40.323 53.389 67.058 49.320 74.469 Total dividend tax 36.161 57.878 76.765 94.463 73.455 106.610 Total corporation taxes 186.656 289.457 305.568 335.015 336.911 348.036

If the combined take from corporation taxes is converted in Instead of relaxing the rules of depreciation in general, relation to corporation tax at 31.8%, then a 1% change in consideration could be given to creating rules of depre- corporation tax – all other things being equal – would mean ciation that take care of areas where increased private in- a change in revenue of DKK 7.6 million. This loss of revenue vestments are wanted – targeted depreciation. This could would basically affect the GoG and the municipalities. be for building up new industries, for example (fish farms, utilisation of fisheries waste, non-profit property letting) Effect of relaxing the rules of depreciation in order to create incentives for establishing new indus- Any relaxation of the rules of depreciation could have a tries in this way. Any change in that direction would pre- major impact on effective tax on companies. Rolling back sumably require a lot of resources for the tax authorities; the writing off of profits could therefore effectively halve this would also have to be taken into consideration. tax for many companies until their assets are fully depreciated, after which the companies would have to make new Effect of reducing corporate tax investments in order to reduce their tax liability. Lowering corporation tax could reduce the incentive for relocating profit. However, that would require corporation Not overly strict depreciation combined with a high rate tax to be reduced to a level below the countries Greenland of corporation tax means there will be a high level of “tax- directly competes with in relation to relocation of profit, financing” of investments – and that could have an (exces- i.e. Denmark, the Faroe Islands and Iceland. I.e. 18% or be- sive) impact on the decision to invest. low.

Not overly strict rules of depreciation mean that the dif- The high rate of corporation tax means that the tax system ference between the value of the asset (for accounting is financing up to 31.8% of a company’s capital costs. To- purposes) and the value for tax purposes is increased in day, therefore, it is attractive for a group operating in the short term and the tax payment is deferred. This in- both Denmark and Greenland, for example, to locate the creases the companies’ deferred tax. The Tax Agency esti- debt in Greenland and the assets in Denmark. Text Box 2.6 mates deferred tax at DKK 3.5 billion; in other words, the illustrates this with a fictitious example. GoG has given the companies credit of DKK 3.5 billion.

The higher the tax and the more relaxed the rules of depreciation, the more credit the public sector is giving to the companies.

79 Text Box 2.6 A fictitious example of the effect of a large diffe- of tax authorities in Greenland and elsewhere indicates rence in corporation tax for a multinational group that these types of rules have only limited effect.

A fictitious company in Greenland borrows money The Productivity Commission concludes that corporation from a Danish company. Both companies belong to tax affects foreign companies’ decisions as to where to the same group. place investments. It is not a foregone conclusion, however, that this also applies to Greenland, or whether other The company in Greenland is now able to reduce its factors – such as stable framework conditions – play a profits by offsetting interest payments, correspond- bigger role. ingly boosting the profits of the Danish company. It is difficult to assess the overall effects of reducing cor- The Greenland company’s profit before financial poration tax. A reduction would, however, presumably costs of DKK 10,000,000 would normally trigger tax mean boosting the equity in the companies (by at least of DKK 3,180,000. If companies have borrowed money that part of the tax saved and which is not paid out as sal- from the Danish company and are paying interest aries/dividends). For example, the companies’ free liquid- costs of DKK 5,000,000 per year, the profit would be ity would be boosted in the companies in question = an in- reduced to DKK 5,000,000 and the tax to crease in savings in the companies. This could lead to DKK 1,590,000. banks being willing to lend for new investments (thanks to a higher level of self-financing) in the companies in ques- The Danish company would boost its profits by tion, thus boosting investments. DKK 5,000,000 (interest received), but because corporation tax in Denmark is 22%, the tax on that profit Goal is lower, DKK 1,100,000. Naalakkersuisut intends to draft reforms with a view to making business taxation in Greenland competitive in re- In other words (without necessarily doing anything il- lation to other countries. In other words, corporate tax be- legal – after all, what is a reasonable internal interest comes competitive with corporate tax in the other Nordic rate between two associated companies in a group?), countries. the group has boosted its profits by DKK 490,000. The sum is particularly negative in relation to Green- Relaxing the rules of depreciation could have the effect of land, with the loss of DKK 1,590,000. This (partially) provoking investments that are not necessarily ideal for explains why countries are particularly keen to have society, and where profitability is contingent on co-fund- the lowest corporation tax (popularly known as the ing from tax. It can be ascertained that Greenland’s rules race to the bottom), because in this case Denmark is of depreciation are competitive already, and that – from boosting its tax revenue by DKK 1.1 million without the vantage point of competition – there is no need to re- any associated activity. lax the rules of depreciation.

The same evaluation could theoretically be undertak- Lowering corporate tax could serve to counter invest- en in relation to leasing, letting, corporate expendi- ments that are undertaken for tax purposes. Lowering the ture (shared administration and internal settlement tax would therefore mean that investment is driven by a prices). real-terms business case, not just tax avoidance. Lowering corporate tax would therefore have a long-term effect, Source: Ministry of Finance whereas easing the rules of depreciation would have a “here-and-now” effect. As part of the preparation of specific reform measures, further analyses will be conducted The Income Tax Act seeks to create something of a barrier regarding the expected effects of this. to this traffic (rules on thin capitalisation). The experience

80 Anti-corruption policy must also have the objective of building knowledge and Corruption threatens the stability of society and under- expertise in the respective domains. mines confidence in the institutions and values of democracy. Laws and legal principles lose their significance if there is a positive or negligent attitude to corruption. Eve- ryone suffers if the way of life depends on the integrity of the authorities and there is a potential barrier in relation to attracting investors to promote sustainable business development, including in the domain of mineral resources.

Therefore, in line with international recommendations, Naalakkersuisut and at least one of the municipalities have taken the initiative to pre-empt potential risks of corruption by putting in place an active anti-corruption policy. Similarly, whistle-blower schemes have been introduced in the GoG, and a number of companies in Greenland have launched proactively into the work of ensuring transparency and avoiding corruption.

The anti-corruption policy is not only an expression of a political stance but also implies establishment of guidelines for all employees at all levels in the affected organisations for dealing with the risk of corruption.

Targeted business development directed towards sectors where Greenland has comparative advantages Naalakkersuisut does not merely intend to work to create better framework conditions for business development in general. Greenland has comparative advantages in many areas. Therefore, it is relevant and necessary to design focused, precise business development strategies in these areas in order, through investments and specific initiatives, to create good, stable frameworks to make it possible to harness Greenland’s potential for boosting employment, generating new export revenues and reducing vulnerability to development in a single industry.

Naalakkersuisut also intends to continue working to make the mineral resources and tourism sectors into actual leading industries, increase and focus efforts to develop the ice and water export trade and, at the same time, continue efforts to further develop the fisheries sector.

These initiatives must not merely have economic objectives and the objective of boosting employment – they

81 Oil and minerals tractors. Additionally, there will be derived effects. • to optimise revenues during the exploitation phase in Development of the oil and mining industry in Greenland the form of government take (royalties as well as corpo- is subject to global conditions of supply and demand, ration tax and tax on dividends) from the company hold- which have resulted in the present low price levels for oil ing the licence. Government take for an individual pro- and minerals. Investing in mineral resources projects is for ject is affected by fluctuations in the price(s) of miner- the long term, however, and the industry still shows rela- als, decisions regarding an individual project’s imple- tively strong interest in the area of minerals and oil in mentation of all or just parts of the mineral extraction Greenland. in Greenland, and other matters, especially with regard to costs. Oil and mineral strategies have been the basis of mineral resources policy since 2004. These are, inter alia, built on Furthermore, Naalakkersuisut wants as much extraction benchmarks of government take compared to other coun- as possible in Greenland. Section 18(3) of the Mineral Re- tries at a qualitatively high level. sources Act states that extraction must proceed in Green- land unless significant disadvantages would result. In Goals and development initiatives their applications, companies present their plans for min- Above all, Naalakkersuisut wishes to develop the mineral eral extraction in Greenland. Based on project-specific as- resources sector into a well-established area of industry, sessments as well as the application and consultation pro- capable of contributing to making Greenland more finan- cess, Naalakkersuisut makes the final decision regarding cially independent. Another goal is to use the mineral re- the extent of mineral extraction in Greenland. sources area to create jobs, training and career prospects. Assessment of Greenland’s attractiveness in relation to Naalakkersuisut therefore has a number of sub-goals investments in the domain of mineral resources when it comes to mineral resources – oil and minerals: To boost the level of activity in the domain of mineral re- • to attract and retain the industry in Greenland by ensur- sources, it is always relevant to look at how Greenland can ing stable conditions of investment in Greenland and most appropriately attract investment. This sector cannot continuing and expanding its policy with clear, open be developed without attracting external capital and framework conditions in relation to approvals, permits know-how. Text Box 2.7 describes how, each year, Green- and guidelines. land participates in a benchmark analysis prepared by the • to create as many jobs as possible for workers in Green- Fraser Institute of Canada, where the ability of a number land, secure as many contracts as possible for Green- of countries/regions to attract investments in mineral re- land’s companies and achieve a general level of skills sources is assessed. An annual benchmark that extends development and diversification of Greenland’s busi- beyond benchmarking government take helps to put mat- ness community and society as a whole. The companies ters into perspective and adjust the efforts made by Naal- must describe these conditions in their assessment of akkersuisut, and thus the authorities and institutions, to socio-economic sustainability reports (VSB reports), develop the domain of mineral resources. and then the more detailed goals and conditions are dealt with in an IBA (Impact and BenefitA greement). The plan is to constantly develop these IBAs so that they support sector strategies as well as possible, especially in the domain of mineral resources. • to optimise revenues to the Treasury of Greenland during the feasibility study, exploration, exploitation and shut-down phases in the form of personal taxes from the licence-holder company and subcontractors as well as corporation tax and tax on dividends from subcon-

82 Text Box 2.7. Annual benchmark of Greenland’s ability to attract investment in the domain of mineral resources.

Each year, the Fraser Institute benchmarks the attractiveness of countries in relation to investments in the domain of mineral resources An annual report on the domain of mineral resources is produced by the Fraser Institute of Canada. The latest report was prepared on the basis of interviews with people in the mineral resources industry in autumn 2015. The report shows how attractive Greenland is perceived to be in relation to investments in the minerals industry in a comparison spanning 109 jurisdictions (provinces, states and countries).

The survey is based on assessments of geological and political factors from 449 responses among mining the exploration companies, out of at least 3,800 who were asked. Unfortunately, only ten people/companies responded regarding Greenland, and the Fraser Institute did not involve several of the companies that are close to the exploitation phase in Greenland. This must be regarded as a major blow to the usefulness of the survey in relation to Greenland.

The Ministry of Mineral Resources is therefore working with the Fraser Institute to improve matters going forward by ensuring that more of the relevant people and companies become involved in the survey in order to produce as reliable a picture as possible.

Nevertheless, it is relevant to examine how Greenland is assessed in the current report. This can be a useful pointer in relation to areas that would benefit from some attention.

Greenland’s position in relation to the other jurisdictions has fluctuated somewhat during the period 2011/2012 to 2015. In the period specified, Greenland peaked at No. 7 in 2013 and then dropped to No. 42 in 2014, before climbing again to No. 26 in 2015. However, it is important to delve deeper into the assessments of the report.

Mineral potential – allocated a weighting of 60% of total attractiveness for investment. Based on the Fraser Institute survey – and what is known to the Ministry of Mineral Resources – it is difficult to explain the plunge in perceptions of Greenland‘s mineral potential from No. 8 in 2013 to No. 57 in 2014 in the report. The rise to No. 35 in 2015 could possibly be perceived as reinstatement of a truer level.

The Ministry of Mineral Resources is constantly involved in geoscientific studies to identify further mineral potential, especially in as-yet uncharted areas of Greenland. Some of this new knowledge is made available free of charge on the Greenland Mineral Resource website (www.greenmin.gl): This and the Ministry of Mineral Resources’ marketing efforts may boost perceptions of Greenland’s mineral potential.

Political factors – allocated a weighting of 40% of total attractiveness for investment. Political factors cover many different factors, such as uncertainty surrounding the administration, interpretation and enforcement of regulations; environmental regulation; double administration and inconsistencies between different types of legislation; the legal system, the tax system; uncertainty surrounding the ownership and protection of areas of land; socio-economic agreements; trade barriers; political stability; labour market regulation, agreements and con- flicts; geological databases; security; workforce skills and infrastructure.

Greenland did well as No. 14 in 2012/2013, but came in at No. 28 in 2014 and No. 25 in 2015. The improved position from 2014 to 2015 is explained in the survey by improvements in companies’ perceptions of trade barriers, Impact and Benefit Agreements and access to a well-qualified workforce in Greenland. The drop from 2012/2013 to 2014 is most likely due to the introduction of new forms of taxation (royalties) which received very negative coverage from a few influential companies. The improved position from 2014 to 2015 is also due, besides the above factors, to the taxation model now being in place.

Source: The Ministry of Mineral Resources and the Fraser Institute 83 Naalakkersuisut continues to give priority to marketing Income for the public coffers Greenland’s mineral deposits as well as the potential for Exploitation of mineral resources in Greenland will pro- oil and gas to the exploration and exploitation companies duce revenues for the Treasury of Greenland and the Min- and other stakeholders. eral Resources Fund as well as the municipal coffers. Rev- enues for the Treasury of Greenland and the municipal Greenland has a widely diversified portfolio of large, well- coffers are generated during the feasibility study, explo- documented deposits of various minerals and metals. This ration, exploitation and shut-down phases from personal enables the establishment of a number of different min- taxation of workers employed by the licence-holding com- eral projects, which reduces the risk in the domain of min- pany and by subcontractors, as well as from corporation eral resources in the event of falling prices for individual tax and tax on dividends from subcontractors. The Treas- minerals and metals. ury of Greenland and in particular the municipal coffers are also expected to achieve savings through reduced so- Current and future feasibility studies and exploration pro- cial welfare costs. jects conducted by private exploration companies will also expand knowledge of the geology of Greenland and cre- Figure 2.1 below shows only a specification of estimated ate the backdrop for additional mineral projects to sup- personal tax revenues accruing to the Treasury of Green- plement or take the place of projects based on already land and the municipal coffers during the construction documented deposits. and exploitation phases. The specification is associated with significant uncertainty, as there is uncertainty with Besides, the Ministry of Mineral Resources and GEUS car- regard to the number of projects, the timing of project ry out geoscientific projects in Greenland that could form start-up, upscaling and downscaling of projects, the com- the basis of private exploration companies’ feasibility panies’ estimates as well as the risk that not all projects studies and exploration projects. will come to fruition.

Uncertainty of estimating mineral activities Estimating mineral activities in the years ahead is associated with considerable uncertainty, as a number of factors including the trend in individual mineral prices will determine which projects get started, when they get started, how long they will be in production and as to whether they will be in production a number of times, e.g. due to fluctuating mineral prices.

Naalakkersuisut’s goal is for Greenland to have three mines in production within five years, and five mines in production within ten years. Bringing these activities to fruition is contingent on external factors helping towards a favourable development in mineral prices and, as a consequence, associated reasonable financing options, while at the same time Greenland’s internal commercial conditions in the mineral industry promote investment.

An exploitation permit will usually be used to seek project finance. That is one reason why the issuing of an exploitation permit is not synonymous with immediately proceeding to the construction and exploitation phases.

84 Figure 2.1. Estimated revenues flowing into the public coffers from personal taxation during the construction and exploitation phase for the establishment and operation of mining activities

Estimated revenues in a favourable scenario for the establishment and operation of mining activities

The revenues are based on estimates associated with significant uncertainty Three projects are expected to be in the construction or exploitation phase from 2018 Five projects are expected to be in the construction or exploitation phase from 2025

- Extension and/or expansion of existing projects + start-up of the investment and exploitation phase for further projects with/without existing preliminary examination, investigative or exploitation permissions

- 3 projects commenced/commencing the investment and/or exploitation phase in 2014-2018 (the statement is a balance of several projects and shows a phase out of projects, which under certain circumstances can be extended and/or expanded)

Source: The Ministry of Mineral Resources Footnote: In the sustainability calculations included in the basic scenario for Reform Tier 2, for reasons of caution a less favourable development has been assumed with regard to the area of mineral resources. Table 2 in the introductory section of the Political and Economic Report shows a combined overview of what are currently the most relevant mining projects

The blue area in Figure 2.1 shows the total revenues to the The sum total of the blue and orange areas shows the es- Treasury of Greenland from two small projects and one timated annual revenue to the Treasury of Greenland and large project that began or will begin their respective con- to the municipal coffers from personal tax during the construction phases in the period 2014–2018. The large pro- struction and exploitation phases from five mineral project generates revenues for the public coffers that are an- jects. In order to maintain a minerals industry in Green- nually almost eight times the size of the two small pro- land, ongoing new projects need to be established to take jects combined. Figure 2.1. shows the small projects con- the place of projects that close down because the mineral cluding by 2040, but they could potentially be extended or reserve has been depleted. expanded as a consequence of further geological, technical and economic project development. The number of mineral projects and bringing them to fruition are subject to a number of other factors, including the The orange area in Figure 2.1 is associated with particular development of individual mineral prices. Mineral prices uncertainty. It provides an estimate, first of all, of expan- influence the following: sion and/or extension of one or more of the projects in the • which projects get started, blue area; secondly, new projects that currently have an • when they get started, exploitation licence “pending”; projects that are active un- • how long they will be in production, and der a licence for a feasibility study or exploration, and • whether they will be in production a number of times, projects that have yet to commence a feasibility study or e.g. as a consequence of fluctuating mineral prices. exploration activities in Greenland.

85 In the sustainability calculations included in the basic sce- amount corresponding to one-half of the revenues going nario for Reform Tier 2, for reasons of caution a less fa- into the Mineral Resources Fund, which in the year in ques- vourable development has been assumed with regard to tion exceeds DKK 75 million (the amount is indexed to the area of mineral resources. Table 2 in the introductory 2009). section of the Political and Economic Report shows a combined overview of what are currently the most relevant The Act on Mineral Resources takes effect on 1 January mine projects the year after the calendar year in which, for the second year running, Inatsisartut approves a Treasury of Green- In the interests of exercising caution, the specification in land accounts with mineral resources revenues of at least Figure 3.1 (and in the sustainability calculation in relation DKK 10 million (the amount is indexed to 2016). to Reform Tier 1) does not show any revenues from the oil or gas area, either, as the level of activity is currently sub- Impact Benefit Agreement dued, partly as a result of a low oil price. The industry Naalakkersuisut’s objective is for the mineral resources shows continued interest in the area of oil in Greenland sector to contribute as much as possible to promoting and participates in rounds of tendering and invests in fea- sustainable socio-economic development in Greenland. sibility study and exploration activities; however, within Accordingly, the Mineral Resources Act includes a require- the next five years, there is no immediate expectation of ment that a report must be produced to assess socio-eco- any actual exploration wells like those implemented by nomic sustainability (VSB reports) when a mineral re- Cairn Energy in 2010 and 2011. sources project is thought to have a significant impact on socio-economic affairs. If the price of oil rises significantly, and current and future exploration activities in Greenland indicate or show com- For that reason, VSB reports were prepared in connection mercial oil/gas deposits, the level of activity in Greenland with the Cairns exploratory wells in 2010 and 2011. Fur- could change significantly for the better. thermore, VSB reports have been prepared in connection with mining companies having applied for an exploitation Feasibility studies and exploration activities in the area of permit. After the VSB report has been put out to consulta- oil facilitate a flow of revenues to the Treasury of Green- tion for at least eight weeks, it becomes the basis for ne- land from personal taxation, corporation taxation of sub- gotiating an agreement involving the mineral resources contractors as well as derived effects. Furthermore, there company, Naalakkersuisut and the municipality/munici- is the opportunity for socio-economic advantages based palities. on involving Greenland’s workers and subcontracts. This agreement is known as the Impact and Benefit Agree- Revenues for the Mineral Resources Fund ment (IBA). The agreement safeguards the involvement of Exploitation of Greenland’s mineral resources will provide local companies, extraction in Greenland, creation of local an income for the Mineral Resources Fund, e.g. in the form jobs, upskilling of the workforce as well as apprentice- of royalties as well as corporation tax and dividend tax. ships for young people and growth in the local business The intention of building the Mineral Resources Fund is community. To achieve the best possible result and there- partly to ensure that some of the income from exploita- fore ensure the maximum possible contribution to sus- tion of Greenland’s mineral resources supports society in tainable economic development, the agreement is en- Greenland for the long term. Placing some of the revenues tered into before the company is granted an exploitation from mineral resource finds in the Mineral Resources Fund licence and therefore the right to exploit a limited depos- could also contribute to overheating Greenland’s economy it. in years when there are activities in mineral resources. Entering into an IBA involving the mineral resources com- Ultimately, the Mineral Resources Fund identifies the fact pany, Naalakkersuisut and the municipality/municipalities that the block grant from Denmark is being reduced by an is therefore an important tool to ensure that individual

86 mineral resource projects contribute to socio-economic area can be fully passed on and utilised for the benefit of development. Entering into an IBA must also be regarded society in Greenland. as a culmination of the obligation a rights holder is subject to pursuant to the provision in Section 18 of the Mineral Through active exploitation of the geotechnical knowl- Resources Act on the use of Greenland’s workforce and edge, the geological survey institution must contribute to Greenland’s companies as well as to undertake extraction effective, sustainable administration of Greenland’s min- in Greenland. eral resources. The institution will continue to provide geological consultancy to public authorities in matters per- The agreement is a dynamic document, with many of the taining to mineral resources and in related environmental key obligations evaluated annually, which makes it possi- matters. Bringing in geological knowledge and consultan- ble to continuously adapt the agreement and in so doing cy could ensure that resources are exploited effectively ensure that the mineral resources sector continuously and sustainably. contributes to lasting, sustainable economic development. The geological survey institution will be an independent institution under the GoG on a par with the Greenland In- Currently, two IBA agreements have been entered into in stitute of Natural Resources and the University of Green- the area of minerals. An agreement involving Kommune- land. This means, inter alia, that the institution could par- qarfik Sermersooq, Naalakkersuisut and True North Gems ticipate in international research programmes and receive Greenland, and an agreement involving Qeqqata Kommu- funding from research funds. nia, Naalakkersuisut and Hudson Greenland A/S. The expectation is for a third agreement to be entered into with A key task of the geological survey institution would be to Ironbark during the first six months of 2016. An IBA agree- ensure cohesive, efficient operation and quality assur- ment involving Kommuneqarfik Sermersooq, Qaqqata ance of geological data, etc. Considerable costs are asso- Kommunia, Naalakkersuisut and London Mining Greenland ciated with obtaining geological data. For example, the A/S has also been drafted, but final negotiations are still seismic data, drilling samples, etc., collected during explo- pending. ration for hydrocarbon deposits offshore represents virtually irreplaceable private and public-sector exploration Building knowledge and skills investments, running into billions of kroner. Geological With Greenland taking over the area of mineral resources data is often presented in a particular economic–geologi- as of 1 January 2010 and, on the basis of subsequent de- cal context which perhaps only decades later may prove to velopment in the area of mineral resources, Naalakkersu- form the basis of new and altogether different vantage isut is basically in favour of Greenland ultimately estab- points for the exploitation and protection of natural geo- lishing its own national geological survey institution. The logical assets. establishment of an independent Greenland survey institution is a natural part of Greenland independently taking The geological survey institution will contribute to creat- care of its responsibility for the area of mineral resources. ing continuity of the research into mineral resources in Creating a survey institution of this nature is one of the Greenland. The geological survey institution will be a na- sub-goals of the former Naalakkersuisut Greenland Oil tional geological data centre that makes data and knowl- and Mineral Strategy 2014–2018. edge available to authorities, educational institutions, businesses and individuals, both for ordinary information Any such institution must only be established, however, purposes and on commercial terms. A key plank of the in- once financial resources are assured for its operation. Es- stitution will therefore be to operate income-producing sentially, this would have to happen within the current fi- business for others besides merely the Government of nancial framework for Mineral Resources Administration. Greenland to contribute to financing research in Green- Furthermore, steps must be taken to ensure that the ex- land. isting knowledge that has been accumulated within that

87 Tourism With increased intensity of competition in this area, even greater price reductions could follow. Holiday tourists Naalakkersuisut aims to make tourism a leading industry are quite price-sensitive in their choice of holiday desti- in Greenland. One implication of this is the need to secure nations. larger numbers of tourists through improving accessibility, offering a wider selection of experience and activity To improve the framework conditions for cruise ship tour- options as well as boosting incentives for private invest- ism, in addition to the structure of duty, the focus has ment. In addition, efforts will need to be directed towards been on conditions for coming ashore. An analysis of con- improving educational and skills development measures ditions for coming ashore for cruise ship passengers and enhancing the understanding of the concept of ser- shows totally inadequate quayside facilities. This problem vice in the area of tourism could be largely dealt with via quite modest investments in the years ahead, designed to encourage more passen- In socio-economic terms, this means higher turnover and gers to go ashore at the relevant places. The combined in- more jobs not only in the tourism industry but also in large itiative is expected to contribute to more dockings by sections of the business community. A determined effort cruise ships as well as a higher percentage of people go- will be required on the part of the GoG, the municipalities ing ashore and, therefore, higher volume. and, not least, private players in the industry in order to provide the necessary drive to maximise the benefit of Additional private initiatives and investments are neces- this untapped potential that Greenland has to offer. sary if Greenland is to flourish as a tourist destination.

The new strategy, which covers the period 2016 up to and Of course, Greenland’s majestic scenery is inherently including 2020, will focus mainly on developing the frame- worth the journey, but today’s tourists demand more than work conditions needed to trigger tourism’s potential for just a hike and a look at the Inland Ice if their journey is to growth. An analysis of the duty structure applicable to be perceived as unique and, as an added benefit, if they cruise ship tourism and incoming flights from abroad are to recommend it to friends and family. showed that, on a number of parameters, Greenland was not competitive compared to Iceland and Svalbard, for ex- Greater diversity in the choice of wilderness hotels, or- ample. The analysis demonstrated that Greenland collect- ganised fishing and hunting camps and facilities for moun- ed extremely high duties from cruise ships docking, com- tain skiing are obvious areas for private investors and lo- pared to the countries we compete with. The analysis also cal capacities to latch onto. showed that Greenland collects duty on flight traffic in the form of start-up duty and passenger duty, etc., which In order to support private initiative, Naalakkersuisut in- is far higher than we see in the countries we compete with. tends to issue licences for individuals with ideas for offer- That requires action. ing experiences for tourists. A licence for an area could give the private investor the necessary security if, for ex- Apart from the duty structure, the runway structure is a ample, he/she wants to establish a cabin or a hotel. core area for increasing accessibility for Greenland. An analysis by consultancy firm Rambøll (2015) Tourism, De- These types of investments could help to develop tourism velopment and growth through airport restructuring shows while at the same time creating fertile soil for growth and that Greenland’s runway structure is arranged in a way that more jobs in an area. implies a level of cost, and therefore of ticket prices, that is far higher than it ought to be compared to similar flights Another focus area is the establishment of regional visi- elsewhere in the world. The analysis shows that extending tor centres, financed jointly by the public and private sec- runways in Nuuk and Ilulissat, for example, could trigger tors. The pilot project for this area is the establishment of ticket price reductions of up to 30% for passengers arriv- the Ice Fjord Centre in Ilullissat, expected to be operation- ing from abroad, based purely on cost reductions. al in 2018. Internationally, visitor centres have proved to

88 be a cornerstone in developing major attractions and, Growth potential for cruise ship tourism therefore, a significant factor in attracting and boosting The number of cruise ship tourists rose in the run-up to the provision of experiences. 2010 (30,000 visitors) but subsequently declined to just 20,000 visitors in 2014. By way of comparison, Iceland has A successful example from the latest strategy period is experienced increasing growth throughout that period. the development of privately financed hotel capacity in In 2003, a passenger duty was introduced in Greenland; it Ilulissat. This shows that the private sector is ready with has been increased a number of times, rising to DKK 525 the necessary follow-on investments, including expansion per passenger in 2009. Compared to other, competing of hotel capacity, if there is real-terms growth in the num- destinations, this duty was extremely high and must be re- ber of tourists in a local area. garded as part of the explanation for the decline in the number of cruise ship passengers. Inatsisartut learnt the Experience from the marketing efforts of the previous pe- lesson and abolished passenger duty in spring 2015. In- riod was not too encouraging, measured against the suc- stead, gross tonnage duty was introduced, with a signifi- cess criteria of boosting visitor footfall, boosting turno- cant reduction, bringing it in line with Iceland. ver and creating more jobs in the tourism sector. One encouraging aspect, however, has been the consequential Naalakkersuisut takes the view that, in time, this will re- effects in Greenland from major growth in the influx of sult in an increase in the number of cruise-ships calling, tourists to Iceland. Accordingly, it seems obvious that a visitors and hence direct income for the tourism industry. significant part of the marketing efforts in the years This should be seen in the light of growth in the global ahead should focus on boosting combined tourism from cruise ship market averaging 6% annually. Iceland. Nevertheless, the number of tourists increased in 2015. Further measures are needed, though, to improve reception facilities in very many villages and settlements to de- The new strategy lays the groundwork for infrastructure velop smoother facilities for landing passengers and, in so improvements, increased investments and the establish- doing, increase the number of passengers who choose to ment of visitor centres in all regions of Greenland. go ashore, as well as the amount of time they actually spend ashore. These efforts have high priority with a view If the recommendations are followed and the associated to maximising turnover for Greenland. investments are made, it is realistic to boost the number of land-based tourists from the current level of 26,000 to Growth potential for land-based tourism through airport 61,000 in 2040 and the number of cruise ship passengers restructuring from just over 20,000 currently to 28,500 by 2020. Airport structure is the inevitable hub of development for land-based tourism in Greenland. There is, without doubt, This could boost employment by 332 FTEs and increase untapped potential for developing tourism, where overall additional turnover in the trade by DKK 184 million annu- travel costs, including flight costs, play a significant role ally by 2040 for land-based tourism and 33 FTEs and in whether potential tourists actually go ahead and make DKK 18.5 million for cruise ship tourism in 2020. the trip to Greenland. Additionally, there is distinct potential for boosting combined tourism from Iceland. The re- This growth potential for additional turnover and employ- port “Tourism – Development and growth through airport ment could be further improved by putting in place the restructuring” sheds light on this potential based on vari- necessary framework conditions for private enterprise in ous scenarios of restructuring airports. the tourism industry and expanding options for experiences and activities throughout the regions of Greenland. The thinking behind the socio-economic effect of a new This will help to improve the dissemination of socio-eco- airport structure is based on a number of factors: nomic gains across all of Greenland, making tourism a • First of all, restructuring the airports paves the way for leading industry for many people in Greenland. lower prices due to more efficient flying patterns and

89 intensified competition; cf. Table 2.4. for holiday tourists is -3.2, and for business tourists, -0.5. • Secondly, price changes for travel to Greenland would Using these figures, therefore, relatively more holiday have an effect on demand from tourists based on the tourists than business tourists would come if the price assumption that more tourists would come if the cost is were reduced. Table 2.5 below shows an assumed devel- reduced. opment in the number of holiday and business tourists • Thirdly, the effect would depend on the derivative ef- from 2015 to 2040, based on expansion of the airports in fect of consumption by tourists during their stay and Nuuk and Ilulissat. the secondary effect on jobs in Greenland. Scenario 2 (with a 2,200 m runway in Ilulissat) is deemed The Rambøll analysis is based on three scenarios: to result in the largest growth potential, with double the 1) current situation, number of holiday and business tourists from a total of 2) extending the runways in Nuuk and Ilulissat to 1.199 m, and 36.986 in 2015 to approximately 74.500 in 2040. The po- 3) extending the runways in Nuuk and Ilulissat to at least tential for increased employment and additional turnover 2.200 m. is calculated based on the described estimates of tourist numbers. Using the Transport Commission’s calculations Table 2.4. Index of flight cost per available seat mile of the derived effect on employment and estimates of CASM-index Nuuk Ilulissat Kangerlus- turnover per tourist, airport restructuring in Scenario 2 -Copen- - Copen- suaq - Co- could result in 332 extra FTEs against the backdrop of hagen hagen penhagen combined annual additional turnover of DKK 184 million in Scenarie 0: Current situtation 100 100 100 2040, as shown in Table 2.6. Scenario 1 : Nuuk and Ilulissat: 91 92 86 1.199 m Scenario 2.1: Direct to Copenha- Table 2.6. Additional turnover and derivative effects on additio- 72 71 56 gen, Nuuk and Ilulissat: 2.200 m nal employment by 2040 as a result of infrastructure expansion Source: AirInsight, CASM calculations for the Greenland Air Traffic system in Scenario 2 in relation to a runway structure like today’s with 2015 and Rambøll 2015 expansion of the airports in Nuuk and Ilulissat. Extending the runways in Nuuk and Ilulissat to 2.000 m Scenario 2 Ferietu- Erhvervs- Total could result in cost reduction and consequent price reduc- rister turister tions of 20–30% of the total cost of the trip. Number 35000 2520 37520 Turnover per tourist (DKK)* 4568 9551 14119 Based on falling costs of available seat miles (the CASM Additional turnover (DKK 160 24 184 index), it is possible to estimate how many more tourists Million) Additional employment, 289 43 332 could be assumed to visit Greenland. This is calculated FTEs** based on price elasticity – the sensitivity of tourists to * Estimated based on Transport Commission 2011, price changes. Rambøll has estimated that price elasticity ** Estimated based on Transport Commission 2011.

Table 2.5*. Potential for increased tourism through price reductions, increased availability and a general growth through by expanding the airports in Nuuk and in Ilulissat.

Scenario Price reduction No. of leisure No. of leisure tou- No. of business tourist No. of business tourist in tourist in 2015 rist in 2014 in 2015 2040 1 (1.199m x2) 9 % ca. 44000 ca. 13000 2 (2.199m x2) 20 - 30 % 26006 ca. 61000 10980 ca. 13500 2 (2.800m & 2.199m) 20 - 30 % ca. 61000 ca. 13500 *Note: The price reduction in scenario 1 is between 8 pct. and 14 ct. depending on the destination. The price reduction of 25 pct. in scenario 2 is an average of he expected price reduction of 20 to 30 pct. The average number of leisure tourists and business tourists that are projected represntes a number of foreign tourists who stay overnight at hotelsd with a distribution of 70 pct. on leisure tourists and 30 pct. on business tourists. Only tourists to Ilulissat and Sermersooq-West are affected by the price reduction. In the results on leisure tourists the average global GDP growth of 1,5 pct. per annum has been accounted for. Besides the price effect a development in the average Greenlandic GDP of 0,5 pct. per annum has been accounted for when it comes to business tourists. 90 Source: Rambøll, 2015 Rambøll has produced a detailed breakdown of the socio- Fjord Centre in Ilulissat develops positively. In addition, economic effects, cf. Table 2.7. For each scenario, three the Finance and Appropriation Act has earmarked a spe- possible average growth estimates are provided in annual cial construction fund for the GoG’s contributions to GDP to take account of a broader range of future econom- these, and the home municipalities of the visitor centres ic ups and downs. Under these conditions, both scenarios are also expected to contribute to the financing to help would have a positive net present value compared to the underscore the earnestness of these projects. status quo scenario. However, Scenario 2 produces the highest net current value. Stepping up national and regional efforts and investments will help to attract a broader segment of tourists. Table 2.7. Socio-economic results, net present value, DKK milli- The combined effort, focusing on accessibility, quality ons (2014 prices) and experiences, will give Greenland the opportunity to Category Scenario 1 Scenario 2 make tourism a leading industry. Growth Growth Growth Growth Growth Growth 1 2 3 1 2 3 Increased cooperation with Iceland Public Capital Inve- -71 -71 -71 -1.324 -1.324 -1.324 stent Although efforts so far to market Greenland as a tourism Operating 142 152 162 296 232 155 destination have not borne as much fruit as expected, result, air- there is one encouraging aspect: cooperation with Iceland. port Net present 511 563 625 641 701 776 value, total Significant growth in tourism in Iceland and the many Internal rate 32.3 % 33.7 % 35.1 % 7.2 % 7.5 % 7.8 % flights between Iceland and Greenland have directly con- of return Growth 1, 2 and 3 comprise average annual growth rates in GDP of 0.5%, tributed to growth in tourism in Illulisat in recent years. 1.5% and 2.5%. Therefore, the idea of marketing that targets countries Source: Rambøll 2015 from which Iceland already experiences a strong influx of tourists speaks for itself. Using Icelandic operators, Greenland as an attractive tourist destination Greenland could become – for some tourists – a place you visit when you go to Iceland. For example, the strategy A number of prerequisites must be fulfilled in order to could be as follows: successfully develop lasting, attractive tourist destina- · Increased marketing in Iceland and in the countries tions. In the foregoing, the emphasis is on promoting ac- where Iceland mainly sources its tourists cessibility through price reductions and shorter journey · Direct marketing in growth areas: Germany, the UK, times, but there is still untapped potential in the various North America and Asia regions that could usefully lay the foundation for increased income and employment. The tourism strategy also includes the following aims: · Regional overall plans for the development of tourism Better products can be created by issuing licences to pro- in all municipalities mote investment by private players in the industry, thus · Configuring areas for tourism licences and preparation creating better products. In addition, the GoG wants to of hotel construction in all municipalities work with the municipalities to increase the number of re- · Planning for four or five visitor centres. gional visitor centres established with the planned Ice Fjord Centre in Ilulissat as a model project, where 17– 24,000 paying visitors are expected in the opening year. Financing for the establishment of the Ice Fjord Centre is largely sourced from funds via Realdania. Naalakkersuisut wishes to investigate opportunities for also using fund finance for future visitor centres if, as expected, the Ice

91 Fishery Figure 2.3. Average fraction number of people principally employed per month in 2014 Fishery is by far Greenland’s biggest and most important export industry, accounting for more than 90% of total export value, cf. Figure 2.2.

Figure 2.2. Value of combined exports of goods (DKK Million), 2015

Source: Statistics Greenland.

Structural development in coastal fishery The role of the public sector is to create the framework for Source: Statistics Greenland. the viable operation and development of fishery. There is primarily overcapacity in the coastal fishing fleet, charac- It is therefore of great national economic and employment terised by many small vessels and dinghies with limited significance to ensure that these resources from nature’s scope for catches and a highly dispersed distribution of bounty are exploited on a sustainable basis. Fishery can income. contribute to increased growth if better framework conditions are ensured for the industry. In addition, the focus Naalakkersuisut’s objective is to boost viability for indi- must be on strong correlation between the basis of catch- vidual fishermen as well as the socio-economic dividend ing and capacity by means of a higher degree of utilisation from coastal fishery as a whole. of this resource, e.g. via increased innovation and systematic feasibility study activity. The reason for this overcapacity is a high – and rising – number of coastal licences for fishermen not matched by Naalakkersuisut is continuing existing efforts to set up increased biological resources. The background to this is targets and actions to increase the total socio-economic extensive consideration for employment due to limited al- gains from exploiting fishery resources. For instance, ternative employment prospects for this group. The lim- Naalakkersuisut wants to implement reforms in the area ited employment prospects are somewhat related to the of fishery, including fishery legislation, resource taxation fact that many young people do not gain qualifications, so legislation, but also more general commercial legislation, fishery is regarded as an obvious way forward for earning including the area of business taxation. a living. At the same time, a relatively large proportion of people employed in fishery are relatively old, some coast- Fishery also plays a major role in employment, cf. Fig- al fishery vessels are outdated, and there is a gradually ure 2.3. In 2014, 3,640 people were registered as em- increasing demand for expertise in the fishery sector. ployed in the fishery, hunting and agribusiness sector, or approximately 14 per cent of total principal employment Naalakkersuisut is working to secure additional qualifica-

92 tions, including for the fishery sector, and to improve the velop new fisheries and to achieve a greater degree of uti- degree of utilisation of fishery resources on a sustainable lisation of the amounts caught. basis. In this way, the viability of fisheries can increase and over- There is a high cost attached to coastal fishery being so all employment in this trade can be maintained at a higher highly subject to this consideration of employment. Fish- level, but with higher income for the individual. This will ery today is very labour intensive and, as a result, the in- benefit the fishermen and society. It will increase added come is low for many fishermen. Many have fishery as a value in the industry and the opportunity to collect a high second job to supplement income from other work. In the return on resources for exploitation of fishery resources. short term, a certain amount of over-employment in The socio-economic gain will, on the other hand, be reduced coastal fishery could, however, contribute to reducing if fishermen are unable to maintain employment of one kind costs for public benefits for some people, if, in reality, or another but instead have to go on welfare benefits. they have no alternative employment prospects with year- round work. Modernisation of coastal fishery and investments in fishery and processing capacity in general should, as far as The relatively low income in large segments of coastal possible, be privately financed, and investments in deep- fishery could put the brakes on investing in modernising sea fisheries must continue to be privately financeable. the fleet, which otherwise could contribute to boosting the increase in value in coastal fishery. Any public fisheries development funds must be directed towards coastal fisheries, and attempts must be made to Right now, therefore, it is a matter of striking a balance in structure landworks such that they do not distort compe- relation to weighing these considerations politically. Ac- tition and suppress private capital but, rather, contribute cordingly, another aspect of the goal of the Sustainability to a general, ongoing structural adaptation of the indus- and Growth Plan is to create additional alternative em- try. Any capacity adjustments in fisheries can therefore ployment prospects through active educational, business free up a workforce for higher-paid jobs. However, this re- and labour market policy initiatives and reforms. quires the creation of jobs, as it must be borne in mind that boosting the available workforce must inherently be It is by no means an impossible task to modernise coastal assumed to boost the availability of jobs. Therefore, there fishery without major public subsidies. Marine fishery has ought to be no need to await a preceding period of an ac- enjoyed good framework conditions for – and, in practice, tual shortage of labour. Making fisheries more efficient has achieved – a large income over many years, adjusting would also pave the way for a higher return on resources. its capacity to the quotas even in periods of falling quotas. Naalakkersuisut wants a revised Fisheries Act to secure The intention behind ongoing work to develop coastal independent coastal fisheries, going forward. This is con- fisheries includes creating a stronger correlation between tingent on bringing coastal fisheries to the point of eco- high fisheries capacity and the fisheries resource base. nomic self-sufficiency. Today, that is primarily the case in The number of fishermen working in fisheries in Greenland large sections of halibut fishery, shrimp fishery and some is very high relative to the resource base, and this limits sections of cod fishery. growth in society if the workforce is retained in low-paid, Naalakkersuisut’s objective is for a larger proportion of subsidised employment. coastal fisheries to be restructured, to a higher degree, into combined fisheries. This transition will ensure a larg- The number of licences for coastal cod and halibut fisher- er income base for the individual player, on the one hand, ies rose from 2,200 to 2,800 over the last three years. and, on the other, it will help to secure sustainable exploi- This has contributed strongly to an increase in capacity in tation, as pressure on fisheries for individual species will coastal fisheries. Investment in fisheries ought to reflect be reduced when fisheries are distributed over multiple sustainable quota amounts. This includes attempts to de- species of fish in the various parts of Greenland.

93 Revision of the Fisheries Act Development of a new resource taxation model The framework conditions for the fishing industry and ad- Fishery resources in Greenland’s waters are the property ministration in general must be stable and must support of society, but this resource is put at the disposal of the the need for long-term sustainable preservation of stocks. fishing industry via various administrative models pursu- Nevertheless, there is a need for reform of the current ant to the Fisheries Act and secondary legislation. Fisheries Act and related provisions pertaining to the industry. The work that has been initiated is being done in Naalakkersuisut’s goal for many years has been to be able dialogue with the industry, welcoming proposals to sup- to collect resource tax on all fishery species, to ensure port the ambition of efficient, viable fisheries with room sensible utilisation of the fishery resources of all of soci- to develop the small units and room for greater innova- ety and, at the same time, to boost government revenue. tion. Work on reforming the Fisheries Act must be seen in Therefore, the level of this duty must be set such that the the context of the work relating to resource tax. fishermen and fisheries businesses will still be able to make a profit that will allow for reinvestment in new capi- Currently, proposals are being prepared in a number of tal equipment as well as providing a reasonable return on fields, including goals for enhancing opportunities for invested capital. combined fisheries, proposed models for negotiable quotas, taking a position on ownership limits for quota rights Currently, only some parts of marine fisheries and coastal and limits on foreign ownership of fisheries, together with halibut fishery are taxable. Some parts of fisheries are not initiatives to strengthen experimental fishery and boost being operated as economically efficiently as they could innovation in the fishery sector. be. Therefore, the time is not yet right for taxing these. This applies especially to coastal fishery for cod, where Naalakkersuisut’s goal is to boost growth in value based procurement prices are significantly lower than in other on exploitation of fishery resources on a sustainable foot- parts of coastal fisheries. ing by creating commercial prerequisites for increasing the degree of refinement of Greenland’s fish as well as uti- The existence of a number of different fishery tax systems lising fisheries waste for new products; Iceland has en- can be regarded as an administrative burden on the fish- joyed great success in this, for example. ery industry and on public administration. An administrative working group has been appointed to take charge of To secure Naalakkersuisut’s overarching objective of max- developing a new resource taxation model, with imple- imising the lasting socio-economic benefit of fishery re- mentation expected to commence in 2018. sources, a revised Fisheries Act will help to create a framework for setting quotas at a sustainable level. The The working group is primarily tasked with developing alternative is a series of very negative consequences: consistent, simple models to use in collecting resource taxes from the fishery industry. These models must be The future earning and employment prospects for the in- transparent for the public authorities and for the industry, dustry and for society will be reduced. and also simple to administer. Taxing this resource ought Scope for funding ongoing development of the fishing not only to be viewed in the light of the need for revenues fleet with private capital will be compromised. for the public authorities in the form of duties and taxes In the worst case, irreparable damage will be done to the but should also take into consideration any desire to ability of fish populations to regenerate. maintain viable jobs, safeguard a reasonable distribution The expectation is that the package of proposals in rela- of income within the fisheries sector, the opportunity to tion to the Fisheries Act will be dealt with politically in promote refinement of Greenland’s catches, increased the context of a future combined revision of resource utilisation of the fish as well as the industry’s contribu- taxation legislation. tions to systematic education and skills development for the fishery sector.

94 The Tax and Welfare Commission takes the view that effi- vested in new capacity with a view to creating more jobs cient fisheries would provide scope for a high resource and boosting added value here. Unfortunately, 2015 fish- dividend. As previously alluded to, finances are stretched eries were lower than in 2013 and 2014. in much of coastal fisheries, and income is low. Therefore, there is a need for efficiency improvements and increased Therefore, as a step towards developing pelagic fishery, value creation in order to produce an income for coastal Naalakkersuisut has appointed a working group with the fisheries that will make it possible to introduce resource participation of fishery players and organisations to de- tax. The revision of the Fisheries Act must therefore link vise a long-term strategy for pelagic fishery resources. in with the legislative work of arriving at a combined re- The strategy is intended to secure the development of source tax model for fisheries, and it is natural to ensure Greenland’s pelagic fishery, phase out the chartering in of a correlation between the work of optimising the fisheries foreign vessels, and introduce year-round activity for development scheme in the Finance and Appropriation Greenland’s pelagic fleet. Extending the fishing season Act and associated legislation. will contribute positively to employment, fleet income and the social economy. Pelagic strategy for Greenland There is a need for a stronger focus on opportunities for One prerequisite for preparing the pelagic strategy is to fisheries in new fish species as well as existing species in obtain more knowledge about the size of the new popula- areas that are not currently fishing areas. Working with tions through biological surveys. The 2016 to 2019 Fi- the industry and with neighbouring countries, Naalakker- nance and Appropriation Act sets aside funding for bio- suisut wants to focus more on this work. New species logical surveys of mackerel and other populations with po- mainly constitute pelagic populations such as herring, tential for new fisheries, including blue whiting, herring blue whiting and mackerel. All these species are migratory and capelin. The result of the biological surveys could help populations that visit the territorial waters of various to strengthen Greenland’s negotiating position in interna- countries as well as international waters at different tional negotiations on both existing quotas and future, times. new quotas. A proposed strategy – which will include a stance on Greenland’s international obligations in this ar- Experimental fishery for mackerel began in 2011. Howev- ea – is expected to be presented in 2016. er, only modest quantities were caught in 2011 and 2012. 2013 saw more than 50,000 tonnes of mackerel caught. In 2014 and 2015, Greenland still did not have the necessary Modernisation of business frameworks pelagic fishery capacity to exploit Greenland’s estab- and the labour market lished mackerel quota. The vast majority of the quota up- take was fished by foreign vessels chartered in by Green- Modern business frameworks – it’s about the future land’s shipping companies. Greenland’s business community is undergoing a transition in which more and more jobs need to be found in the The effect of this was that this fishery only produced very private sector. This applies to jobs in small, innovative limited extra employment and capacity development in companies but also to jobs related to the tourism indus- Greenland. Another drawback of using foreign vessels try, a number of land-based industries and the area of with foreign crews is that the growth in added value and mineral resources. tax revenues is limited. Going forward, the key to Green- land achieving greater socio-economic exploitation of Everyone agrees that we need to increase activity, innova- mackerel fishery is to build a fleet for Greenland with cation and business development, all with a view to creating pacity to fish for pelagic species. This, too, makes admin- better economic growth and activity. We cannot allow our- istrative demands, including issuing licences in plenty of selves to rely only on income from fisheries and the GoG- time before the start of the season and, eventually, multi- owned companies. year licences. Ahead of the 2015 fisheries, Greenland in-

95 That is precisely why, in recent years, Naalakkersuisut has ments placing restrictions on competition. been focusing intensively on modernisation and improvement of the framework conditions for running commercial The Trade Act has been simplified and amended to match companies in Greenland with a view to safeguarding fu- today’s conditions. ture development, growth and welfare. In other words, a sweeping programme of reforms has been set in motion, The previous Trade Act was highly protective of existing involving not only industry but also the labour market. We companies and therefore restricted competition from are doing this to equip Greenland for a future of intensi- new, modern companies. Ultimately, this affected con- fied business competition, development and activities. sumers in the form of high prices of groceries and servic- We firmly believe this will create a more dynamic business es. community which, in turn, improves conditions for the population and generates economic activity that produc- The new Trade Act removes a number of conditions that es more jobs and revenues for society. previously existed for forming and running a commercial business in Greenland. This will help to boost competition. The modernisation process is absolutely crucial for attracting foreign investments that can help to fulfil the The goal of the new Trade Act is first of all to create a pos- massive need for investment in infrastructure and export itive business climate, capable of attracting new compa- business. Modernisation efforts in relation to business nies to Greenland, and, secondly, to provide better condi- frameworks (and the labour market) are described in more tions for entrepreneurs in Greenland to establish their detail in Naalakkersuisut’s April 2016 publication: Grøn- own businesses. land på vej mod vækst (“Greenland on the path to growth”). Freeing up competition Greenland on the path in a modern league The most recent Competition Act, from 2014, increases Greenland is becoming equipped for a future of intensi- opportunities for freeing up competition in Greenland’s fied business competition, development and activities. A market. Competition promotes initiative and is good for more dynamic business community improves conditions businesses and consumers alike. In order to support more for the population and generates economic activity that competition, the Act prohibits a number of practices that produces more jobs and revenues for society. have previously obstructed free competition in a number of areas. The earlier section about competition in the Re- In recent years, therefore, in order to safeguard future de- form Tiers describes some areas where the Consumer and velopment, growth and welfare, Naalakkersuisut has Competition Authority sees unresolved problems involv- worked intensively to modernise and improve the frame- ing competition in Greenland, and there have been cases work for running a business in Greenland. of illegal agreements and cartel formation in the construction sector distorting competition. Naalakkersuisut’s efforts to modernise business frameworks can be divided into four overall themes: The new Competition Act paves the way for greater con- · Modernising legislation trol of mergers, prohibiting the abuse of a dominant posi- · Freeing up competition in Greenland’s market tion and improving conditions for new and smaller enter- · Modernising business subsidy schemes prises. · Increased access to financing Cutting back on business subsidy schemes Keeping legislation up to date The present business promotion structure was adopted in A number of Acts have been amended and modernised to 2012. In 2016, an evaluation of existing schemes is being promote competition in Greenland’s commercial sector in undertaken with a view to updating them to reflect devel- order to protect consumers and shield Greenland’s busi- opments today. These schemes are: ness community from the formation of cartels and agree- · Opportunity to allocate financial support for business

96 start-ups in the form of “multi-punch cards” – e.g. for the nesses. use of private consultancy support. Naalakkersuisut’s proposals for new business promotion · Product development, e.g. for establishing and expand- initiatives are described in Text Box 2.8. ing a business. · Setting aside funds for particular industries or busi-

Text Box 2.8. New business promotion initiatives

Incubator scheme In the 2016 spring session, amendments were proposed for the Business Promotion Act to enable the establishment of an incubator scheme, as experiences from other countries (e.g. Iceland and Israel) have demonstrated that entrepreneurs typically need consultancy and coaching during the actual start-up phase.

When an entrepreneur comes up with an idea, the incubator scheme makes it possible to get help to develop and pilot the idea before launching it in earnest. Through networking, the new entrepreneur can be linked to experienced business people who are able to offer coaching and useful advice.

The incubator scheme also offers focused courses, e.g. in sales, market research, accounting and tax regulations. The scheme also offers opportunities for creative workshops, where entrepreneurs can meet and inspire one another. The incubator scheme is a combination of focused guidance, creative workshops and professional networks which, together, are intended to help give new entrepreneurs a more solid foundation for starting a new business.

Better access to financing For a number of years now, Naalakkersuisut has been working to improve access to financing options for businesses in Greenland. Today – and going forward – there will therefore be more scope for seeking financial support and economic guarantees – for small, local entrepreneurs and large, multinational companies.

The players in the new financing provision are: · EKF (Denmark’s Export Credit Agency) · The Growth Fund · NIB Nordic Investment Bank · The European Investment Bank

From 1 July 2016, a way has been established for companies to obtain support from EKF. EKF is able to furnish guarantees for receivables in connection with exports.

The Growth Fund also furnishes guarantees for private companies, so the door to the bank is easier to open.

On a larger scale – e.g. in relation to mining operations – Arctic borrowing arrangements of EUR 500 million for Arctic business projects is available through NIB.

The European Investment Bank (EIB) has special borrowing arrangements for countries like Greenland. The EIB is particularly relevant as co-financing in relation to major projects such as mining operations. Currently, no specific agreements exist between Greenland and the EIB, but there is scope for cooperation.

Source: Ministry of Industry, Labour and Trade

97 Development of additional areas Naalakkersuisut wants to promote business development in a number of other areas where Greenland has comparative advantages, for the benefit of increased growth and employment in Greenland. These areas are described in brief in Text Box 2.9.

Text Box 2.9. Further business development in areas where Greenland has comparative advantages

Export of ice and water Naalakkersuisut’s ambition is for exports of ice and water to be an income stream for Greenland’s society, creating jobs.

A large sum has been allocated in the Finance and Appropriation Act for marketing ice and water as export goods. In recent years, several surveys have been conducted and water samples taken around Greenland with the permission of Naalakkersuisut.

In 2016, Naalakkersuisut is presenting a new strategy for exports of ice and water.

Marketing of the potential for hydro-electric power Naalakkersuisut takes the view that the potential for sharing Greenland’s expertise and experience with hydro-electric power could become an export success story. Accordingly, in 2016, Naalakkersuisut will continue efforts to market the potential for hydro-electric power in connection with the advancement of foreign trade.

Exploitation of genetic resources Commercial exploitation of genetic resources has potential for developing into a significant income stream for Green- land. Therefore, during 2016, Naalakkersuisut will present a bill to amend legislation in this area and also prepare an overall strategy for how to sustainably utilise Greenland’s genetic resources.

A focus on creative industries Creative industries, including the film industry, have the potential not only to create growth and jobs in Greenland but also to put Greenland on the world map and disseminate awareness of Greenland and Greenland’s culture and society. With that in mind, Naalakkersuisut has a strategy of investing in promoting opportunities for creative industries and initiatives. This is being done in part to ensure that Visit Greenland focuses on creating opportunities for these industries.

In other words, Greenland must get more out of the deal whenever it is used as a backdrop for films, TV series and ad- vertisements. That applies to production, catering and other services alike.

Furthermore, more investment is needed to market Greenland as a film destination – to support Greenland’s own film industry and milieu and to attract film productions from abroad.

Increased focus on refinement of foodstuffs Refinement of foodstuffs has the potential to secure a lot of jobs in the villages and settlements of Greenland. Naal- akkersuisut therefore intends to continue to strengthen and encourage refinement of fish products, for example, in Greenland. This will be done in part by supporting a number of specific projects that have refinement of foodstuffs as their primary purpose.

Source: Ministry of Industry, Labour and Trade 98 Business development of villages and outlying districts more efficient organisations with fewer employees (in- Naalakkersuisut aims to secure business activity and jobs cluding the large GoG-owned companies), throughout Greenland. Accordingly, Naalakkersuisut is al- • From many public-sector employees to a future with so engaged in mapping procurement facilities in villages lots of new jobs in the private sector, in the tourism in- and outlying districts. Mapping of this during 2016 will dustry and in onshore industries, as well as jobs in the culminate in a number of recommendations as to how to mineral resources sector; the elderly and care sectors secure activity and more jobs, including in villages and also have a growing need for skilled labour. outlying districts – e.g. by investing in infrastructure and, if necessary, re-prioritising subsidies and business sup- That means the workforce must (continuously) adapt to a port. new labour market. At the same time, the level of investment in education is designed to ensure that more people gain the kind of qualifications that will better reflect fu- A dynamic, accommodating labour market that ture demand in the labour market. dares to set requirements First of all, the qualifications of workers – especially un- Modernisation of Greenland’s labour market is in full employed workers – require upgrading, e.g. via retraining. swing, with the pace increasing in 2016 so as to make the A very large part of the workforce is unskilled, and primary most important labour market reform’s proposed strate- and lower secondary schooling is the highest education gy, “A secure labour market”, a reality. level of 56% of the workforce. Up to 90% of jobseekers are unskilled. The cornerstones of the employment strategy are 16 initiatives designed to At the same time, some skilled and unskilled labour is be- • improve efforts for Greenland’s young people and guar- ing imported. One such example is employment on marine antee them a successful working life, trawlers in fisheries, cf. Text Box 2.10. • ensure more effective guidance of unemployed people and better access to courses for adults who need to be nudged to take the next step, • give municipal workers state-of-the-art tools to work with when finding work for them and otherwise helping people to move on, and • ensure that jobs are preferentially given to the domestic workforce.

These innovative efforts will modernise the old labour market system, develop familiar work processes and bring the labour market up to date in a world that requires new skill-sets and makes new demands on workers and employers alike.

These measures are absolutely crucial if we are to assure new generations of a secure, stable working life while business and the labour market undergo a transformation: • From many and often unskilled jobs in hunting and fisheries to more specialised jobs in a modernised fishing industry, • From labour-intensive businesses and institutions to

99 Text Box 2.10. Potential gains by putting in place a framework for boosting Greenland’s employment as officers in the marine trawler fleet

Suitable frameworks for ensuring more employment for Greenland as officers in marine fisheries

At the present time, the fishery industry recruits foreign labour due to lack of qualified candidates as officer material (captains, mates and chief engineers) in Greenland, and it cannot be ruled out that officers from abroad may even prefer to look to their home countries when it comes to recruiting new officers for marine fishery.

GoG Executive Order no. 13 of 17 November 2011 on crews for Greenland’s fishing vessels is applicable to commercial fisheries with Greenland-registered vessels with an overall length of 24 m or more. The Executive Order is designed to ensure that the domestic workforce of Greenland is used on the vessels. Pursuant to the Executive Order, at least 60% of officers (captain, first mate, cook/quartermaster, trawlbas and factory manager and foreman) must be people who meet residency requirements in Greenland. The officially registered address of a resident crew member must be listed as being in Greenland during the preceding two calendar years. All non-officer crew members must reside in Greenland. To ensure compliance with these requirements, the shipping lines must submit crew lists to the Greenland Fisheries Licence Control Authorities (GFLK) for each fishing trip, providing information as to whether crew members are resident in Greenland.

The level of pay on fishing trawlers is among the highest level in Greenland. Despite the tax paid to Greenland, in many cases earnings are sent back home to other countries. That means that Greenland misses out on increased consumption as well as the indirect economic effects of these jobs.

Accordingly, there may be considerable economic benefits to society in Greenland from ensuring that more of these (quite plentiful) well-paid jobs are occupied by the workforce resident in Greenland, who spend their earnings within our communities.

Therefore, it must be made more attractive – and, in practice, easier – for the fishery trade to employ officers and crew members from Greenland on their trawlers.

For example, greater effort is needed in the field of technical officers and marine engineers. A study has previously been conducted to find out how many people had actually completed a study programme in this field. It emerged that relatively few use their education at sea. Accordingly, chief engineers, marine engineers and technicians who are purely involved in maintaining factory equipment are exempt from the residency requirements of the Executive Order relating to crew, cf. Section of the Executive Order.

At the same time, it has been difficult to gain an overall view of how many people from Greenland were in fact qualified to formally occupy a post as a ship’s officer.

Naalakkersuisut will therefore seek to build cooperation between the fishery trade, relevant educational institutions and labour market organisations to secure the necessary skills development and educational investment to promote the desired development. As part of the ongoing dialogue, consideration will also be given to whether there is a need to revise relevant legislation in this area.

Source: GFLK and the Ministry of Finance

100 Occupational and geographical mobility must increase in signed to boost employment must promote the skill-sets order to required by the business community. These are intended match the workforce to the jobs quickly and smoothly. to create better conditions for recruitment to facilitate This makes it necessary for recruitment to be straightfor- matching of workers and employers. They are also intend- ward and focused to enable the business community to ed to promote mobility so that employees are able to trav- find the employees it needs without spending time and re- el to where the jobs are. sources unduly. This transformation will have a major impact on Green- Employment strategy: “A secure labour market” land’s labour market: Unemployment rose significantly in The 2015 employment strategy, “A secure labour market”, the years 2009–2012, but the trend has been towards a sets out a number of questions to do with unemployment reduction over the past year. Nevertheless, unemploy- in Greenland and presents a whole raft of solutions for the ment remains too high, and Naalakkersuisut’s objective is short and longer term. to reduce this further. Naalakkersuisut intends to invest in initiatives designed Following on from this, therefore, substantial funds are to promote employment to ensure that all the jobs cur- being allocated, inter alia to increase the staffing of the rently in existence, and the jobs that will emerge in the fu- Job, Guidance and Upskilling Centres for the employment ture, are filled as far as possible by the domestic work- strategy to give young people a more focused, smoother force. Stricter controls on the external workforce will pathway from unemployment into education and jobs. therefore be maintained. Text Box 2.11 describes several of the key initiatives of the employment strategy in more detail. Via partnerships and course activities, the initiatives de-

101 Text Box 2.11. Key planks of the employment strategy: “A secure labour market”

Establishment of Job, Guidance and Upskilling Centres The flagship of the employment strategy is the new Job, Guidance and Upskilling Centres (JVO centres), to be established in every town and village.

The new JVO centres consolidate all knowledge in relation to study programmes and the labour market to give jobseekers better, more focused help to find a job. Better use must be made of resources allocated for providing guidance to people in the municipalities, and unnecessary duplication of administration must be avoided.

For that reason, the labour market offices and Piareersarfiit are being amalgamated. All work processes are being streamlined and standardised so that people throughout Greenland are treated equally and are readily able to move from one municipality to another. Unemployed people and young people who are not yet in work or have not yet embarked on a study programme can use their local JVO centre to help plan how to proceed to work or start a study programme.

The purpose of these centres is to support the labour market and to bring together areas of expertise, particularly to help young people who have not yet either had a job or got to grips with a study programme. Furthermore, the JVO centres are intended to help other unemployed people to upgrade their qualifications and boost their skill-sets with a view to getting a job.

The suli.gl job portal The intention behind creating a national job portal, suli.gl, is to help ensure mobility for Greenland’s workforce to enable as many vacancies as possible to be filled by the local workforce. The job portal is also intended to serve as an aid to enable more people to return to the labour market.

Although Greenland has a fair number of unemployed people, both skilled and unskilled workers are brought into Greenland each year. The new national, nationwide job portal is designed to help to change this fact. The job portal will create an overview of the location of the available workforce with the right skills to match the particular job that needs to be filled.

Over time, suli.gl will become a central forum, advertising every job vacancy in Greenland. Going forward, it will also be a condition of becoming employed as a jobseeker and being available to the labour market for every unemployed person to have his/her CV stored on the national job portal.

The idea of suli.gl is to ensure it is made easier to recruit Greenland’s workforce. It will be a requirement for employers to use the job portal before they can be permitted to bring in external labour to Greenland.

Source: Ministry of Industry, Labour and Trade

102 Focus on all young people Targeting initiatives There is 15% unemployment among young people under In March 2016, there were 3,241 registered jobseekers, 29. Something has to be done about that. 468 of whom were in the settlements. This is a combined drop of 712 jobseekers compared to the same month in Naalakkersuisut is very concerned with young people’s fu- the previous year. However, the number of jobseekers ture prospects. Far too many young people are unemployed does not show the actual degree of work-readiness among today. Unemployment among young people under 29 is run- jobseekers. ning at 15%, if all match groups are included – and many are left outside the labour market for too long because they Analyses indicate that approximately one-quarter of reg- did not complete their primary and lower secondary school- istered jobseekers are in employment the same month ing, are unskilled and lack work experience. that they register as jobseekers. For example, they could be hourly paid workers from fish factories who have been Studies from other Nordic countries show that young peo- sent home. ple are particularly vulnerable to getting stuck on welfare benefits for years on end unless action is taken early to Another one-quarter of registered jobseekers have prob- deal with the problems they face in life. lems other than unemployment and are not ready to take a job. The municipalities categorise them as Match Group Accordingly, Naalakkersuisut is particularly minded to en- 2 (receptive to initiatives) and 3 (temporarily passive), cf. sure that plenty of initiatives are put forward to ensure also Text Box 2.12. that young people under 30 do not stagnate in their study pathway and end up unemployed, but are given guidance and support to learn a trade, for example.

That is why Naalakkersuisut considers it so crucial to provide options for young people who have their whole working lives ahead of them but do not have the best school career behind them.

The JVO centres have gained 250 additional places in 2016 – and these extra places are to be allocated to practical workshop courses such as Piorsaavik. Not everyone has to follow an academic study programme. We need tradespeople, too, to build our future. Accordingly, the Fi- nance and Appropriation Act allocates funds for: · non-academic programmes, such as establishing Pior- saavik, “Sapinngilanga – Pisinnaavunga” and “Pilersitsi- vik Asimi”. This provision can be established, for example, around work in a workshop, kitchen and/or with (fur) stitching · Job training process. Upskilling with a practical emphasis for young people to prepare them for JVO centre courses or employment · Provision for non-academically gifted young people. Special provision with specialist teachers aimed at employment or support for upgrading academic qualifications.

103 Text Box 2.12. Match grouping as part of statutory municipal employment efforts

Match grouping as part of statutory municipal employment efforts Focused work has been done over a number of years to subdivide unemployed people into three different match groups. The match groups are an expression of readiness in relation to the labour market. The purpose of this grouping has been to focus efforts for individuals to enable them to re-enter the labour market as quickly as possible.

The purpose of the match groups has been to make it easier to manage the municipal systems, with a clearer division of roles between labour market initiatives on the one hand and social welfare initiatives on the other.

As yet, the match groups are not fully in place to the desired extent. This is primarily due to existing legislation not taking into account how to define the necessary allocation of responsibilities between the various administrative units. At the same time, social welfare efforts in particular have been based on inconsistent assessments. Furthermore, access to social benefits is contingent on the individual (in principle) also being available to the labour market.

Many registered jobseekers will not be able to take a job until active efforts have been made involving various measures. There may be personal, social and addiction-related issues requiring long-term efforts. Despite the fact that legislation allows for this group to be exempted from the availability requirement, this has not been applied uniformly. At the same time, it has not been clear where actual responsibility for decisions about exceptions lies.

The new 2015 Act on Job, Guidance and Upskilling Centres (JVO centres) – previously Piareersarfiit – is intended to create better and clearer frameworks for the allocation of responsibilities in relation to match groupings. Pursuant to the Act, interdisciplinary groups are to be appointed involving JVO centre and social welfare workers. The goal is for these groups to undertake match grouping that also clearly defines responsibility for the individual. This is because Match Group 1 only includes people who are ready for employment, whereas Match Group 2 and Match Group 3 include people who need preparation to one extent or another. Accordingly, there is a transition from a fitness for work appraisal from Match Group 1 to a combined assessment between fitness for work and social status in Match Group 2, to a direct social assessment and initiative for Match Group 3.

The new Act on JVO centres took effect on 1 January 2016. Education and skills development for employees is expected to be implemented in 2016, with the JVO centres fully operational from 1 January 2017.

Source: KANUKOKA

Approximately one-quarter of registered jobseekers are etc. For Match Group 3, any return to the labour market not really available to the labour market, because they would require focused efforts over a prolonged period, have social or healthcare issues that make employment and some of the people in Match Group 3 will perhaps nev- unrealistic. er return to the labour market.

Jobseekers in Match Group 2 may need upgrading of their Despite the many unemployed people who are ready for basic skills in Greenlandic, Danish, English and mathemat- work, each year approximately 180 one-year residence ics, solutions to social challenges and clarification of re- and work permits are granted to labour imported to habilitation needs and health issues, including diagnosis Greenland. Approximately one-half of the residence and of disorders and addictions. work permits granted go to skilled workers; approximate- Jobseekers in Match Group 3 must have targeted social ly one-quarter go to unskilled workers, and the last quar- welfare and/or healthcare assistance in order to progress, ter go to people who have completed higher education. e.g. help in dealing with addictions and the consequences Workers from outside Denmark and Greenland are used of long-term substance abuse, treatment for mental especially in the hotel and restaurateur industry and other health disorders, consequences of sexual abuse as a child, service sectors. Nordic workers are employed particularly

104 in jobs in public administration, the construction and civil Naalakkersuisut considers it important to facilitate em- engineering sector and marine fisheries. ployment throughout Greenland that is more permanent, including in the fishery sector. A project in 2015 and 2016 The paradoxical problem – that we have a relatively high relating to the workforce, stability and job culture at one number of residence and work permits while at the same of the Royal Greenland factories demonstrates that this time we have so many jobseekers – has led to a strong de- could be an advantage to both the company and the em- sire by Naalakkersuisut to boost the employment and the ployees, cf. Text Box 2.13 skill-sets of the indigenous workforce to enable it to become a competitive and attractive workforce.

Text Box 2.13. Workforce, stability and job culture project

A selection of insights from the workforce, stability and job culture project at a fish processing factory The project was initiated by Royal Greenland for the benefit of employees, the company and, ultimately, society to achieve deeper insight into the job culture at Royal Greenland’s factory in Sisimiut. A report was prepared based on the topics, insights, patterns and unclarified matters that emerged from interviews and development workshops at the factory – and with a focus on solutions.

The survey and analysis were conducted by consultants from SIK together with Antropologerne ApS. The project used a focus group comprising representatives of Royal Greenland, SIK, the Greenland Business Association, KANUKOKA, the Ministry of Finance and the Ministry of Industry, Labour and Trade.

The overarching focus of the project was to gain a deeper understanding of the job culture and of individual, social, cultural and structural causes of absences at a fish processing factory. The project used field visits and analysis to examine issues such as communication, cooperation, absence and motivation. Against this backdrop, proposals have been outlined for how to remedy these issues. The proposed solutions therefore derive either directly from proposals from employees and management, or were extrapolated from an analysis.

The main insights from the analysis can be divided into four areas: Mutual instability, lack of communication spanning levels and departments, relatively down-to-earth working conditions and lack of a framework for a social life. These insights are expected to give rise to specific initiatives, primarily by the company in dialogue with employees, but also more widely. The matter of mutual instability is also affected by society. According to the report:

“MUTUAL INSTABILITY” Mutual instability is observed between employees and the factory: employees are absent from shifts, and at times the company has to send employees home if there is not enough work for them. This creates mutual uncertainty and mistrust between the employees and the company. The employees do not perceive themselves as being needed for the factory’s work processes, and the feeling of working as an essential part of a team is missing. Individual employees feel they can easily be done without.”

The company’s need to send factory employees home for parts of the year is due to some extent to the way fisheries administration is set up. Other initiatives, too, are affected by structures in society, including frameworks for the social life of employees and their families.

Source: Antropologerne ApS – commissioned by Royal Greenland

105 It is difficult to calculate the positive economic effects of so be addressed with the municipalities in the block grant more even employment, where more people have year- negotiations. However, it is important to emphasise that round employment, but the assumption must be that this treatment provision is already available today. Free treat- would benefit individual families, society and, under the ment of addictions is a supplement to existing initiatives. right circumstances, companies. The project described must be regarded only as a pre-project. The project focus A range of provision must be created, tailored to individ- group is currently working to pave the way to obtain fi- ual addicts. That will give addicts more flexible treatment nancing for a main project to shed light on more overarch- options, going forward. Provision includes the pathway af- ing patterns and trends within the working environment in ter treatment ends and, where necessary, it can be coordi- Greenland extending beyond the fisheries industry and a nated with provision by the health service or the local mu- single location. nicipality. For treatment of addictions to be successful, cooperation across the GoG and the municipalities is re- An accommodating labour market and focused efforts to quired. release more people from addictions Treatment of addictions must be viewed directly in the As a starting point, treatment of addictions is an expense context of Naalakkersuisut’s work on early retirement re- for the public finances, but investing in treatment of ad- form and the work of employment reform – particularly dictions will eventually produce a positive outcome for efforts to get unemployed people in Match Groups 2 and the bottom line of the public purse: dealing with the nega- 3 included in the labour market. Dealing with addictions is tive social legacy means more people can take up studying a central plank in reaching Naalakkersuisut’s goal of en- and work – leaving fewer people on benefits. An even bet- suring that families who need help actually get help. Last ter outcome, of course, would be successful prevention of but not least, dealing with addictions is an important tool addictions. for reducing unemployment. The dynamic economic effects can be difficult to calcu- Unfortunately, the problem of addictions is widespread late very accurately in a sustainability plan, but there is no and has a major impact on the individuals concerned and doubt that successful treatment of addictions has benefi- on society as a whole. Alcohol, cannabis and gambling ad- cial effects that touch every part of society. dictions, in particular, have an adverse impact on society. It has previously been documented that up to one-half of the adult population has, or is at risk of developing, an addiction; of these, more than one-third of all men and one- quarter of all women consume potentially harmful quantities of alcohol.

Addictions cost society dearly in the form of parental ne- glect, placing children in foster care, disability pension, welfare benefits, failure to fulfil their educational and career potential, loss of earnings, violence, crime and acci- dents.

Previous analyses of gains from free treatment of addictions show clear benefits for the individual addict and for society from investing in provision for dealing with addictions. That is why Naalakkersuisut wants to introduce free treatment of addictions. Funds will be allocated for this in the Finance and Appropriation Act, and the matter will al-

106 Objectives and outcomes

The above measures in Reform Tier 2 result in approximately DKK 270 million by 2030. See Figure 2.4

Figure 2.4. Overall effects of Reform Tier 2 in 2030.

0.820 bn "gap between revenue and consumption"

Reform track 2 0.390 bn

Reform track 1 0.120 bn

Reform Tier 2: DKK Million Fisheries resource tax model 50 Mining 122 Tourism 107 Total net effect 279

Breakdown of the individual contributions to Reform Tier 2

107 108 Reform Tier 3: MODERNISATION OF THE PUBLIC SECTOR

109 Targets for Reform Tier 3

Overarching objectives • Balance the economy in the GoG and all four municipalities respectively, by 2018 at the latest

Better financial management of the entire public sector • Shared basic data by 2020 at the latest

Digitisation of processes, task performance, planning and services to end-users • Targets for the level of digitisation in relation to citizen-related enquiries

Early preventive initiatives • Targets for early, preventive initiatives in the fields of social affairs and health care

110 Greenland has a population of approximately 56,000 dis- parent planning are becoming increasingly important. persed over a relatively high number of settlements over a large area. For that reason, the public sector is relative- Efforts to modernise and make the public sector more ef- ly large compared to that of most other countries, cf. Fig- ficient serve multiple purposes. First, this investment is ure 3.1. designed to ensure targeted welfare for the good of individuals; secondly, it is designed to free up funding to im- Figure 3.1. Public consumption as a % of GNI/GDP for different prove the framework for developing the private sector. countries in 2014 (the Faroe Islands: 2013) This is a means to creating permanent jobs and boosting prosperity in society. Modernisation efforts will include an array of initiatives in a number of areas, including:

• Better financial management of the entire public sector • More appropriate organisation and balanced development of Greenland • Skilled workers and managers, and a better basis for decision-making • Digitisation of processes, task performance, planning and services to end-users • Smarter solutions and more space for private initiatives Source: Eurostat, Statistics Faroe Islands, Statistics Canada, Department • Early preventive initiatives of Finance, Canada, Statistics Greenland Note: For Greenland, the Faroe Islands and Nunavut, the percentage of Better financial management of the entire public sector public-sector consumption if calculated in relation to available GNI (GDP + the block grant from Denmark, or from the Canadian government in the As a result of demographic developments, fewer people case of Nunavut). The figures are from 2014, except for the Faroe Islands will have to provide for more people for many years to (2013). come, and there have been internal migrations of the population and, in recent years, emigration. This imposes new In relation to the desire for a good welfare system, this in- requirements on setting priorities within and between dif- troduces disadvantages of small-scale operation and a ferent sectors in the public sector, including better sector need for a disproportionate amount of labour, including planning. It also makes demands on the development of management and specialist functions. We are currently productivity and better handling of the levers of the econ- unable to do as much as we would like to about this, as, omy to take account of longer-term needs. compared to similar welfare states, we have a relatively low level of education. That is why we need to invest in Tight economic control of real-terms growth in the public stronger and more strategically organised education and sector has to be sufficiently flexible to allow for the need upskilling. The public authorities will have to expect to for a certain level of adaptation to fluctuations in the continue to need to import labour, particularly for special- economy, while making a significant contribution to deal- ist functions, for a while. ing with a very large part of the sustainability problem in the public finances. At the same time, financial manage- Strong cooperation between the GoG and the municipali- ment has to provide clarity for the task of setting political ties as well as successful division of labour are important priorities. when it comes to tackling key structural problems in society and ensuring holistically-oriented, sustainable solu- Better financial management and political discussions tions to benefit the population and also to ensure welfare about current and long-term prioritisation are a task not provision for future generations. Better management of only for the GoG but very much also for the municipalities. resource consumption and investments as well as trans- In recent years, there has been constructive cooperation

111 on this in the political coordination group involving Naal- ments imposed on Greenland by the EU in relation to the akkersuisut, the mayors and KANUKOKA. For example, a partnership agreement that has been entered into. new budgetary cooperation agreement in 2014 has already produced visible results. Among other things, there Naalakkersuisut’s proposal for a new budget and financial is now a greater common understanding of the challenges statements Act includes more economic restrictions on facing society, and of how best to deal with these by hav- freedom of action for the municipalities and the GoG than ing the public sector work together to come up with solu- is the case today. This is necessary in order to secure the tions. overarching goal of a sustainable economy for the entire public sector throughout Greenland. New budget and financial statements Act Naalakkersuisut has set an objective of developing Green- A new budget and financial statements Act must funda- land in the direction of greater economic independence. mentally provide a clear framework for setting political The Economic Council’s projections of current expendi- priorities and must ensure there is freedom of political ture and income show that challenges already exist in and economic action in the medium and long term, and terms of sustainability in the public finances, and these confidence from investors and lenders, and that economic will burgeon as time goes by. The dependency load will be- policy is sound, including for the longer term. Therefore, come greater in the years ahead as the larger cohorts exit over time, we must live within our means. the labour market and are replaced by smaller cohorts. Without changes to welfare arrangements, etc., public ex- The new budget and financial statements Act must include penditure will grow. All other things being equal, there will a framework for: be growing pressure both to implement savings and to ob- • setting national goals for the development of the public tain additional revenues in order to secure sustainable finances public finances. • coordination of budgeting between the GoG and the municipalities The public finances are closely linked. That gives rise to • requirements for managing the public finances, includ- the need for more coordination between the GoG and the ing borrowing municipalities, as well as for reinforcing financial management in the public administration. The present Budget Act The starting point for the bill is to put a framework in covers only the GoG. It is necessary to update this to in- place. In practice, this means that expenditure must not clude the municipalities, which now account for more of grow more than the income allows over time. Accordingly, the public finances than ever before. Given the transfer of the approaching budget and financial statements Act im- tasks envisaged in the structural reform, it appears that poses requirements for a balanced budget or a budgetary the municipalities’ share of the total public finances will surplus for the Government of Greenland and for the indi- grow even larger, going forward. vidual municipalities, viewed over a four-year period looking both ahead and retrospectively from the current fiscal The budget procedures must match the increase in eco- year. The bill defines a balanced budget as the balance of nomic accountability and, at the same time, secure a ordinary revenues, operation, benefits and assets in the sound basis for decision-making for setting political pri- accounts of a municipality or the Treasury of Greenland orities across the board in relation to economic resources. not showing a deficit, viewed over a four-year period. Budget coordination requires clarification of political pri- Thus, allowance is made for deviating from the require- orities, and economic targets provide levers for control- ment to balance the budget in individual years. ling the development of the public finances. It is important to be able to manage growth in public ex- A clearer focus and tighter procedures for overall nation- penditure. That is why the upcoming budget and financial al financial management are a global trend in the wake of statements Act must provide the levers to limit growth in the 2009 debt crisis. They are also included in the require- the total expenditure of the municipalities and of the Gov-

112 ernment of Greenland in terms of operations and benefits. Extraordinary income must not result in increasing public operating expenditure; instead, it must be used for long- When some sectors grow as a result of demographic de- term investments. Naalakkersuisut’s proposed budget velopments or special prioritisation of other investments, and financial statements Act includes the creation of a the requirement for managed development of growth in technical accounting fund for long-term investments. The public operating expenditure will result in the need to Long-term Investment Fund brings together extraordinary move funds between sectors. Generally speaking, it will revenues from personal taxes, gross taxes, corporation largely be possible to fund new initiatives and priorities tax and tax on dividends as well as royalties, and selling from other areas, especially if attempts to generate more off GoG-owned companies with a view to investing these revenues by boosting exports and private-sector growth revenues to ensure the best possible socio-economic ef- are unsuccessful. fect on the one hand, and, on the other, to minimise the risk of overheating and, thirdly, to ensure that operating Furthermore, the objective is to secure a minimum level of expenditure does not grow permanently on the basis of the proportion of expenditure devoted to investments/ temporary income. assets. Maintenance drag has crept in over time. There- fore, it will be necessary to ring-fence investments in as- This funding is not only intended for capital expenditure sets for the long term. A very large maintenance drag ef- but could also be used for investments in education or the fect is, in fact, a postponement of necessary ongoing run- social area. In all cases, the use of these funds would be ning costs for maintenance, implying higher long-term contingent on business cases being prepared, cf. the Min- costs of refurbishment and new construction. Therefore, istry of Finance guidelines regarding socio-economic im- refurbishment drag actually amounts to borrowing from pact assessments. Furthermore, subsequent evaluations future generations. Failure to give sufficient priority to would need to be prepared to measure the effects. this area has also had negative effects on employment. With that in mind, Naalakkersuisut intends to use the According to calculations by the Ministry of Finance, com- budget and financial statements Act to insist that the mu- pliance with these objectives would result in a significant nicipalities and the Government of Greenland spend at reduction of the sustainability problem, cf. Figure 3.2. least a fixed proportion of revenues on assets.

Figure 3.2. The effect on the sustainability problem of restricting public-sector growth to 0.5% as envisaged in the proposed new budget and financial statements Act

Source: Ministry of Finance

113 At the same time, this would impose requirements to im- Skilled workers and managers, and a better basis for de- plement cost-cutting reforms as well as to implement re- cision-making forms and investments designed to create growth in the private sector. In 2016, an analysis is being conducted to show the status in relation to goals for and the handling of financial man- Another implication of a new budget and financial state- agement in the municipalities and the GoG. This analysis ments Act would be to enshrine in legislation updated will lay the groundwork for a new vision and strategy for goals and principles for the management of borrowing, economic management, designed to be followed up by and the framework for finance policy management of ex- better levers for financial management and focused skills traordinary revenues should also be enshrined in law. development based on the needs of these entities. In the first instance, this analysis must create transpar- The bill proposes inter alia: ency in the administration of the public finances; this • that the public sector only takes on borrowing that could provide an effective way of performing the core contributes to improving the sustainability of fi- tasks of the public sector. In the longer term, better finan- nance policy, cial management will create more economic room for ma- • that the public sector only takes on borrowing for noeuvre when it comes to setting political priorities. housing, trade and infrastructure projects when increased user payments or derived income are capa- The GoG and the municipalities worked together to cover ble of financing the interest payments and instal- the need for financial management expertise and willing- ments for the debt, ness to change in one section of the public sector in 2015. • that any significant extraordinary revenues are in- The overall conclusion was that financial management ex- vested via a budget and technical accounting fund, pertise exists in the organisations studied at a level that that forms part of the Treasury of Greenland, to enables them to secure the fundamental tasks of financial achieve adequate security, maximise the return and management involving budgeting, budget follow-up, regenerate the best possible long-term socio-eco- cord-keeping and book-keeping as well as filing of ac- nomic effects. counts.

Following on from this, there must be ongoing, cohesive However, bosses and managers across the board in these statements of public-sector debt to make it easy to see at organisations also have skills gaps that hinder greater a glance the size of public-sector debt at a given time. economic efficiency. Similarly, there are skills gaps for both technical and personal skills in relation to financial Implementing a modern budget and financial statements management among the majority of the employee catego- Act adapted to Greenland’s particular economic needs and ries investigated within the organisations being studied. prerequisites is deemed to be very significant in relation to creating confidence for business partners and inves- Therefore, there is a generalised need to raise the bar of tors when it comes to financial management and the pub- expertise in financial management in both the municipali- lic-sector finances. ties and the GoG, followed by an ongoing need to develop the financial management expertise of managers and em- When a country’s competitiveness is measured and bench- ployees. Major gains are available for the taking if this can marked, e.g. in the annual Global Competitiveness Report be done right across the public sector. An initiative across by the World Economic Forum, a country’s macro-econom- the entire public sector would ensure a sensible volume of ic stability and appropriate administration of the public economically effective skills development and would also finances are important fundamental parameters for create a common language of financial management measuring competitiveness. Good, sound management of across the public sector. the public finances is crucial for securing confidence for the investment climate.

114 Figure 3.3 illustrates the plan for how to go about raising Upgrading of skills across the entire public sector the bar of skills across the municipalities and the Govern- The public sector is facing growing demands in relation to ment of Greenland. efficient performance of its core tasks. The goal is efficient utilisation of public resources for the benefit of in- The plan is divided into the analysis phase already com- dividuals and the business community. Efficient utilisa- pleted, followed by a coordination phase, workshops to tion of public resources will also contribute to the crea- identify needs and objectives, concomitant with the base- tion of manoeuvrability in setting political priorities. Ef- line survey, a pilot project and, ultimately, the develop- ficiency enhancements depend on general and specific ment of a joint, shared public sector provision of educa- upskilling of employees in the public sector. tional options. The GoG has an objective of combining and organising re- In Phase 2, there are plans for a pilot project in a munici- sources and expertise into a joint public-sector skills de- pality where skills development in the field of financial velopment unit with the participation of the GoG and the management will be rolled out as parallel processes for municipalities, deployed in the Economy and Personnel managers with budget responsibilities. Concurrently, in- Agency. This unit will work with formal educational insti- ternal workshops will take place in the other three munic- tutions in Greenland to coordinate management and em- ipalities and in the GoG to clarify needs, roles, levels of ployee development initiatives, prepare skills gap analy- expertise and the level of ambition in order to be able to ses and coordinate OSH efforts. One goal here is to build target the course content. expertise and general knowledge in society and to support the implementation of reforms through its work. This The current need is a general boost to skill-sets, whereas is expected to potentially lead to greater employee moti- later on there will be an ongoing need for upskilling and vation and increased retention of committed employees developing new managers and financial staff in the public and managers. sector. Once this has been realised and is operational, the expectation is that this could become a more permanent The area of skills development in the public sector is cur- task for the Management Academy (AMA). rently characterised by solutions where external consultants are hired to perform a limited task in relation to a The project in relation to developing financial manage- specific problem area. These solutions lack the strategic ment expertise for the entire public sector is a first step perspective and often appear disjointed from the specific in the work of raising the bar of skill-sets for the public circumstances of Greenland. Besides, these solutions are sector in general, cf. the section below.

Figure 3.3 Plan to raise the bar of skill-sets in the area of financial management

Baseline Workshops investigation municipalities

Joint public Analysis phase Coordination Workshop Pilot project educational offer

Analysis phase Phase 1 Phase 2 Phase 3

115 often expensive. It is thought that a joint public-sector This is already enshrined in the Finance and Appropriation skills development unit will lead to more specific opera- Act agreement for 2015. This includes general work with tional savings in this area (or more skills development for ongoing productivity development in all sectors, including the same money) and enhance efficiency in performing the in sectors that may be assumed to have added further core tasks of the public sector through strategic skills de- funding, e.g. as a result of changes in demographics and velopment. increased educational activity. The parties behind the agreement recognised that ongoing productivity develop- The primary focus of the skills development unit will be to ment is necessary in order to create economic manoeuvra- identify needs in this area in the public sector, and it bility for politically prioritised initiatives. would of course need to work with relevant educational institutions, including the Management Academy (AMA). In the light of this, expenditure analyses are being con- At the same time, this would open up opportunities for of- ducted in the health care area; these could be used, inter fering study programmes and courses throughout Green- alia, to create better, clearer frameworks for financial land, with scope for drawing on AMA funds to run these management in the health care area, going forward. The courses. analysis looks at scenarios for future financial needs in the sector, going forward, and how proactive political and Upgrading of skills across the entire public sector was al- health care choices can sway this trend in the desired di- ready included in the structural committee’s resolution rection, cf. also the section on previous preventive ef- ahead of the structural reform. Therefore, going forward, forts. work must be done systematically on upgrading skills in the public sector, including other areas, as far as possible In addition to the analysis of health care expenditure, sim- spanning the entire public sector. ilar analyses have been initiated covering aspects of social services, and analyses covering education are also in Spending analyses preparation. In the years ahead, expenditure analyses The financial targets and challenges make huge demands should be conducted into other areas of heavy expendi- in terms of increasing cost-consciousness in the public ture, including the labour market and trade area. Moving sector as a whole, including in the municipalities and the forward, all areas of significant expenditure must be sub- companies owned by the Government of Greenland. jected to these analyses in order to ensure the best possible use of funds in a given area with the possibility of A more efficient public sector will not happen by itself; it setting priorities across all areas. requires a determined effort and regular implementation of spending analyses in all major areas. There is a need to Management by objectives and performance manage- set clear, realistic service targets, to harness potential ment economies of scale and to use smart solutions across sec- The Enterprise Resource Planning (ERP) project is de- tors, have a well-thought-out purchasing policy and in- signed to make it easier, long term, to measure public increase digitisation both to ensure welfare-society servic- vestment, initially through more accurate financial man- es and to eliminate labour-intensive manual processes. agement. The acquisition of a new financial system covering the whole of the private sector and linking with sys- As part of this work, it will be necessary to prioritise funds tems across municipalities and the GoG is intended to im- to enhance the controller function in the public sector, in- prove access to valid data and make this more readily cluding with a view to securing management information available for analysis purposes. in relation to economic policy and sector policies. This will be done through preparatory work and ongoing monitor- There is a need to supplement regular, in-depth expendi- ing using indicators for task performance, budget follow- ture analyses within these sectors with more continuous up and preparation of expenditure analyses in coopera- monitoring of the trend. Impact measurement and Key tion with other units and the municipalities. Performance Indicators (KPIs) must be used to evaluate

116 specific initiatives and as part of increased use of man- tor plans must take account of demographic develop- agement by objectives and performance management. Ac- ments and the challenges faced by the municipalities. cordingly, it is a tool to enable the municipalities, Naalak- kersuisut and Inatsisartut to make decisions on a more in- Following up on the structural reform formed basis that will best support the political visions After evaluation of the structural reform in 2015, agree- and ensure the best possible utilisation of public resourc- ment was reached between the municipalities and Naalak- es. kersuisut to give higher priority to the work of making the structural reform a reality, as described in Text Box 3.1. As a starting point, measurements should be taken in all areas of significant expenditure in the GoG and the municipalities. Therefore, the sectors must be able to measure the impact of initiatives and projects launched, and KPIs must be incorporated into the project description and evaluated and assessed on an ongoing basis.

Following on from the budget collaboration agreement between the GoG and the municipalities from 2014, inter alia in connection with the annual block grant agreements and agreements between the parties within the individual sectors, joint initiatives, goals and KPIs must be set in relation to solving major structural problems in society.

The long-term sustainability problem in the economy demands tough prioritisation, and here impact measurements can be very significant in terms of selecting the initiatives that have the greatest impact on individuals and the business community. Going forward, this will also be taken into account in prioritisation for the Finance and Appropriation Act, if initiatives are evaluated before funding is allocated for them.

More appropriate organisation and balanced development of Greenland

The new budget collaboration agreement with the municipalities from January 2014 must ensure a clear, unambig- uous model for political and administrative collaboration between the municipalities and the GoG. In order to be able to optimise public-sector initiatives, it is essential for there to be a clear delineation of responsibilities between the GoG and the municipalities.

Pursuant to the agreement, multi-year sector plans must be prepared for long-term planning of the public-sector finances in both the GoG and the municipalities. The sec-

117 Text Box 3.1. Outlines and principles behind the 2009 structural • Transfer a number of specific tasks, primarily from reform central control to the municipalities. • As a result of delegation of tasks, Naalakkersuisut’s The structural committee’s resolution is fundamen- and Inatsisartut’s organisation is reduced in size. tally based on the following: • Access to and increased use of video conferences • Legislative and regulatory tasks must still be taken for municipal council meetings. care of centrally – by the GoG • Establish joint management crossing the profes- • Tasks must be performed where they can be most sional boundaries of institutions to use the re- effectively performed: sources in a more focused, interdisciplinary way. • Tasks where transfer would impair the performance • As far as possible, pay out benefits automatically. of the task must still be performed by the GoG. • Tasks that can beneficially be transferred to the The municipalities and Naalakkersuisut take the view that municipalities from the GoG must be transferred. the structure of the public sector should basically be as • Tasks that can beneficially be transferred from the follows: municipalities to the GoG must be transferred. • The principles of the structural resolution and recommendations, which basically remain relevant as joint, co- The Structural Committee’s resolution emphasises in- hesive milestones, and ter alia the Structural Committee’s principles under- • The overarching goals of the budget collaboration lying its recommendations: agreement for – and specific funding to – secure sus- • Establishment of better, more effective services to tainable development through economic policy solu- end-users tions and the performance of public-sector tasks • Greater due process protection through sustainable solutions. • Ready access to the public authorities. There is also consensus regarding the transfer of tasks that could more appropriately be transferred from the The Structural Committee further emphasised the GoG to the municipalities based on prioritised, well- following prerequisites for the reform: prepared planning. This implies, inter alia, that: • The public sector must come closer to the general • there is actual readiness to transfer tasks to all munici- public palities at the same time, where relevant, so as to avoid • The general public must be given greater scope for duplicate administration and division of municipalities self-service through the use of telecommunica- into category A and category B municipalities. tions/self-service portal • sector plans must be put in place, coordinated between • A cohesive public-sector IT system spanning the the municipalities and the GoG, covering major areas. municipalities and the GoG • it must be ensured that the right skill-sets are deployed • Simplification of legislation and administration to take care of the tasks. • Increased professionalism and education for mu- • clear agreements must be entered into regarding the nicipal employees terms of task transference, including financial aspects • Local service centres in the municipalities to give as well as future delineation of roles and responsibili- the general public access to the public sector ad- ties. ministration in its entirety. • further work must be done to develop the concept of the block grant agreement between the GoG and the Based on the above, the Structural Committee recom- municipalities to give it a perspective that extends mended the following, among other measures: more than one year at a time and, at the same time, con- • Establish a municipal structure with (4) equivalent tains shared goals and milestones for desired long-term municipalities that are large enough to be able to development through joint efforts in central areas. This perform the many tasks to be transferred from cen- could be accomplished by means of specific agree- tralised control to the municipalities. ments within the individual sectors, entered into direct-

118 ly between the municipalities and the member of Naal- sation model for the municipalities, designed to create a akkersuisut responsible for a given area, and higher degree of redistribution and based on more relia- • deduction schemes must be reviewed to reduce admin- ble data than is currently the case. The overarching princi- istration in this area and to ensure there are incentives ples and intentions are as follows: for these schemes to support the need to increase self- • Create a higher degree of economic parity between the reliance in society. municipalities and, in so doing, more equalised opportunities to provide comparable services to end-users. That means there needs to be a systematic renewed re- • Parity is also a question of guaranteeing equal opportu- view to establish which areas are the most obvious candi- nities to all, and equalisation must help to ensure that dates to transfer to the municipalities, with prioritisation people enjoy at least the same basic level of service. based on the above starting point. • This model must be as transparent and simple as possible and, at the same time, as fair as possible. It also implies that areas which cannot usefully be accom- • The goal is not 100% parity, as the model must leave modated in the municipalities could be passed back to the room for municipal incentives and choice of methods in GoG, if significant matters in relation to ensuring good relation to the individual needs of the municipalities. service to end-users indicates this would be beneficial. In addition, end-users in every municipality should experi- Balanced development of Greenland with growth in all ence a reasonable correlation between the taxes they pay four municipalities and the service delivered by the public sector. One of the most hotly debated political topics in recent years has been development among municipalities and Any change to the equalisation scheme would imply redis- large differences in income for people, and the tax basis tribution of the same funding among the municipalities. In in general across municipal boundaries and, therefore, relation to the current scheme, redistribution would fol- differing economic manoeuvrability for each of the mu- low different formulas to those used previously. To this nicipal councils to maintain a suitably uniform level of ser- end, it is vital that fair, reliable data is produced jointly by vice. the municipalities in order to shed light on differences in their cost structures when it comes to performing basic Accordingly, there have been a number of attempts to re- tasks to serve end-users. This work is being done jointly form the model of equalisation of taxes and the frame- by the municipalities, the GoG and Statistics Greenland. work for allocation of the block grant. The goal is for more reliable data to serve as the basis for a new equalisation model with effect from 2019. Another aspect of the background to this is uneven development across the municipalities as a result of the pat- The new equalisation model will, in time, provide a sound tern of migration, where some municipalities have experi- footing for municipal equalisation and, therefore, trans- enced net emigration, and the capital municipality, in par- parency in relation to economic planning in the municipal- ticular, has had a population influx for some time, whereas ities. Greenland has seen an overall reduction in population. Construction sector planning The present equalisation scheme and allocation of the Nationwide, national construction sector planning policy block grant is based primarily on a calculation of the de- is disseminated to some sectors in construction sector pendency burden against the backdrop of the age break- plans, and a combined overview of these construction sec- down of the population. This is quite simplified and is not tor plans can be seen in the Reports on Country Planning. necessarily an accurate measurement of the differences The municipalities prepare local plan strategies. The con- in basic conditions within the municipalities. struction sector plans, Reports on Country Planning and plan strategies require mutual coordination and align- With this in mind, work needs to be done on a new equali- ment.

119 In practice, this coordination and alignment has not yet Text Box 3.2. An example of interaction in sector planning happened to any significant extent. Significantly higher priority has been assigned to this work over the last two years, cf. also Report on Country Planning 2015 (Neces- An example of how coordination, alignment and visi- sary coordination) and the future 2016 Report on Country bility can help to ensure better overall growth in value Planning (Necessary prioritisation). to society from a construction sector project is Tele Greenland’s current plans to extend the submarine ca- To make the construction sector plans as operational as ble from Nuuk to Aasiaat via Maniitsoq and Sisimiut possible, the Political Steering Group has decided that the as well as the construction of a high-speed radio link national and construction sector plans are to be rolling from Aasiaat via Qasigiannguit to Ilulissat offering ten-year plans. In other words, a construction sector plan speeds similar to having direct access to the subma- must always project forward for the next ten years. At the rine cable, together with a subsequent extension of same time, the plan must be revised as often as is rele- the radio link from Uummannaq to Upernavik. vant, and at least once a year, to ensure that all construction sector plans are up to date. Work is being done to en- This is expected to increase the percentage of the sure that the construction sector plans from time to time population with high-speed Internet access from the in effect – on a par with the municipalities’ plan strategies current 36% to more than 66% by 2017. Once two- and municipal plans – will be viewable in electronic form thirds of the population have access to a high-speed on the national geodata platform, NunaGIS. Internet connection, there will be much more scope for society to use this than is currently possible. It is important for there to be ongoing coordination between the national sector plans and municipal planning. Teaching is one of the obvious areas where these new The benefits to society of this type of coordination, align- opportunities ought to be implemented immediately ment and visibility are obvious. A large part of the sub-op- in other sector plans. Seeing that a large majority of timisation being done today could be eliminated. Further- the population – and, therefore, of primary and lower more, a far better overall picture of investment require- secondary pupils – can benefit from this huge Inter- ments can be built based on overall prioritisation from the net capacity, this should be exploited in many con- perspective of society. This also helps to safeguard the texts. The construction sector plans for telecommuni- basis for more accurate debt and investment planning, cations ought therefore to have a knock-on effect, in- with due account also being taken of avoiding local over- ter alia for sector planning when it comes to planning heating of the construction sector. investments in primary and lower secondary schools, and for planning in relation to increased use of tele- medical solutions within the healthcare sector.

Accordingly, there are significant gains to be reaped from better and more transparent sector planning.

Digitisation of processes, task performance, planning and services to end-users

Digitisation is an important driver of socio-economic development. For that reason, it is important, too, to consider what greater digitisation can do to promote sector- specific policy goals, and what that could mean for society, as well as what demands it places on the telecom infrastructure, regulation and skills development in society.

120 Digitisation in the public sector has so far mostly been basic solution must be established in the form of a about administrative aspects, but going forward we will shared data model, a data distributor as well as the ba- see digital solutions incorporated into virtually all public sic registers. services. The Sustainability and Growth Plan focuses inter • The joint public-sector Enterprise Resource Planning alia on making the public sector more efficient, including (ERP) system must be completed. The ERP project is the through: first vital prerequisite project to ensure consistent, – A more accessible public sector transparent data when it comes to the economy. – Joint service centres • Current implementation of the new electronic case-pro- – Upskilling cessing and document management solution in the GoG – Better purchasing must be completed and, similarly, the municipalities – Productivity development should implement electronic case-processing and document management solutions like this. In all these areas, greater digitisation can contribute to attaining the goals that have been set. The 2014–2017 Better legislative frameworks surrounding digitisation digitisation strategy has already launched a number of efforts in the public sector projects in recent years. Some of these have already pro- Naalakkersuisut sees a need for new legislation capable duced tangible economic results in the form of savings of delivering clear frameworks to harness potential for ef- and efficiency improvements as well as qualitative results ficiency improvements and other gains associated with in- in the form of easier access to the public authorities, bet- creased digitisation in the public sector. Any such legisla- ter quality data and case processing, etc. tion must, inter alia, secure Greenland’s competitiveness in a digitised world and help to build digital skills in soci- Taxation is a good example of this. New self-service op- ety. tions are popular; they are receptive to new opportunities, including having electronic access to annual tax state- Among other things, it must provide frameworks for the ments and direct filing of their tax returns. Digitisation Greenlandic Agency for Digitisation’s tasks and interac- has also resulted in 50–60% of the population actually tion with the municipal authorities in this area, for com- not needing to have to do very much at all to file their self- pletion of major public digitisation projects, for managing assessment tax returns and advance assessments. information security, and must provide a way of introducing joint public-sector digital standards and requirements Above all, efforts over the last few years have focused on for the organisation of digital architecture in the public paving the way to be able to reap the benefits in future sector. years. In ongoing digitisation efforts, the focus will be more on realising the economic and qualitative potential Naalakkersuisut will therefore enter into closer dialogue for gains, with investments up until now paving the way for with the municipalities about the work of preparing legis- this. lation, following on partly from the structural reform and partly from the 2014 budget collaboration agreement. The new national digitisation strategy is entitled “digitisation as a driving force” and puts the spotlight on estab- Prospects for the upcoming strategy period lishing technical, structural, system-related, skills-related To ensure further benefit to society from efforts so far, a and other prerequisites for a fundamental boost to the new national digitisation strategy must be prepared for whole of society in Greenland. the period 2017–2020. It will be formulated in cooperation with the municipalities and the private sector. The following initiatives from the 2014–2017 digitisation strategy are without a doubt central planks of the basis The topics below could serve as a starting point for future for further digitisation efforts in the next strategy period: strategy work: • The basic-data programme must get under way, and the • Digital welfare

121 • Digital identity With full digitisation of the public administration and • Digital citizen case-processing, Greenland will have a unique opportuni- • Digital democracy ty to establish a full digital identity for each individual. Today, individuals already have access to their digital in- Digital welfare formation through secure technological tools. Going for- Digitisation can contribute to improving welfare. This can ward, this access will also give people access to this iden- be done by delivering efficient services to individuals, ir- tity. respective of large geographical distances. Having a digital identity for each individual will provide a Based on the 2014–2017 digitisation strategy, the foun- robust data-basis for analysing demographic trends, etc. dation has been laid for increased use of self-service so- This will enhance the decision-making basis for overarch- lutions. These must be further developed and must be using and long-term decisions. able when individuals and businesses want to communicate with the public authorities. Digital identity could include the following key efforts: • Formulation of a national privacy policy to strike the Not all welfare can be delivered through greater digitisa- necessary balance between safeguarding people’s pri- tion. Personal nursing and care will still require physical vacy and rights to their own data on the one hand and, on presence, for example. However, research and trials show the other, society’s ability to utilise data about individu- that it is possible to contribute to indirect savings and in- als. crease quality of life through digital solutions. • Establishment of a joint data authority acting throughout the public sector to oversee access to and mainte- The first step towards raising the bar of welfare is in fact nance of the register to be established as the individu- through full digitisation of records and case processing. al’s digital identity. Once this has been done, individuals will have full trans- • Improved information to individuals, whereby all the da- parency about procedures involving them, and the person ta about an individual is consolidated, structured and dealing with their case will always have a full picture of maintained. consolidated knowledge about the person in question. These solutions in turn help to break down physical dis- Digital citizen tances and make them irrelevant – nationally and interna- The vision of the digital citizen underpins the other topics tionally. in the national digitisation strategy 2017–2020. This also means that individuals must be able to communicate with Digital welfare could include the following key efforts: the authorities digitally and by video. • Full digitisation of case processing and records by all authorities. In practice, this means there must be full Based on a high level of IT skills and digitisation, the digi- implementation of electronic case-processing and doc- tal citizen can not only be an active citizen of Greenland’s ument management solutions in the GoG and the munic- society but can also be an active citizen in the global com- ipalities. munity. With conscious effort towards structured, target- • Over time, receiving digital post must be made manda- ed development of the individual’s IT skills, growth can be tory for individuals and businesses, but with local alter- created in study programmes and educational options natives for people who are not digitally literate. that extend beyond a narrow, national perspective.

Digital identity A high level of skills can make IT and digitisation a career Within the framework of the current digitisation strategy, pathway, both nationally and globally. In the longer term, the first registers are being prepared for a basic-data so- it could provide a basis for making Greenland an interna- lution for Greenland. Here, data will be collected about the tional centre of innovation in the fields of IT and digitisa- identity, residence and family relationships of individuals. tion.

122 “Digital citizen” could include the following key efforts, for with political discussions while they are taking place. example: • Points of view and possible solutions for a digital voting • Invest heavily in developing the skills of young people process must be clarified and described with a view to and adults alike. IT and digital skills must be integrated potentially deciding to pursue this route. into teaching in schools and educational institutions. For adults, relevant in-service training must be provid- Consolidation of digitisation efforts ed to guarantee everyone has the opportunity to up- The digitisation strategy rests on a basic principle that grade his/her ability to become a digital citizen. the public sector has a special task and a special respon- • High-level study programmes must be established, e.g. sibility for developing the whole of society – not just the an IT institute at the University, working with institu- public administration. tions of higher learning abroad to offer study opportunities pointing towards attractive job prospects in The digitisation strategy is based on the existing, familiar Greenland and abroad. The academic milieu must be de- allocation of roles and responsibilities between the indi- veloped to attract foreign students, too. vidual entities in the GoG and across the public sector. A • A national strategy must be formulated to ensure Inter- BDO analysis from February 2015 indicates inter alia the net access for all, irrespective of geography or personal need to identify joint solutions to reap the rewards and finances. harness the opportunities from greater digitisation and rationalisation in the area of IT operations. Digital democracy Digital democracy includes the opportunity to create a The full sweep of BDO’s recommendations includes the new, democratic cohesion for the whole of Greenland – GoG, the municipalities and the GoG-owned companies. without differentiation based on distance. This is evident The prospects of a joint public-sector investment in this even today, with many politicians using social media as a area of digitisation and IT operations are very significant platform for entering into dialogue with members of the for the public authorities and the whole of society. In public. These efforts must be stepped up significantly. headline format, the key prospects are: The authorities, too, must do more to meet people where • Efficiency improvements they are, and where they wish to communicate. Down-to- • Quality of performance of tasks earth. • Easy access to public services for individuals • Skills development for society Evaluation of the 2015 structural reform indicated a need • More favourable running costs to strengthen democracy, including giving higher priority • Flexibility, greater organisational robustness and less to the use of digital tools to reduce distances between in- vulnerability due to dependence on individual people dividuals, politicians and authorities. • Development of the private IT market • Greater IT security The primary task of digital democracy is to ensure open- ness, transparency and proximity for individuals and com- Consolidating the work of IT operation and digitisation al- panies in relation to decision-makers and decision-making so encompasses significant potential, especially finan- processes. cially.

“Digital democracy” could include the following key ef- Smarter solutions and more space for private forts, for example: initiatives • Ensure that agendas and the decision-making basis are open and accessible to all on a digital platform. Electronic invoice processing • Meetings and political discussions must be made avail- The Government of Greenland’s document processing of able digitally. For example, scope for streaming must be incoming invoices is now 100% digital. However, when the increased, providing better opportunities to keep up Government of Greenland receives invoices in a format

123 that cannot immediately be read on its systems, post-pro- land’s schools, halls of residence and cultural institutions. cessing of these invoices, etc., is required. In the short term, building maintenance funds must be pri- There is scope for improving efficiency here by requiring oritised for efforts where they will make the biggest dif- a common standard for invoices submitted to the public ference. Going forward, implementation of planned, peri- sector. Today, approximately 30% are received in a format odic maintenance efforts must be ensured for publicly where no post-processing is required. The expectation is owned buildings to prevent ongoing major loss of assets that this could rise to 90% over the next two years. in the building stock.

That would require companies to make changes, and there As there is a maintenance drag effect on buildings would probably be a degree of scepticism about the con- throughout Greenland and, at the same time, a need for sumption of resources in relation to the benefits. Howev- more apprenticeships, Naalakkersuisut wants to rapidly er, in the longer term, it would be an advantage to compa- put together a definite model for meeting both needs. nies as well as to the public sector if a requirement were At the same time, professionalisation of facilities man- introduced to submit invoices conforming to a specific agement will entail a stronger focus on energy efficiency standard. For example, this would result in more reliable measures, which will result in investments to reduce en- handling of incoming invoices by the public sector and in- ergy consumption and thus lead to operational savings. crease the likelihood of invoices that have been submit- Naalakkersuisut finds that using public–private partner- ted also being paid. It could reduce the number of invoices ships in this area could contribute to securing good over- dealt with late and improve liquidity for the companies. all financial solutions.

Individual companies that are unable to submit invoices in Establishing joint, coordinating functions in the public a standard format must have the option to perform this sector task via a solution made available by the public sector. Many public-sector units do not have the necessary capac- This could also apply to handwritten invoices, for example. ity or expertise to improve efficiency. At the same time, technological developments make the physical location The intention behind the roll-out of electronic invoicing more independent of the performance of certain tasks. must also then be applicable in the municipalities so that These conditions provide potential for establishing joint/ they, in turn, will be able to benefit from the associated coordinated functions in the public sector. The combined gains. potential from this development is assessed as significant. Any such change requires time and management fo- Professionalisation of facility management and mainte- cus. nance There is a large backlog of maintenance tasks for many Therefore, Naalakkersuisut wants to create the necessary publicly owned buildings. This creates poor conditions for frameworks to ensure that areas with potential for effi- these units to accommodate activities in contemporary, ciency enhancements can be established across organisa- healthy buildings. For example, many halls of residence tional boundaries, both internally in the GoG and between have deteriorated and been attacked by mould. As a re- the GoG and the municipalities. This will, inter alia, require sult, much of the new construction to provide halls of res- legislation to facilitate this in practice, including taking a idence in recent years has not resulted in an increase of stance on the question of the allocation of roles and re- capacity as otherwise planned for. sponsibilities. Naalakkersuisut will enter into closer dialogue with the municipalities about the work of preparing Against this backdrop, an organisation has been estab- legislation, following on partly from the structural reform lished to create an overview of the status and organise co- and partly from the 2014 budget collaboration agree- ordinated investment in buildings maintenance. Initially, ment. the focus is on buildings within the Government of Green-

124 There are a number of specific areas where there could be By entering into purchase agreements, the GoG will also considerable potential for achieving economies of scale focus on CSR, which involves companies working voluntar- and increased professionalisation, including written ily with social, ethical, environmental and climate issues translation projects and facility management for public that go beyond legislative requirements. When the GoG buildings. acts as a buyer, it is important to create a level playing field for companies. In addition, due account can be taken The technological foundation for performing written of whether the companies are contributing to creating a translation projects on a shared system has now been es- more sustainable society. In particular, the focus will be on tablished, independent of organisational or geographical how, via its purchasing, the GoG can influence companies location. The same translation system is currently being to create more apprenticeships (trades), traineeships used in three municipalities and in the GoG. (clerical, etc.) and internships.

There are, for example, also quality-assurance tasks and The Strategic Purchases Unit in the GoG is being con- translation tasks deployed in the GoG’s interpreters’ of- structed to develop purchasing advantages for the entire fice as well as in the units – but where there is more effi- GoG. cient use of resources. Expanding this further could bring about a considerable boost in productivity and quality. In this connection, the intention is not for all purchasing to be done centrally. It is about seeking to coordinate and Control and optimisation of facility management is large- support decentralised purchasing. This will also help the ly deployed in the individual institutions. The focus ought business community to develop towards becoming effi- to be on implementing indoor climate improvements and cient and competitive. energy renovation of the buildings, including the opportunity to prioritise funds for maintenance and modification Strategic Purchasing is a key part of the initiatives being of energy cost-intensive buildings. taken in relation to Naalakkersuisut’s goal of making the public sector more efficient. Furthermore, pursuant to the One of the most important aspects of indoor climate is air partnership agreement with the EU, the GoG has commit- quality, where, for example, a poor indoor climate can im- ted to a fair, transparent and efficient purchasing policy pair effectiveness or learning, or, in the worst case, dam- that ensures equal access for all companies. Public pro- age health. Assessing facility management across the curements and large-scale tenders must be announced in units could enable the establishment of more profession- Greenland’s media. ally expert functions to take care of this area. Further- more, by setting priorities between units, resources can Greenland’s Competition Commission has long taken an be used in a more focused way. interest in how the public sector exposes or fails to ex- pose contracts with private suppliers to competition. Just in the area of energy efficiency improvements, many The current circular on procedures has not had the neces- companies offer financing and implementation of meas- sary competition-creating effect. Therefore, the Competi- ures with a demonstrable overall saving over a number of tion Commission takes the view that consideration ought years. Energy efficiency improvements must, of course, al- to be given to creating an actual public procurement Act. so be assessed in relation to impact on indoor climate, etc. Today, this area is regulated by a circular from 2010 on Better purchasing the purchasing of goods and services in the GoG’s central Operating costs for the GoG can be reduced by making the administration and underlying institutions. GoG’s combined purchasing more effective. This must be done in part by entering into purchase agreements and, in The purchasing circular is currently being revised. The in- part, by exposing the purchasing of goods and services to tention with the new circular is to establish an up-to-date, more competition. flexible basis for provisions. The purpose is, on the one

125 hand, to create transparency and ensure equal treatment and rising life expectancies will have a major impact on de- of the GoG’s suppliers and, on the other, to specify the velopments in expenditure for the health service. framework for and allocation of responsibilities between players in the GoG’s purchasing activities. To keep overall actual growth in the public sector down to a responsible level, it is vital for resources in the health In the spring session 2015, Inatsisartut dealt with a reso- service to be used as wisely as possible and for early pre- lution to regulate the area of purchasing. There was ventive efforts to be made in sectors other than the health broad-based acceptance that, at the earliest opportunity, sector. Figure 3.4 shows different possible scenarios for Naalakkersuisut would revise the current purchasing cir- the trend in health care expenditure towards 2040 using a cular and, based on experience from this, subsequently baseline scenario of projections, including demographic prepare a proposal for a public procurement Act as such. developments. The essential aspect of both the baseline scenario and the other scenarios is that more money will have to be spent on health care due to the ageing popula- Early preventive initiatives tion.

Optimisation of the interaction between the field of The figure also shows that the trend in health care ex- health and other sectors penditure is contingent on socio-economic development, Expenditure on the health service accounts for a large but it can also be influenced, partly by prevention and ear- part of the GoG’s total expenditure. In 2012, operating ex- ly intervention. Any change in the pattern of migration will penditure on health added up to approximately DKK 1,203 also affect the level of expenditure. million, which corresponds to approximately 18% of the combined expenditure of the GoG. The trend towards an This projection is based on the Health Service focusing on increase in the demographic old-age dependency ratio optimising processes and work procedures as well as con-

Figur 3.4. Scenarios for development of health care expenditure

Scenarious for health care consumption (DKK Million)

Basic Education Reassignment

New Medical Technology Improved Cooperation Prevention

Source: Deloitte (2016)

126 tinuing to work to improve financial management to ena- • Inuuneritta ble health care, as far as possible, to accommodate finan- • Suicide prevention cial pressure through efficiency improvements. Demo- • Treatment of addictions graphic developments are not the only source of pressure on the finances of the health service. Socio-economic de- New technology will be used increasingly in the area of velopment in general will result in individuals insisting on health care as a tool to overcome the dispersed pattern of better service from the health service. Setting up large- settlements and will contribute to the ability to deliver scale projects could also entail challenges for health care additional specialised services in villages and outlying if a large number of people who are also geographically districts. located outside the normal pattern of settlements require health care. Today, the health service is exclusively dimen- Besides, health care technology should be viewed as a tool sioned to meet the needs of the local population. At the to support treatment pathways, quality development, effi- start-up of any new mining industry, care must be taken to ciency improvements for processes and general services ensure that this does not adversely impact provision for for all. Increased specialisation and changing patterns of the local population. settlements have made it necessary for health care to cen- tralise several specialist functions in the Regions or in DIH. A very significant point is the fact that there is scope for reducing the pressure on expenditure in the health service To improve the service, support efficiency improvements and the public sector in general through targeted, health- for processes and ensure that, wherever technically feasi- promoting and preventive initiatives. ble, health care provision is delivered as close as possible to where people live, Naalakkersuisut is working towards: Improved public health and better quality of life among • continuously developing telemedicine and tele-psychi- the general public will reduce demand on services in the atry, and boosting these both nationally and across health service, going forward, and these efforts can also country boundaries. have a positive secondary effect on employment and so- • ensuring that the health service is able to fully imple- cio-economic aspects. Demographic survey of Greenland, ment electronic medical records to include all aspects 2014. Living conditions, lifestyle and health (2016) shows of health service provision and, inter alia, ensure that that, in a number of areas, there is a need to redouble ef- individuals have only one medical record, no matter forts to tackle major social inequality when it comes to where they seek medical care. health. The survey shows that the disparity in health care • initiating analyses designed to identify opportunities to varies in various areas. It may have a geographical dimen- develop self-service solutions on the health care portal, sion, it may be gender-specific, it may vary in relation to www.peqqik.gl. association with the labour market and it may be affected • initiating an analysis of opportunities to improve the ef- by social factors. That places huge demands on preventive ficiency of digital shift planning and interaction with work. Prevention therefore demands efforts that extend salary payments. far beyond the area of health care, especially in relation to social affairs and education. New socio-political strategy for vulnerable children and young people It is to be expected that a healthier lifestyle will lead to greater participation in the labour market and less pres- There is an urgent need for a paradigm shift in socio-posure on social services, such as disability pension, placing litical strategy for vulnerable children and young people. children in foster care, etc. The National Health Strategy There is a need for a new, sustainable socio-political 2014–2017 focuses on the following preventive/health- strategy to reduce the need for 24-hour foster care for promoting efforts: vulnerable children and young people, based essentially • A healthy sex life on giving higher priority to early, preventive intervention • Early intervention in this area.

127 Inspections carried out in 2014–2016 have shown that 24-hour foster care is far higher than the current level, the number of vulnerable children and young people who and it has to be recognised that the number of foster care are not protected from failure or abuse is far higher than placements will rise dramatically unless there is a com- previously assumed. It is foreseeable that future inspec- prehensive paradigm shift in the socio-political strategy tions will simply confirm the suspicion that there is a need in relation to children and young people. Figure 3.5. illus- for more extensive social intervention when it comes to trates the need for this through two scenarios for the de- children and young people. velopment of vulnerable children and young people.

The inspections have demonstrated that the need for

Figure 3.5. Two scenarios for policy in relation to children and young people.

DKK Million

Number of placements

Consumption

New policy, placements

New policy, consumption

Source: Ministry of Family Therefore, Naalakkersuisut wants to change the strategy The blue curve in Figure 3.5. shows actual and expected in this area so that, going forward, considerably more ef- development (dotted line) in the number of institutional fort will be made with preventive measures. As part of the foster care placements if the current strategy is main- necessary paradigm shift, work will be needed on: tained. The red curve shows actual and expected development (dotted line) in expenditure on 24-hour foster care • More family institutions – short-term therapeutic stays. placements if the current strategy is maintained. • In-home support – with advice and guidance, etc. • Specially organised family folk high schools/courses. The green curve shows the number of foster care place- • Family consultation. ments and the purple curve shows the development in the • Strengthening the foster-care family – specialised fos- level of expenditure in the event of a paradigm shift in ter-care family. policy on children and young people from ongoing system- • Developing support measures for foster-care families atic 24-hour foster care placements to preventive efforts. with programmes, support workers and supervision. These scenarios should be seen, inter alia, in the light of • Foster care within the family or network in preference the fact that 24-hour foster care costs approximately to institutionalised foster-care. DKK 1 million per child in care, whereas preventive inter- • School-led initiatives – retiring teachers (help with vention with greater impact is significantly less expen- homework, home tutoring, etc.). sive. • Relief placements.

128 • Strengthening aftercare. Objectives and outcomes • Establishment of a unit to develop social methods and skill-sets as well as evaluation of all focus areas. In Reform Tier 3, there are potential savings of DKK 700 million by 2030. This is contingent on focused, disciplined Concurrent, successful preventive efforts with regard to budgetary control. See Figure 3.6. abuse of alcohol and cannabis may be expected go some way towards helping to implement some of these social Figure 3.6. Result of Reform Tier 3. interventions. Therefore, it is important to implement efforts holistically, cutting across the social care, health Reform track 3 1.090 bn care and education sectors to achieve the best possible effect from the resources expended. 0.820 bn "gap between revenue and consumption" In other words, the available resources must be used more effectively. In the short run, this will mean more expenditure. In the long run, it will make socio-political efforts considerably more effective, for the benefit of society as a whole.

A complete turnaround of the socio-political strategy will Reform track 2 0.390 bn involve significant investments in interventions that can take the place of actual foster-care placements. In the very short term, it would be irresponsible to reduce the number of foster-care placements, but in the longer term, Reform track 1 0.120 bn preventive measures could be an effective means of reducing the need for foster-care placements. This has been documented in a number of international studies. Reform track 3 DKK Million Budget law effect at a max. 0.5% real annual growth 700 Naalakkersuisut will therefore prepare a new sector plan Total net effect 700 in the area of children and young people. Based on the The Reform Tier 3 contribution is contingent on a lot of underlying factors, above, the sector plan must put the spotlight on the area which, combined, will count towards achieving the DKK 700 million. of social care, with the aim of prioritising the necessary resources for this area. This is beneficial in terms of both socio-political and financial considerations. A sector plan of this nature will also be significant in relation to other areas, including the areas of education and health care.

129 130 Reform Tier 4

INCREASED SELF-RELIANCE BY REFORMING WELFARE BENEFITS, THE TAX SYSTEM AND HOUSING

Targets for Reform Tier 4

Overarching objectives • Once fully phased in, working tax credits must correspond to an income boost of DKK 1,000 per month for a wage earner under an SIK collective agreement. That corresponds to a tax break of approximately 10% for this group • Target for getting more people on welfare into work • Target for reducing the number of people on long-term benefits by 2030 • Target for a larger proportion of the population to have their own, substantial pension savings • Target for enabling more people to be self-sufficient in housing on commercial terms in a home of their own • Publicly subsidised homes must be focused on people who are unable to provide themselves with a home on market conditions, and a target must be established for reducing the need for subsidies for housebuilding in the run-up to 2030.

131 Naalakkersuisut’s intention is that reforms will create in- in whole or in part, through vocational rehabilitation pro- centives for self-sufficiency with regard to income, pen- cesses. sions and housing alike. Future reforms must support growth in the private sector and produce a positive cli- More responsibility must be moved from the public sector mate for investment, whether by individuals, private en- to the individual to enable people to cope with life by their terprise or external investment. own efforts, without help from the public authorities. This will boost individual self-worth and help to raise the bar Reform Tier 4 describes a number of social, fiscal and for society as a whole, because, if anyone is not self-suffi- housing initiatives. cient, society will not be self-sufficient either.

Everyone must contribute to and have a stake in econom- Self-sufficiency in old age ic growth Naalakkersuisut has a goal of creating greater financial These initiatives are based on the Coalition Agreement’s equality among pensioners. This is contingent on every- objective that everyone must contribute, and that everyone having pension savings and on more and more people one’s living conditions must improve. The tax and welfare being covered by a pension plan through their jobs. The system must be arranged to make work pay, with public objective is for everyone to have pension provision corre- welfare being given to those in greatest need. sponding to at least 70% of the average income of people in work. Individuals and society alike will benefit from sav- Reform Tier 2 includes initiatives to promote economic ing more. growth and demand for labour. The initiatives included in Reform Tier 4 must ensure that the provision of labour can The desire to save more is a continuation of the retire- meet the demand, giving everyone a stake in future eco- ment pension reform, which has led to a considerable nomic growth. boost in the return on personal savings. It is necessary to look at social, fiscal and housing reforms in the same context. Reforms in these three areas must be A wider tax base coordinated to prevent the changes from pulling in differ- Moving responsibility to the individual will mean optimis- ent directions, with resultant unintended consequences. ing the way the tax system is organised. As part of this, the tax base must be widened in order to enable a reduction in Self-reliance in working life income tax (Initiative 18). Today, income is divided into A Naalakkersuisut wants to set the goal of paving the way income and B income. The division is not always logical for everyone who is capable of working to be self-suffi- and can cause distortions. Naalakkersuisut therefore cient when they are of working age after completing their wants to work towards a stricter division into income from education. That makes demands on the tax system, which earnings and capital income. This division will widen the must help to ensure that the lowest-paying jobs provide a tax base, eliminate distortions and simplify the system. living wage. This has implications for housing, which must Simplifying the system will make possible, inter alia, a make it possible for individuals to provide themselves consolidation of the tax system and a new collection sys- with a home. Alternatively, there must be scope for rent- tem – Ilanngaassivik – making it into a more effective tool ing an apartment where the rent can be paid from salary to prevent people from piling up debts. Today, a high level income without the public sector, as a whole, having to in- of arrears means that some people get very little out of crease support for housing. Social care must be arranged working. Efforts to tackle debt are therefore important in so that working pays, for households with or without chil- relation to enabling more people to become self-suffi- dren, ensuring that no one has to live in poverty. There cient. must be well-thought-out deduction schemes to ensure that it makes sense for the municipalities and for the GoG In addition, Naalakkersuisut wants to take a critical look at when people are able to re-establish their ability to work, reviewing the legislative and administrative setup based

132 on various considerations, including: whether import duty, Self-sufficiency in particular, has the desired performance effect in relation to health care and the environment, whether there is Today, social welfare benefits serve to equalise income. a reasonable balance between the revenue effect of a giv- Social welfare benefits such as rent allowance, child ben- en duty and the use of resources associated with it for the efit and rated support for daycare are currently given to tax authorities and individual respectively, and whether low and middle income groups to ensure that they are able there is a need for a mechanism for ongoing price adjust- to maintain an acceptable standard of living. These ben- ment of the rates of duty to prevent revenue here from be- efits taper off as income rises. At the same time, these ing eroded over time. same groups pay income tax. That means the public authorities are taking from and giving back to the same Any change would initially have a neutral impact on the groups. Text Box 4.1 describes considerations regarding budget in terms of taxes and duties as a whole, as any ad- how the Icelandic tax and welfare system is organised, ditional revenue can be used to finance other reform ini- which could also be relevant to considerations regarding tiatives in this area. how this should be done in Greenland.

Tax incentives for low and medium income groups in employment Tax incentives for low and medium income groups could result in managing the basis for a reasonable level of income via the tax system instead of through a number of disjointed welfare benefits. That would make the overall system more transparent and, at the same time, it would make individuals more self-sufficient.

With that in mind, Naalakkersuisut wants to work to introduce working tax credits (Initiative 1) to boost the amount of disposable income after tax for the lowest working incomes and, at the same time, increase the incentive to work.

133 Text Box 4.1. Considerations of how the Icelandic tax and welfa- Targeted social welfare benefits re system is organised Social welfare benefits should be given primarily to individuals who are unable to provide for themselves. That Considerations of how the Icelandic tax and welfare system is organised would reduce the interaction problems described by the Economic Council and the Tax and Welfare Commission, In October 2015, the International Monetary Fund (IMF) published among others. an analysis of Iceland’s tax and welfare system. The report calculated the optimum rate of personal taxation using the Mirrlees- Saez model. This is a theoretical, optimum rate of personal taxa- The objective is a social welfare model where fewer wage tion which, according to the economists’ theory, is ideal for soci- earners receive welfare and where the redistribution of ety if tax revenues are to be at an optimum level. income among wage earners is managed via the tax sys- The result is normally a U-shaped curve. The explanation of the U- tem. The welfare system should look after people outside shape is that a minimum income is required to avert poverty. In the the labour market so that social welfare benefits are basi- welfare state, a low income is supplemented by social welfare be- cally given as a safety-net to avert poverty. nefits if someone’s own income is insufficient. These benefits- ta per off as the person’s earning capacity increases. This explains the high marginal rate of tax for people on the lowest incomes. Ac- Interaction problems cordingly, the reason for the high rate for the lowest incomes is The Economic Council and others have demonstrated that not that income tax is high, but that the combined taxation is high. some individuals are hit by combined marginal taxation As incomes rise, the individual will be able to bear a greater bur- which, for some income brackets, exceeds 100%. Here, den (“broad shoulders”), which is why optimum marginal tax will ri- people will face a reduction in their disposable income af- se. Wage earners in the middle income bracket must be given incenti- ter income tax and income-related tapering-off of bene- ves to make an extra effort, so tax on these brackets has to be as fits as their salary income rises. In other words, for some low as possible. wage earners, making an extra effort does not pay.

A similar analysis to determine the optimum marginal rate of taxation (theoretically) was run against Greenland’s tax data from Figure 4.2 below shows that a wage earner could experi- 2013. The U-shape is also found here. ence marginal taxation in excess of 90% by earning an extra DKK 10,000. The financial incentive to make an extra Figure 4.1, optimum marginal tax, Mirrlees-Saez model. Tax data from 2013. effort or pursue a study programme is therefore limited.

Figure 4.2. Progression, single, tax 42%, rent DKK 4,000 per month, renting. Marginal taxation is a running average over in- tervals of DKK 10,000

In the context of Greenland, this U-shape can be achieved by first of all trying to taper off welfare in the average income bracket Source: Ministry of Finance (around DKK 215,000) for single people and DKK 430,000 for a couple and, secondly, by introducing working tax credits and easing user charges for daycare.

Source: IMF and the Ministry of Finance

134 Households without children Things are different for households with children. Fig- ure 4.3 below shows a family with three children, and illus- Rent allowance is the only benefit for people who are not trates how combined marginal taxation exceeds income on passive welfare and do not have children. tax right up to a household income of DKK 800,000.

Rent allowance stops at an income level of DKK 180,000. Disposable income rises by DKK 250,000 when income ris- Currently, rent allowance is tapered step by step, giving es by DKK 600,000 (from DKK 200,000 to DKK 800,000). rise to major variations in That corresponds to combined taxation which exceeds the combined marginal taxation. This can be avoided if entire income progression by 58%. Households with chil- stepped tapering of rent allowance is replaced by a grad- dren can receive family allowance, rent allowance and as- ual reduction. A gradual sistance to pay for day-care centre fees. reduction means there will be no significant interaction problems for households without children. Naalakkersu- Naalakkersuisut wants to initiate an analysis of benefits isut therefore wants with a view to simplifying them and ensuring that interac- to work to introduce a gradual reduction of welfare ben- tion problems are reduced (Initiative 2). efits (Initiative 3). Table 4.1. Public assistance rates, Qeqqata Kommunia, 2016 Combined marginal taxation is a measure of whether it is financially worthwhile to make an extra effort (hours decision), both Subsistence rate (DKK) Public assistance in the form of more work and in the form of further education month 14 days week or a career switch. Single with own home 1.680 776 388 If combined marginal taxation is too high, some people will Married/cohabiting couple with 2.836 1.310 655 choose not to make an extra effort. own home It is important for combined marginal taxation to be significantly below 100%. Single sharing/lodging 1.420 656 328 Couple sharing/lodging 2.836 1.310 655 Combined marginal taxation comprises income tax and the re- Child allowance per child entitled duction in welfare that follows rising income. 1.000 462 231 breadwinner Source: Qeqqata Kommunia Households with children

Figur 4.3. Household with 3 children, monthly rent DKK 5,000, Kommuneqarfik Sermersooq A number of social welfare benefits are measured using taxable income as 600.000 200% the level of income, so situations could 180% arise where the individual’s income 500.000 160% changes and the assessment is no 140% 400.000 longer fair. To prevent this problem, 120% retirement and disability pensions as

300.000 100% well as rent allowance are measured on 80% 200.000 the basis of “current income”. The goal 60% is for the level of income for measuring Combined marginal tax - average Disposable income - incl. beneﬁts 40% 100.000 the other benefits to be altered to use 20% “current income” once the legislation is 0 0% revised (Initiative 4). 1.000 22.000 43.000 64.000 85.000 106.000 127.000 148.000 169.000 190.000 211.000 232.000 253.000 274.000 295.000 316.000 337.000 358.000 379.000 400.000 421.000 442.000 463.000 484.000 505.000 526.000 547.000 568.000 589.000 610.000 631.000 652.000 673.000 694.000 715.000 736.000 757.000 778.000 799.000 820.000 Salary income A number of thresholds and rates are Rent allowance Child beneﬁt Daycare Salary income Marginal tax, average not regulated continuously and are Source: Kommuneqarfik and the Ministry of Finance 135 therefore eroded by price developments. For that reason, Disposable income for a single parent with 3 children on Naalakkersuisut wants to consider introducing rate ad- public assistance is DKK 4,680 per month. That corre- justment to ensure that welfare benefits retain their pur- sponds to approximately DKK 150 per day. The corre- chasing power (Initiative 5). sponding amount for a single parent with a low-paid job is lower. A wage-earner with an SIK minimum wage is there- Text Box 4.2 Net remuneration fore worse off financially than someone on passive welfare. Net remuneration Net remuneration is a measure of whether it pays to work compared to living on passive welfare (decision to participate). Net Naalakkersuisut wants to examine changing child benefit remuneration should i deally be below 90%, i.e. total income from being outside the to strike a better balance between recipients in and out- labour market should preferably be below 90% of income from side the labour market. Working should be more worth- employment. Otherwise, while than being on passive welfare. Therefore, changes some people will decide not to participate in the labour market. will be made to the benefits given to households with children (Initiative 2). Simplified calculations1 can be performed where a single person’s income when unemployment (public assistance) is compared against a Interaction with labour market support wage-earner under an SIK collective agreement. The calculati- In Greenland, it is not possible to sign up to an unemploy- ons show that net remuneration here is below 30% and that it ment insurance scheme such as the A-kasse scheme in will always pay – from a financial point of view – for a single person to work. Denmark, so anyone who is out of work is therefore dependent on welfare benefits. Public assistance and labour The picture is considerably different in a household with market support are two types of financial support for an children, however. For example, the effect of being in employment is very modest for a single unemployed person. Labour market support can be re- parent with 2 children, and with 3 or more children, financially ceived for up to 13 weeks, after which the unemployed speaking, it does not pay to work if you are in the lower income person transfers to public assistance. brackets. For a single parent with 3 children in daycare, net remuneration exceeds 100%. Labour market support cannot exceed 90% of SIK’s mini-

The single parent with 3 children will therefore – with the pre- mum wage under current legislation, and it is only payable requisites described – have more disposable income by remai- for a maximum of 13 weeks before the switch to public as- ning outside the labour sistance, when the person becomes a client of social ser- market. Similar calculations can be performed for couples, where in certain cases it is financially more advantageous for vices. Labour market support and its interaction with pub- both parents to remain lic assistance will be analysed. Consideration will thus be outside the labour market when the married couple have 2 or given to whether a 13-week extension could positively im- more children. pact people’s incentive to find work after becoming unem- Source: Ministry of Finance ployed through no fault of their own. Public assistance Public assistance comprises assistance to pay for fixed Naalakkersuisut is initiating a study of public assistance, expenditure (rent, water/heat/electricity, daycare charg- including its interaction with labour market support, with es, etc.), as well as a disposable sum of approximately a view to future adjustments (Initiative 9). DKK 1,700 per month plus DKK 1,000 per child. That corresponds to a little over DKK 55 per day and a little over Better rehabilitation and more publicly supported flexi- DKK 33 per day per child. Table 4.1. shows an example of ble and light-duties jobs this, as there are differences in benefits between the mu- Targeted rehabilitation is an important element of the nicipalities. disability pension reform adopted in 2015. The reform incorporates funding to create publicly supported jobs. There is mutual dependency, i.e. the income of a partner These jobs must give people on disability pension the op- would be offset against the welfare benefit. portunity to participate in an active working life and help

136 people on disability pension to regain their ability to work, to be set at a lower level than pre-rehabilitation, rehabili- whether fully or partly. tation and reduced-hours jobs (including light-duties jobs and useful-work jobs). In Naalakkersuisut’s view, many – especially younger – people on disability pensions will experience quite a sig- Naalakkersuisut therefore wants to take action to change nificant improvement in their living conditions and quality current reimbursement rates (Initiative 11). of life through having the opportunity of a stable, lasting link to the labour market. It is necessary to look at the cir- Debt issues cumstances of the whole family, and not just the individu- A number of public assistance benefits are given in the al, in vulnerable families. A better and lasting link to the form of a loan. There have been debates in the media labour market, a more stable routine and, for the children, about repayment requirements potentially keeping peo- a stable link to institutional childcare could also help to ple dependent on public assistance. Legislation provides dismantle a negative social legacy. for withholding up at one-third of net pay to repay debts. That could mean working is not worthwhile for people who In addition, it is thought that there is potential among are in debt. those on disability pension today to bring a lot of people back to the labour market, fully or partly; there is thought Figure 4.4. Trends in arrears, 2010–2015 to be an untapped workforce reserve here that could benefit all of society in Greenland in the long term.

It is thought that the same focused effort could be directed at recipients of public assistance in Match Group 3. Ac- cordingly, Naalakkersuisut wants to work to improve rehabilitation and create greater numbers of flexible and light- duties jobs (Initiative 10).

Deduction schemes to promote effort Source: The Tax Agency. Generally speaking, reimbursement rates are used as a tool to create incentives for the municipalities. However, The accountancy firm BDO produced a report in April 2014 the general practice is that, in areas which the municipali- entitled “Evaluation of task performance and organisation ties do not control, e.g. retirement pension, rent allow- in the area of collecting public arrears”. The report found ance, maternity benefits, child benefit, etc., full reim- that there were increasing numbers of collection cases in- bursement is given from central sources. volving many people and companies, and that there was room for improvement of collection. In the wake of the re- Experience shows that the municipalities are much more port, the political coordination group adopted a specific inclined to use schemes with high reimbursement per- action plan to improve collection as a cooperative venture centages. involving the GoG and the municipalities.

In connection with implementation of the disability pen- Debt as a barrier to employment sion reform and revision of the rules governing rehabilita- Debt to the public sector can constitute a barrier to an in- tion and reduced-hours jobs, it is important for there to be dividual’s motivation to take a job (or work more). As an in- a significant incentive, including for the municipalities, to dividual’s income increases, that person will have the op- use activating measures, including rehabilitation and re- portunity to clear arrears, usually after entering into an duced-hours jobs, in preference to passive welfare. There- instalment agreement or having pay withheld at source. fore, it is absolutely vital for reimbursement rates govern- Due to debt repayments, some people in arrears are una- ing the percentage of reimbursement of disability pension ble to derive any financial benefit from taking a job (or

137 working more). Their financial progress is used to repay The requirement to have used up all one’s assets before old debt, and at the same time their social welfare bene- public assistance can be paid out could contribute to mak- fits are reduced because of their rising income. ing saving non-worthwhile. Any savings mean that the per- There is a need to review and improve the interaction be- son has to (partly) self-finance periods without employ- tween taxation, social welfare benefits and debt collec- ment. tion so as to prevent people from falling into debt traps that prevent them from becoming fully or partly self-suf- Naalakkersuisut is in the process of preparing a state- ficient. ment that considers the possibility of establishing a debt advisory unit (Initiative 8). Naalakkersuisut is working to introduce a joint public sector collection system, “Ilanngaassivik”. The system could Self-sufficiency in housing be used to prevent arrears from building up (Initiative 7). For most people, buying a home is their biggest invest- Liquidity traps ment. The framework conditions have to be both financial- Public assistance is paid in advance. This can provide ly and politically sustainable and stable to create confi- short-term liquidity advantages when a person switches dence in the housing market. This confidence is necessary to public assistance. However, liquidity problems can if individuals are to be self-sufficient in housing. arise when the benefit stops, as salaries from ordinary employment are paid retrospectively. Text Box 4.2 de- Naalakkersuisut wants to formulate a new housing policy scribes an example of this. strategy for public property available for rent and for subsidised housing. Text Box 4.3. Example of a liquidity trap The housing strategy is designed to ensure good framework conditions in this area. This is contingent on creating Example of a liquidity trap a shared A wage earner has been employed for one month and receives the understanding of the demographic, geographical, market first salary payment on the 30th of the month. For various reasons, the salary has been used up by the first week after payment was and economic frameworks within which housing functions. received. The family therefore has no money until the next salary The reform payment. initiatives must fit within those frameworks. The over- This situation can be resolved by not going into work that day and arching milestones are: instead contacting the municipality to ask for public assistance. That way, the • To reduce the GoG’s involvement in housing, leaving it person can receive public assistance to ensure the family has basic more to individuals to provide homes for themselves. subsistence in the short term. • To focus public housing construction so that full-time The recipient can receive public assistance equivalent to approxi- employment with an SIK minimum wage is sufficient to mately DKK 800 in hand every two weeks for food and other neces- sities. When pay the rent. switching to employment, the prepaid DKK 800 has to last for 6–7 Schemes such as 20/20/60 are to be retained, but need weeks. Therefore, there is the possibility of receiving public assi- • stance during the to be modified to reduce distortion effects. transition period. • To replace interest deductions with interest relief fo- Some municipalities regard this help as subject to a duty of re- cused on housing. payment. That means the financial benefit from working to work is reduced. • To introduce geographical differentiation of subsidies In other municipalities, it is not subject to a duty of repayment. He- in relation to the local housing market. re, it can instead create an incentive to enter and exit the labour market, as, • To administer publicly owned housing associations during the first month of employment, the person receives both more effectively. public assistance and salary income. • As far as possible, to allow private investors to take Source: Preparatory work for a statement on the debt issue being pre- over publicly owned buildings. pared by the GoG and the municipalities, among others • To strengthen the renting-to-ownership scheme

138 Housing is a social investment 2011 statement for Nanortalik, a need for funding of For many years, housing has been conducted as a social DKK 80 million was estimated for renovations over a investment on a par with investments in schools, institu- 20-year period. The sector plan is now in place, and recom- tions, hospitals, cultural construction and construction of mends a total investment of DKK 19.2 million, of which administrative buildings. This is because building homes DKK 11.3 million will be spent on demolition, and the re- in Greenland is expensive, and market conditions make it maining DKK 7.9 million on renovation. After that, this area difficult for individuals to finance construction of their ought to be self-sustaining, and future maintenance could own home without financial support from the public purse. draw on income from the housing department. This is because the worst properties and properties with empty res- Overall, the public authorities bear a large burden of pro- idences will be demolished. This results in more favoura- viding housing. This is because the public sector has a du- ble running costs. ty to provide homes for people who do not have the financial capacity to provide a home for themselves, and there Buildings replacement, renovation and systematic main- is staff housing linked to many jobs. tenance should be given higher priority in a housing strategy. Any actual new construction financed fully by the Major costs of renovation and maintenance public purse should account for less. A suitable framework The majority of the GoG’s rental properties are homes that must also be prepared to enable the construction of new the Greenland Home Rule Government took over from the housing to be financed privately. Therefore, housing sub- Danish government in 1987, when housing was transferred sidies should be designed to attract private funding for to the Home Rule Government. The GoG’s total building self-sufficiency in housing. stock comprises approximately 6,000 homes. The housing stock can be summed up as 40 to 50 years old with signifi- Targeted housing subsidies cant wear and tear due to the lack of ongoing, planned, pe- riodic maintenance. Interest-free, zero instalment home loans Interest-free, zero instalment loans have been available Responsibility for the provision of housing is to be con- for owner-occupied dwellings since the 1990s. These are tinuously transferred to the private rental sector in order the 10/40/50 and 20/20/60 loan schemes respectively. to maintain capacity for public investments capable of The loans are interest-free and have zero instalments for supporting economic growth, including in education, infra- 15 or 20 years, after which they have to be repaid over 10 structure, hydro-electric power stations, etc. or 15 years respectively. Interest-free and zero instalment loans are also provided for cooperative housing as- In 2011, an estimate was prepared of the funding that sociations as well as for Illuut A/S. These loans are essen- would need to be allocated for renovation over a 20-year tially permanent loans. Figure 4.4 shows the trend for the period. The total estimate was approximately DKK 5 bil- period 2004–2015. lion, without making any distinction as to whether or not proceeding with renovation would be appropriate. Naalak- kersuisut has begun preparing specific sector plans for GoG housing. The sector plans review the housing in each town and village, with recommendations as to whether the dwelling should be maintained out of housing department funds, or renovated using funds allocated in the Finance and Appropriation Act, or demolished, or, ultimately, if urban regeneration is necessary.

Working with the sector plans has shown that there can be reservations attached to the estimate. For example, in the

139 Figure 4.5. Trend in mortgage credit loans, 2004–2015. The cost of rent allowance has remained at a relatively constant level of around DKK 100–115 million for a number of years, cf. Table 4.2.

Table 4.2. Rent allowance, total costs 2010–2014.

Year/DKK Million 2010 2011 2012 2013 2014 Rent allowance 114 110 112 110 112

Source: Ministry of Finance

Increases the combined marginal tax rate Rent allowance gives rise to interaction problems because it tapers off as the recipient’s income rises. Rent allowance ought in principle to be given to individuals who are Source: Statistics Greenland not in (full-time) employment in order to avoid the tapering off of rent allowance resulting in the gain from putting Establishing the loan options boosted activity in the own- in extra effort or undertaking further study being so small er-occupier housing market. Mortgage credit loans for pri- as to be not financially viable. vate housing increased from DKK 0.4 billion in 1998 to DKK 2.9 billion in 2015. Therefore, the conclusion is that A rent allowance scheme with high benefits could create the loans had the desired effect. The scheme helps to en- speculative rents that are optimised to match rent allow- sure it is possible for families on middle incomes to pro- ance, contributing to distortion of the rental market. Sim- vide themselves with a home of their own. For that reason, ilarly, a developer could tend to build properties that are it is important to retain the main elements of this scheme. too expensive and too large, if rent allowance is factored However, the interest-free period means that the public in. purse is missing out on interest received and/or the op- A balanced rent allowance structure could contribute to portunity to prioritise funding differently. Therefore, the the costs of renovation/new construction of publicly scheme needs to be examined to see how the positive ef- owned rental properties remaining at a level to enable a fects can be retained while reducing the interest subsidy. wage-earner working full time and receiving an SIK mini- This could be done, for example, by introducing some kind mum wage to rent the property without additional support of change-of-ownership instalments so that part of the in- (Initiatives 12 and 14). terest-free, zero instalment loan is redeemable when the property is sold. Another point worth examining is wheth- Replacing interest deductions with interest relief for er it would be possible to dispose of the debt to private housing investors with a long-term investment timescale – and, if Today, interest charges are deductible irrespective of so, under what conditions (Initiative 15). whether the interest charges relate to consumption, housing or other purposes. Today, support is given via tax cred- Rent allowance (boligsikring) its. The current model produces distortions whereby peo- Rent allowance helps people on low incomes to be able to ple in low and middle income brackets are unable to de- live in apartments that would otherwise be beyond the duct the same amount of interest as people in higher in- reach of their income. Rent allowance is available purely come brackets. for the rent, and not for utility charges such as electricity, water or heating. The cost of the rent allowance scheme is The standardised deduction reduces the real-terms value distributed between the GoG (60%) and the municipalities of interest deductions in terms of tax (40%). For historical reasons, the tax system provides a standardised deduction of DKK 10,000 per taxpayer. The effect

140 of the standardised deduction is that the first DKK 10,000 this housing subsidy and making it clearly visible, replac- of interest charges does not in fact have any taxable val- ing interest deductions with interest relief (Initiative 13). ue, cf. Table 4.3. Focusing publicly owned housing on people who are una- Table 4.3. The taxable value of interest deductions, taxpayer on ble to provide themselves with a home 42% tax as in Kommuneqarfik Sermersooq Many employers provide accommodation for their employees. This may be necessary, especially in relation to Value for tax Interest Actual deduc- Actual value for purpose the ability to attract specialists staying in Greenland for a paid DKK tion DKK tax (v.42%) DKK short time. Generally speaking, though, it can be a prob- 10.000 0 0 0% lem having access to housing tied so closely to a job. How- 20.000 10.000 4.200 21% ever, due account must be taken of the fact that it is much 30.000 20.000 8.400 28% more difficult to recruit for some vocational categories without providing staff housing. 50.000 40.000 16.800 34% 70.000 60.000 25.200 36% The widespread use of staff housing could contribute to 100.000 90.000 37.800 38% impairing mobility in the labour market. This applies par- Source: Ministry of Finance ticularly in Nuuk, where there are long waiting lists for The arrangement fee on a mortgage credit loan in Green- housing and a large proportion of the housing stock is ear- land is higher than on a similar loan in Denmark. Overall, marked as staff housing. this means that Greenland’s home owners’ arrangement fee after tax is approximately 5% higher than for a similar Not providing staff housing can mean someone will turn loan in Denmark, cf. Table 4.4. The need for more people to down a job. At the same time, staff housing can have the provide themselves with homes privately is very great in effect of distorting competition, as big companies are Greenland. Reducing the interest subsidy could contrib- better able to provide staff housing than smaller compa- ute to tipping the balance to make it financially disadvan- nies. tageous to own your own home. The present level of interest subsidy is therefore regarded as being about right. Staff housing also results in some of the general housing stock being earmarked for employees in the public sector. However, it should be noted that the interest subsidy only Accordingly, employees in the public sector are offered accounts for part of the total housing subsidies. housing with the rent set according to the ability of the low-income bracket to pay, so in many cases it is low. Table 4.4 Net cost of a mortgage credit loan of DKK 1 million, single taxpayer. Naalakkersuisut wants to work to normalise housing, increasingly focusing publicly-owned housing on people Of Man- Admi- Bene- which Actual who are unable to provide housing for themselves. This al- datory nistra- Value Net re- Country fit, 1st inte- value so implies that the right conditions must be created to en- inte- tion for tax payment year rest for tax rest fee able – and there must be a push towards – employees gen- and erally providing their own housing to a far higher extent Denmark 2,00% 0,68% 56.319 28.686 27,60% 27,60% 48.688 than is currently the case. In some cases, this can be ac- Denmark 2,50% 0,68% 57.294 32.728 27,60% 27,60% 48.588 complished via the rent-to-own scheme (Initiative 14). Green- 2,00% 1,10% 60.800 33.167 42,00% 29,34% 51.070 land Green- At the same time, the Rental Regulation requires revision. 2,50% 1,10% 61.602 37.037 42,00% 30,66% 50.246 land The current Rental Regulation bears the hallmarks of a Source: Realkredit Danmark’s loan calculator and Ministry of Finance cal- time when housing was a centrally managed affair. Naalak- culations kersuisut is working to reduce the size and influence of Naalakkersuisut wants to support the effect of focusing the public sector.

141 To that end, Naalakkersuisut wants to work towards mod- for employees working in central administration; the rea- ernising and amending the Rental Regulation to bring it in sons for this are historical. In connection with preparing a line with the political goals of greater self-sufficiency in new Rent Act, therefore, consideration should be given to housing and a slimmed-down public sector, including: whether it is still necessary to uphold these special rights. • Consolidation of rules so that staff housing and public- In the housing policy of the future, the role of the public ly owned and private rental homes are treated in the sector in the housing market should primarily have a social same way and, as far as possible, adaptation to prevent welfare focus, with the public authorities helping individu- the rules from creating special rights for particular als who do not themselves have the necessary resources. groups. • Softening of the rules for taking over staff housing. Softening the rules • Adaptation of the rules for setting rent, etc. In the course of making housing provision an individual re- Consolidation of rules sponsibility, it will be natural for staff housing either to be The Rental Regulation specifies a number of special rights converted into owner-occupied dwellings or into homes

Tekstboks 4.4. Interest-free and zero instalment loans for housing. Illuut A/S as an example

Interest-free and zero instalment loans. Illuut A/S as an example Generous subsidies are given, e.g. in the form of interest-free, zero instalment loans with no repayment requirement as an investment in housing. Accordingly, in 2014, Illuut A/S recorded DKK 775 million in its consolidated financial statements as corporate debt, interest free and with zero instalments required. This financing is not included when setting the rent, as it costs the company nothing.

Conversion to indirect wage subsidies The table above shows a calculation in respect of one of Illuut A/S’ rental properties. The cost of construction was DKK 16,700 per m2, and Illuut A/S received a DKK 13,000 per m2 subsidy in the form of permanently interest-free and zero instalment loans. Rental (DKK) Monthly interest Category Sq m Annual interest subsidy Indirect wage subsidy subsidy 4-room 113 44070 3673 6332 3-room (front) 99,7 38883 3240 5587 3-romm (rear) 89,4 34866 2906 5009 2-room 76,6 29874 2490 4292 1 1 /2-room 64,1 24999 2083 3592 The calculation shows that the subsidy corresponds to someone renting a home in this property paying rent which, for a three-room apartment, is DKK 2,900 lower than if Illuut A/S had to pay 3% interest on its public borrowing. This gives the recipient an indirect wage subsidy of DKK 5,000 per month compared to paying a true-cost rent. Illuut A/S’ housing is used extensively for GoG’s staff.

A side-effect of this generous subsidy for staff housing is that it reduces mobility in the labour market, distorts the housing market and makes it unattractive for institutional investors to invest in rented homes.

Housing as a wage subsidy, Example II: A shipping company takes on a new accounts employee. The employee does not have his own home, so the shipping company offers him staff housing rented by the shipping company in the commercial rental market. He has a family, so the accommodation is a four-room, 125 m2 apartment rented by the shipping company for DKK 16,000 per month.

In line with current rules, the employee’s rent is set at DKK 7,000 per month.

This way, the shipping company gives its employee a DKK 9,000 indirect, tax-free wage subsidy equivalent to DKK 15,500 before tax, with DKK 6,500 (42%) of this financed via tax.

Thus, both the company and the employee benefit from this scheme, but the public sector is indirectly contributing approximately DKK 78,000 per year.

Source: Ministry of Finance 142 not tied to employment. Today, staff housing can be taken publicly owned homes is limited. In locations experiencing over after 7 years; it would be natural to soften this rule to growth and progress, private provision of housing is pro- enable these homes to become part of the overall publicly moted in tandem with a suitable selection of publicly owned rental property stock sooner. owned homes.

Setting the rent Naalakkersuisut wants to work to align home financing op- It is important for the rules to protect both tenant and tions with the local housing market (Initiative 16). landlord. The rules must give the tenant and the landlord the necessary protection and facilitate a rent sufficient for the property to be maintained and for providing a rea- Self-sufficiency in old age sonable return on the tied-up capital. A welfare state has a fundamental interest in ensuring The current rules make it difficult to build publicly owned that everyone saves for a reasonable pension. A key po- homes where housing associations can operate with sound litical task for Naalakkersuisut is to ensure that Green- finances and where sufficient funds can be allocated for land’s elderly have reasonable living conditions. The first ongoing maintenance. Moreover, the capital return is very step was the retirement pension reform, adopted in 2015. low, corresponding to an expected service life of at least The next step is to improve individual saving for old age. 60–70 years. That is significantly longer than the housing Table 4.5 shows pension contributions from taxpayers actually lasts, based on experience. who pay into labour market pension schemes.

Multiple housing markets Greenland cannot be regarded as a combined housing Table 4.5. Pension contributions by taxpayers paying into la- market. On the contrary, there are a number of separate bour market pension schemes. markets, with widely differing options for obtaining external financing.

Nuuk is a market in its own right and cannot be compared or equated with other markets. Nuuk has a successful Source: The Tax Agency, Sulinal extract owner-occupied market that is larger than that of the three next-largest towns put together (Sisimiut, Ilulissat and Qaqortoq). Both banks in Nuuk offer mortgage credit Approximately 25,000 people paid into a pension scheme financing and residential mortgages. in 2013. An analysis of taxpayers without contributions shows that approximately 9,000 people do not contribute The three growth towns, Sisimiut, Ilulissat and Qaqortoq, to pension savings, when people on benefits and people each individually comprise one market. They have a num- outside the 18–64 age group are not included. Therefore, ber of common features and some turnover of detached coverage is relatively good. It is a problem, though, that and semi-detached homes. However, these homes are a only 5% of the total wage bill is paid into pension schemes. mixed group, with quite a spread in house prices. Both banks offer mortgage credit financing and residential Several occupational groups have had successful labour mortgages in the three towns. market pension schemes for a number of years. This is The other settlements. A distinction must be made here true of the field of academics, for example. Other groups, between locations experiencing growth and progress, and including SIK, have gradually introduced schemes over a locations facing stagnation, loss of population and de- number of years. What remains is a group comprising self- cline. For locations facing stagnation, loss of population employed people and groups subject to collective agree- and decline, there is no increase in private provision of ments who have chosen not to have contributions to pen- housing, and properties often lie empty, so the need for sion savings as an element of their pay.

143 Pension savings are an indication that a person is post- est. Many are therefore entirely dependent on the state poning consumption until a later time of life. Instead of pension when they retire. spending all of one’s income while of working age, part of this income is only used for consumption once the person Table 4.7. Pension assets and debt as a proportion of GDP. retires. Viewed over a lifetime, the income is more evenly distributed. This kind of distribution throughout life con- The Green- Faroe Den- Ice- forms well to the principles of self-sufficiency and personal responsibility. land Is- mark land lands

All other things being equal, pension savings will reduce Pension assets as % GDP 35% 50% 140% 130% economic activity in society during the period of saving. On the other hand, pension payments will increase eco- Household debt as % of 33% 65% 150% 90% nomic activity at the time of payout. Pension funds are of- GDP ten regarded as investors or lenders. Some of Greenland’s large companies are part-financed by pension funding from abroad. Initiatives

Naalakkersuisut wants to investigate options and conse- Based on the desire for greater self-sufficiency, Naalak- quences of making it mandatory for everyone not on wel- kersuisut wants to put in place a number of social, tax and fare benefits to contribute to a pension scheme (Initia- housing initiatives, cf. Table 4.8. tive 19). The reform package is designed to boost self-sufficiency Pension assets and annual contributions and ensure an increase in labour supply as well as an in- Pension assets amounted to 35% of GDP in 2013. Ta- crease in demand that will follow from demographic de- ble 4.6 shows the extent of this. Overall savings are con- velopments (larger numbers of elderly people and rela- siderably lower than the corresponding figures in Den- tively fewer people of working age) and as a result of mark, the Faroe Islands and Iceland. growth-promoting measures as described in the other Re- form Tiers. The housing reform will contribute to eliminat- Table 4.6. Accumulated pension savings. Assets in Danish pen- ing entrenched patterns that have a restrictive effect on sion funds are estimated based on the return. private participation in housebuilding and that limit labour market mobility. A housing reform could release pub- Annual Accumulated Source Pension fund contributions assets lic funds for growth-promoting initiatives. country (DKK Million) (DKK Million) SISA 171 1.879 At the same time, the reform package is intended to sim- Greenland PFA Soraarneq 107 772 plify the interaction between these areas and enable leg- Outside islation in these areas to be simplified. This way, these in- Various 131 2.742 Grenland itiatives could reduce the size of the public sector and Total 410. 5.393 make it possible for the return on “modernisation of the Source: SKAT DK, SISA, PFA Soraarneq (2013) public sector” – Reform Tier 3 – to be brought to fruition without impairing the services rendered to the individual.

At the same time, the figures show that household debt is low, cf. Table 4.7. This can be explained by there being a relatively small proportion of the population, especially in the towns, who have their own home and hence a residential mortgage. At the same time, private savings are mod-

144 Table 4.8. Overview of initiatives and reform area

Reform area Initiative Social Tax Housing Pension Initiative 1 Working tax credits X Initiative 2 Benefits to families with children X X Initiative 3 Gradual reduction X Initiative 4 Giving income more relevance X Initiative 5 Rate adjustment X X Initiative 6 P/L adjustment of import duty X Initiative 7 Ilanngaassivik X X Initiative 8 Budget consultation X Initiative 9 Adjustment of public assistance legislation X Initiative 10 Focus on rehabilitation efforts X Initiative 11 Adjustment of deduction schemes between the GoG and the municipali- X ties Initiative 12 Rents must allow for funding maintenance X Initiative 13 Interest subsidy instead of interest deduction X X Initiative 14 Public housing construction must be focused, focusing on public housing for people who are unable to provide a home for themselves. Strengthening the rent- X to-own scheme Initiative 15 Revision of 20/20/60 financing X X Initiative 16 Public borrowing tailored to the market X Initiative 17 Better organisation of administration for housing X Initiative 18 Widening the tax base X Initiative 19 Mandatory pension saving X Initiative 20 Higher coverage of labour market pensions X

Initiative 1. earner under an SIK collective agreement. That corre- Working tax credits sponds to a tax break of approximately 10% for this Working tax credits must make it financially attractive for group. people on transfer payments to get into work or to work more hours. Working tax credits are a way of using the tax Capped working tax credits will primarily have an effect system as a tool for rewarding extra effort. Working tax on people in low and middle income brackets. It is reason- credits are tax relief for people in employment, increasing able to assume that this group will spend the extra income the financial difference between being self-sufficient and on consumption. Another effect is that increasing the receiving benefits. Working tax credits will help ensure amount of disposable income after tax will improve loan that income after tax from full-time employment is suffi- options, e.g. for buying real property. Overall, therefore, cient to cover rent and other fixed expenditure so that the expectation is that working tax credits will have a con- supplementary benefits are not necessary. siderable backflow.

Working tax credits model It has been calculated that the public purse will lose ap- The objective is that working tax credits must correspond proximately DKK 30 million for each percentage given in to an income boost of DKK 1,000 per month for a wage tax relief as a result of working tax credits. Working tax

145 credits will give a wage earner on an SIK income an income The public purse gives approximately DKK 180 million in boost corresponding to a tax break of one per cent, with subsidies to families with children. Even so, some children working tax credits capped at an income of DKK 250,000. grow up in poverty. A public health survey in 2014 found that up to 12% of all households have experienced run- The plan, therefore, is to phase in working tax credits over ning out of food and not having enough money to buy any, a number of years, and for the financing to be funded with- and that this problem is greatest in eastern Greenland. in the tax system and concomitant with the creation of economic manoeuvrability in the public finances. Naalakkersuisut wants to commission a survey of the area, including analysis of the following aspects: One option is to phase them in over 6 years; cf. Table 4.9. Consistent payments for daycare, including a reduction or waiver of self-payment for daycare, could have an overall Table 4.9. Phasing in working tax credits over 6 years. Example. positive effect. Revision of the rules regarding alimony for the lowest in- Marginal tax on income below Year Objective of relief come brackets, which currently just give rise to building- DKK 250.000 up of arrears and potential debt traps. 2017 0% 42%

2018 1% 41% The starting point of the analysis will be to set a minimum 2019 3% 39% amount per household as the basis for means-testing ben- 2020 5% 37% efits. The minimum amount will be based on the rates of 2021 7% 35% current disposable income used as guidance for determin- 2022 10% 32% ing public assistance. Source: Ministry of Finance Child benefit Initiative 2. Child benefit is a benefit for families with children. Child Benefits to families with children benefit is adjusted to take account of income, so the lower There are interaction problems for households with chil- the income, the higher the child benefit. The amount of dren, where combined taxation in some areas exceeds child benefit is set based on the taxable household income 100% and where net remuneration exceeds 100% for the from the most recent year for which figures are available. low-income bracket. In other words, it may not always pay If the parents live apart, child benefit is set based on the to work or to put in extra effort. Households with children taxable income of the parent – as well as of a spouse/co- have scope for child benefit, child allowance, assistance habiting partner – with whom the child/children live(s). to pay for daycare centre fees, rent allowance and alimony. Table 4.11. Child benefit per year, rates and thresholds [DKK] , 2016.

Household income Child benefit Table 4.10. Benefits to households with children (2014). 0 8.477 Amount 2014 130.001 5.731 Category DKK Million 180.001 3.186 Rent allowance 48,6 Child benefit 45,5 280.001 0 Child allowance (pensioners, students) 24,5 Source: Ministry of Finance Public assistance (*estimated child allowance) 39,3 The income thresholds are not regulated in line with the Alimony-municipal expenses 16,1 number of children in the household. Accordingly, child Alimony, value for tax purposes of similar de- benefit decreases steeply every time a threshold is duction 5,3 Total 179,3 crossed. Child benefit drops to DKK 0 when household in- Source: Statistics Greenland and Ministry of Finance estimates. come exceeds DKK 280,000, irrespective of whether there 146 is one child or several children in the household. That Table 4.13. Alimony, arrears trend. Source: The Tax Agency makes a huge difference to income. Jan-2015 Jan-2016 ______Number Number Several countries, such as Finland, are considering introducing a basic in- Arrears Arrears of cases of cases come that everyone is entitled to in order to avoid interaction problems. pcs DKK Million pcs DKK Million The principle is currently known as “negative income tax”. Alimony 69.939 329. 72.800 344 Child allowance An analysis of alimony arrears shows that approximately Child allowance is given to people on disability pension, 80% of the arrears pertain to individuals with an income retirement pension, students and recipients of public as- of below DKK 200,000. sistance. The benefit is DKK 1,000 per child per month, and it is not means-tested. The child allowance means that Therefore, the cause of the arrears appears to be inability households with children are, in some cases, financially to pay rather than unwillingness to pay. better off by remaining outside the labour market than by being in work. Ways of restricting this interaction problem Alimony is tax deductible, and in 2014 tax allowances of will be examined in the course of upcoming reform work. DKK 13.6 million were granted for alimony. It emerges that growth in arrears exceeds the tax allowances. Table 4.12. Child allowance. Source: Statistics Greenland Table 4.14. Tax allowances (for alimony) and breakdown Category/DKK Million 2013 2014 of alimony arrears. Source: The Tax Agency.

Num- Tax assessment Porportion of Person on retirement Income ber of deductions the total allom- 0,24 0,29 pension cases (DKK 1000) ny arrears Early retiree 8,18 7,11 Below 100.000 20 250 52% Students 17,05 17,08 100.000 - 199.999 41 734 27% 200.000 - 299.999 89 2014 Total 25,47 24,48 13% More than 300.000 351 10578 8% Alimony, maintenance 501 13576 100% Alimony is a family law benefit whereby the person with a dependent child who does not live with the child must pay Institutional childcare rates an amount towards the child’s upkeep. In principle, parents Institutional childcare rates are established by the munic- can agree this amount between themselves, without in- ipal council, which is entitled to set differentiated rates volving the public authorities in relation to monitoring the for villages and settlements as well as for the age groups size, frequency or method of making the payments. It is 0–2 and 3–6. The rates are set based on a graduated scale, only when the parent with whom the child lives applies to where the individual(s) with a payment obligation – de- the municipality to have the amount paid out in advance pending on their taxable income – pay between 0% and that the public authorities get involved as a kind of inter- 5% or between 10% and 57% of the costs respectively. mediary. In other words, the authorities pay the amount to the parent who is entitled to the benefit and collect the Households with a taxable income of up to DKK 149,999 amount from the parent who pays the benefit. must therefore pay at least 0% and at most 5%, whereas households with a taxable income of DKK 800,000 or more Alimony comprises almost 40% (2016) of total arrears. must pay at least 10%, but no more than 57%, of the costs. From January 2015 to January 2016, alimony arrears grew by DKK 15 million. Sibling discounts apply, with the full rate being payable for the eldest child and half rate for each subsequent child.

147 Figure 4.6. Parental payment, 1 child in nursery, 1 child in kin- Whether preschoolers make use of daycare provision is a dergarten voluntary matter. There appears to be a tendency for families on low incomes to opt out of daycare. This can mean the children are less ready for school when they start primary and lower secondary school. The more children make use of daycare provision, the more scope for early intervention there will be; cf. also the sections in Reform Tier 1 about the same subject. Therefore, as part of the reform work, the matter of whether self-payment is the reason for opting out will be examined.

Rent allowance (boligsikring) Source: The Ministry of Finance and the municipalities The structure of rent allowance must be viewed in the context of overall housing reform.

Figure 4.6 above shows the major fluctuations that exist in Table 4.16. Expenditures of rent allowance for households with parental payments. In the example, a family with 2 children children in different income interval. pays almost DKK 40,000 more per year in Kommuneqarfik Income Households with children Sermersooq than a similar family in Qeqqata Kommunia. DKK 1.000 The big difference in self-payment leads to major varia- Below 100.000 24.760 tions in the combined marginal tax rate, which is purely 100.000-199.999 13.510 contingent on the municipality of residence. Therefore, in 200.000 - 299.999 7.360 dialogue with the municipalities, Naalakkersuisut wants to Over 299.999 2.983 work towards making these rates more consistent. Fur- Total 48.612 thermore, the intention is for the allocation of free places Source: Statistics Greenland for vulnerable children to be used more in preventive work, going forward. Rent allowance is given primarily to the lowest income bracket, and 3% of the total rent allowance was given to Parental payment in the four municipalities, 2014: households with incomes in excess of DKK 300,000.

Table 4.15. Parental payment for daycare. Initiative 3. Gradual reduction Areas/ Total Kujal- Qeq- Qaasuit- Sermer- municipalities for each A number of benefits are reduced as income rises. To en- leq qata sup sooq (DKK 1000) area sure that it is easy for a caseworker to look up a benefit in a table, rent allowance, child benefit and institutional Kindergarden 1468 1603 6236 7618 16925 Childminders/ childcare rates are gradually reduced in steps. This cre- daycare 0 345 827 152 1324 ates problems with combined marginal tax rates around After-school cen- the steps, where combined marginal tax rates can exceed tres 0 912 671 2650 4233 100%. The solution is to replace the stepped benefit re- Integrated institutional childcare 153 1286 0 0 1439 duction progression with gradual reduction, as outlined in Special 0 0 0 81 81 Figure 4.7. Nursery 1307 1070 5085 7027 14489 Total for each mu- This makes it simple to calculate the combined marginal nicipality 2928 5216 12819 17528 38491 tax rate, preventing it from exceeding 100%. Source: Statistics Greenland

148 Figure 4.7. Child benefit, currently tapered with thresholds, Initiative 5. shown alongside an example of gradual reduction. Rate adjustment A number of benefits and thresholds are not adjusted continuously, so the value of the benefits diminishes. For that reason, Naalakkersuisut wants to work to establish an index to reflect price and wage development. It will be used to adjust rates and thresholds. The proposal is for the bas- ket of elements comprising the index to include a deduction element and that the revenue from that deduction should be deposited in a growth fund for use in politically prioritised growth measures and initiatives aimed at tack- Source: The Ministry of Family, Gender Equality, Social Affairs and Justice ling significant structural problems. and the Ministry of Finance

Text Box 4.5. Rate adjustment of public transfer payments in Gradual reduction Denmark Currently, tapering produces a high marginal tax rate in relation to the thresholds, e.g. a household where income rises DKK 4,000 from The majority of public transfer payments and a great many DKK 278,000 to DKK 282,000 will pay additional tax totalling other rates and thresholds within the public sector are adju- DKK 4,866 (122%), composed of ordinary income tax of sted annually via what is DKK 1,680 (at 42%) and known in Denmark as a rate adjustment percentage. After a the reduction in child benefit (DKK 3,186). That equates to a minor deduction, the percentage rate reflects the annual re- net reduction in disposable income of DKK 866. al-terms wage growth in society. The deduction provides a saving that is put into a Gradual reduction – in the example, 4% – would result in com- rate fund. bined marginal taxation of 42% + 4% = 46%, composed of income tax at The rate fund is a repository for money reserved each year DKK 1,680 and a reduction in child benefit of DKK 160, total- for special initiatives in the social, health care and labour ling DKK 1,840, corresponding to a net gain in income of market area. It is designed DKK 2,160. to improve conditions for people on transfer payments and disadvantaged groups. The money in the fund can be taken Similar examples can be constructed for rent allowance and from the automated daycare charges. adjustment of transfer payments by having the adjustment rise, for example, 0.3% less than the rise in the selected index. Initiative 4. Giving income more relevance Example: The level of income for awarding of benefits was changed Today, child benefit is adjusted when there is the political from taxable income to current income at the time of the will and the economic manoeuvrability to do so. This means pension reforms and the change in the Rent Allowance that child benefit Act. Current income is a new method of calculation where payments change by leaps and bounds. the individual’s income over the past 12 months is calcu- Naalakkersuisut proposes that the benefit should be in- lated and forms the basis for the benefit award. dexed in line with prices and wages and adjusted by a small deduction. For example, if in one year prices and wages increase by 2% and the deduction A joint public-sector IT system has been developed, which is 0.25%, the rate adjustment will adjust the benefit by the municipalities use to calculate current income. The 1.75%. If, in the year prior to the adjustment, DKK 50 million was allocated for the benefit, system went live in December 2015. The intention is for the amount allocated in the next year would be DKK 875,000 assessment of child benefit, institutional childcare rates more for child and other welfare, currently assessed on the basis of tax- benefit, while DKK 250,000 would be put into the growth fund. able income, to switch to current income. This will proceed as and when the respective Acts are revised, and that will Source: Ministry of Finance be prioritised.

149 Today, child benefit is adjusted when there is the political Text Box 4.6 Import of alcohol and duty on alcohol will and the economic manoeuvrability to do so. This Statistics Greenland’s statements on the importation of beer, means that child benefit payments change by leaps and wine and spirits show an abrupt decline since 1989. The 2014 bounds. Naalakkersuisut proposes that the benefit should Demographic Survey of Greenland shows that the trend in major consumers2 of alcohol be indexed in line with prices and wages and adjusted by a has decreased from 25% in 1999 to 18% in 2014. Looking at small deduction. the trend in binge This could be as follows, for example: If in one year prices drinking3, however, the trend is not the same. In 1999, 56% of men drank more than 5 units on the same occasion at least on- and wages increase by 2% and the deduction is 0.25%, the ce a month, and the same rate adjustment will adjust the benefit by 1.75%. If in the statistic was 56% in 2014. During the same period, the per- year prior to the adjustment DKK 50 million was allocated centage of female binge drinkers rose from 35% in 1999 to 43% in 2014. for the benefit, the amount allocated in the next year would be DKK 875,000 more for child benefit, while Despite a decline in consumption of alcohol, abuse of alcohol DKK 250,000 would be put into a priority fund that Inatsi- (and cannabis) remains the single number one public health issue in Greenland. sartut could decide how to use according to various guidelines laid down in legislation. Duty on alcohol Alcohol abuse has a clear correlation with social and mental health problems. Children of addicts are at greater risk of wit- Initiative 6. nessing violence, and Price and wage indexing of import duty people who have grown up around alcohol problems have a higher incidence of suicidal thoughts and suicide attempts. Duty on tobacco, cigarettes and alcohol is now considered to have reached a point where any increase in duties would The vast majority of criminal cases involving violence, murder entail a reduction in revenue and further reinforce the re- and vice are committed by an intoxicated perpetrator. Alcohol abuse frequently duction in consumption. Rising the duty would thus have a goes hand in hand with poor finances, lack of education, poor major performance effect and, as described in Reform living conditions and unemployment. Tier 3, the combined socio-economic effects would out- Traditionally, preventive efforts regarding alcohol have focu- strip the loss of revenue from duty and would be in line sed on information about the harmful effects. This has a long- with WHO recommendations, cf. also Text Box 4.6. term effect, as attitudes and habits change only slowly.

Some of the other import duties are of a historical nature. Therefore, WHO recommends structural measures, which take This applies, for example, to import duty on coffee and effect faster. The first recommendation is pricing; duties are a tea, which used to be regarded as luxury goods. Consider- very effective intervention when it comes to reducing harmful consumption ation ought to be given to whether some categories of of alcohol. This intervention is particularly effective in relation goods currently subject to duty could beneficially be re- to children, young people placed by other, more relevant categories of goods. and vulnerable groups, as they often have less financial manoeuvrability. The introduction of special duties on products such as alcopops, which In 2014, total revenue from import duties was DKK 473 are particularly attractive to young consumers, can have a preventive effect on young people’s alcohol consumption. million. With no change in consumption, automatic regulation of duty would produce a rise of just under DKK 5 mil- Source: Statistics Greenland, the Ministry of Health and the Ministry of lion in annual revenue after duty for each percentage rise Finance in the price and wage index. Initiative 7. Ilanngaassivik, efficiency improvements and simplifying the tax system It has been resolved to create a central account, Ilanngaas- sivik, where people’s income is paid in and from which public collections are settled (e.g. water, heating, rent, tax, alimony, institutional childcare, waste disposal, etc.). The

150 rest of the income will be deposited in the individual’s own Text Box 4.7. Example of municipal budgeting scheme for se- account, and the individual will receive a monthly overview niors – budget advice of which public demands have been paid and of any collec- Members of the public consult a caseworker for a chat about tions that will be transferred to the next period. their finances and are then offered the opportunity to join the budgeting scheme for seniors. It is a condition that they sign an authorisation and contract, authorising the municipality to ma- Ilanngaassivik will give the individual a clearer overview of nage the closed budget account. The idea is that the account collections. The system should prevent arrears and the holder cannot risk of having power/heating cut off, or of the landlord personally draw money out of the account. terminating the lease. Employers will be saved the admin- Once the account holder has signed, the information about fi- istration of employee tax and withholding pay at source. xed expenditure is obtained, together with an account state- The municipalities and the GoG will achieve greater payment and PBS details. The expenses will subsequently be paid via Betalingsservice, ment efficiency and thus better finances, and will be able and the budget will be created by the municipality on behalf of to use current data about people’s incomes and expendi- the account holder. ture for case processing. The municipality and the bank have entered into an agreement to allow municipal employees to access the account holder’s As a starting point, the Tax Agency should be able to col- online banking. lect outstanding demands according to the same rules The budgeting scheme for seniors has proved successful for all concerned. This is a way for the public authorities to help mem- that apply today. However, imposition of wage deductions bers of the will no longer need to be sent to employers, but to Il- public/consumers to pay their fixed expenses. These consumers are pensioners who need this kind of help, in- anngaassivik, and it will be possible to administer volun- cluding disabled people, frail elderly people, people with men- tary payment agreements via Ilanngaassivik. tal health issues, etc. Source: Kommuneqarfik Sermersooq Ilanngaassivik will be a tool to improve public collection of demands and will enhance the interplay of the areas of Initiative 9. tax, social welfare benefits and collecting, and help to pre- Adjustment of public assistance legislation vent people from falling into debt traps. Naalakkersuisut is putting on a seminar about public assistance during 2016. The seminar will tackle a number of Initiative 8. issues about public assistance and look at possible solu- Budget consultation tions in dialogue with the municipalities. Naalakkersuisut has appointed a working group with participants from the municipalities, INI A/S, etc., to examine Objectifying of legislation the need and opportunities for the establishment of a Today, there are differences in how the various municipal- joint public-sector debt advisory unit and other measures ities administer public assistance. Thus, necessary assis- designed to prevent arrears and reduce the problems of tance is defined differently from one town or village to debt traps, etc. another. This is due to differences in interpretation of the Public Assistance Act. There could therefore be a need to Initiatives are already under way in this area. For example, objectify the legislation. This must be done with due con- Kommuneqarfik Sermersooq has established a successful sideration for the fact that there may be differences in senior budget/payment service for retirees, cf. Text what constitutes a necessity from one town, village or set- Box 4.7. This will be examined to see whether a similar ser- tlement to another. vice could usefully be offered to recipients of public assistance. Objectifying the awarding of benefits would produce: - Better justice for the individual, i.e. benefits would be awarded without subjective judgement - A way of avoiding unequal municipal practices - Reduced risk of interaction problems

151 Availability obligation Focusing on creating lasting, stable jobs can make the It is a known problem area, especially in the fisheries in- workforce more stable. dustry, that there is a shortage of labour during certain periods. It is important that situations do not arise where Figure 4.8. Seasonal fluctuation, jobseekers. Deviation from the companies demand labour while, at the same time, in the annual average in towns and settlements , 2011–2015. same village, there are people receiving public assistance (or on labour market support), and who are in fact able to take a job.

Public assistance is currently being given to all three match groups. In fact, the benefit is given to two (three) entirely different groups. One group who are jobseekers and ready to take a job, and another group who would need preparation, e.g. treatment of an addiction, in order to become ready to take a job. The latter group, as for the rehabilitation process for people on disability pension, should be offered publicly supported jobs at times. Therefore, Source: Statistics Greenland there is a need for a nuanced approach to the concept of the availability obligation in administering public assis- Initiative 10. tance, both in relation to specific case handling and when Focus on rehabilitation efforts handling the issues more generally. Naalakkersuisut wants to strengthen and focus rehabilitation efforts on people with reduced capacity for work with A future revision of the public assistance scheme must be a view to reinstating their capacity for work. One of the coordinated with considerations of a possible revision of tools here is reduced-hours jobs. the labour market welfare Act, including in relation to the question of the need to clarify the availability obligation. In areas where it may be difficult to create employment on ordinary terms for people with reduced capacity for work, Under-employed people the idea is for the municipalities to have access to public There are major fluctuations in demand for labour, cf. Fig- funds to establish useful-work jobs. Useful-work jobs are ure 4.8. The fisheries industry is dependent on the supply defined as being supported jobs that have a socially ben- of raw materials, and both the construction sector and the eficial purpose, doing things that would not otherwise be tourism sector are busiest in the summer months. That done. These could be service jobs in hospitals, old people’s means demand for labour is very high at times, while at homes, schools, kindergartens, with the police and other other times it is difficult for some groups to find employ- authorities, canteen assistance, assisting school caretak- ment. As a result, a large part of the workforce steps in ers, assisting vergers, etc. and out of employment. This can lead to some people gradually losing touch with the labour market. The disability pension reform allocates funding for these efforts. It is relatively cost-free for companies to dismiss employees, e.g. as a result of a failure in the supply of raw materi- Useful-work jobs could also be used to activate unem- als. In certain situations, it may be financially worthwhile ployed people. The municipalities could impose require- to discard fish waste instead of trying to make use of it. ments for duties of useful-work jobs by paying out public Tightening up labour market conditions, e.g. with longer assistance with reference to the availability obligation. periods of notice, could potentially lead to companies starting to see business opportunities (innovation) not An accommodating labour market currently being exploited. The business community, including the GoG, the munici-

152 palities and the GoG-owned companies should assume Initiative 12. greater social responsibility and help to create an accom- Rents must allow for funding maintenance modating labour market. Accordingly, it ought to be a mat- The costs of renovation and new construction of publicly- ter of course, far more than it is at present, for GoG-owned owned rental properties must be adjusted, going forward, companies and suppliers to the GoG and the municipali- to make it possible for someone in full-time employment ties to be obligated to create reduced-hours jobs and with an SIK minimum wage to pay the rent without a sub- light-duties jobs, etc., to ensure regular, sufficient access sidy. This illustrates the importance of viewing the initia- to these types of jobs. tives holistically. Working tax credits will increase disposable income and a review of benefits for families with chil- Stronger focus on upskilling dren will give the most disadvantaged families with children a boost, where the parents are in employment. With- Future rehabilitation efforts must place stronger empha- out these simultaneous initiatives, rent rises as a conse- sis on education and in-service training. Today, there is a quence of renovation would cause a disproportionately tendency to regard a rehabilitation process as a work trial large reduction in disposable income. or internship rather than more highly skilled processes. Furthermore, the rent must be sufficient to allow funds to Initiative 11. be set aside continuously for maintenance, to avoid build- Adjustment of deduction schemes between the GoG and ing up a maintenance drag effect. the municipalities Naalakkersuisut proposes that the reimbursement rates Initiative 13. Interest subsidy instead of interest deduc- should be changed with regard to a number of central ben- tion efits, partly with a view to boosting efforts, and partly to Today, there is an expectation that the public sector is recreate a definite incentive to bring people out of passive sponsible for the provision of housing, and the public sec- welfare and into active participation in the labour market, tor ties up a lot of resources in investments and mainte- cf. Table 4.17. nance of housing. Funds that could alternatively be invested in growth-promoting initiatives or to deal with struc- Proposed reimbursement percentages: tural problems.

Table 4.17. Proposed reimbursement percentages. Naalakkersuisut has set an objective of ensuring that as many people as possible are able to provide themselves Reimbursement percentage, proportion with a home. Therefore, it is important to have in place Scheme that municipality re- schemes in the area of housing that encourage people to ceives from the GoG take responsibility for providing a home for themselves. Disability pension, new scheme 50% The right to deduct interest is an important tool. As a con- Disability pension, transitional scheme 50% sequence of current tax rules, in some cases, interest sub-

Disability pension, after transitional sidy is only given to property owners if the household has 0% scheme interest costs exceeding DKK 20,000 per year. Many prop- Retirement pension 90% erty owners therefore do not enjoy the full benefit of the interest subsidy. This will be examined to see whether in- Pre-rehabilitation 80% terest deductions could advantageously be replaced with Rehabilitation 75% interest relief focused on the housing area, as is the case Reduced-hours jobs, ligth-duties 75% with the Faroe Islands and Iceland. Any change would mean jobs, useful-work jobs that the present unfortunate link between fiscal, finance Rent allowance (Boligsikring) 60% and housing policy could end, while at the same time the Public assistance 0% interest subsidy for property owners would be retained This proposal will be addressed in future discussions with the municipali- and, in some cases, enhanced. ties. 153 Initiative 14. demption option to redeem the existing 20/20/60 loan Public housing construction must be focused, focusing on from the public sector will also be introduced. public housing for people who are unable to provide a home for themselves. Strengthening the rent-to-own New 20/20/60 schemes are proposed either to be inter- scheme est-bearing or to be subject to an annual fee. The interest/ Going forward, publicly owned rental properties must be fee must be adjusted to make early redemption of the built so that, as far as possible, the rent level will corre- loans attractive, while at the same time the interest pay- spond to the tenants’ ability to pay. In new publicly owned ments must be predictable and no higher than the prop- properties, a wage-earner in full-time employment on an erty owners can manage. The interest could potentially SIK minimum wage must be able to afford the rent. equate to a 20-year mortgage credit loan. The GoG wants to examine the possibility of collaborating with the banks Construction of new public investments in staff housing to identify a solution that will be administered by the should, as far as possible, be restricted, taking due ac- banks. count of the need for key sectors to be able to recruit employees. Redemption of the existing loans could be offered at a preferential rate for both the GoG/the municipalities and The GoG and the municipalities can instead enter into the property owner. One member of Greenland’s Economic agreements with private housing associations, e.g. owned Council has calculated the value of a 20/20/60 loan with by pension funds, to rent a certain proportion of the hous- 20 years remaining at a rate of 36. This rate was calculat- ing to offer it to their employees. This would make it pos- ed when interest was higher. It is considered that this rate, sible to attract investors, boost private initiatives and, at with the current level of interest, is higher because the the same time, release the public sector from part of the value of the interest-free aspect is lower. obligation to provide housing. If agreement can be reached with the banks regarding the Illuut A/S is a candidate for full or partial sell-off. Alterna- establishment of a loan facility that corresponds to the tively, rents in Illuut A/S should rise constantly so that 20/20/60 scheme, this would help to reduce public-sector public borrowing can be made sustainable and, over time, involvement in the housing market. Early redemption of be repaid. Any such scheme could be phased in concomi- existing 20/20/60 borrowing would provide one-off rev- tant with the repayment of the company’s interest-bear- enue if property owners choose to take up this offer. ing debt. Cooperative housing associations In conclusion, Naalakkersuisut wants to work to boost the Legislation on cooperative housing associations is chang- rent-to-own scheme to make it easier to convert a rental ing, but it is recommended that the zero-instalments and property into an owner-occupied property. This will create interest-free features should be retained so that cooper- a stronger dynamic in the property market and will be in ative housing is an option for households with limited bor- line with Naalakkersuisut’s vision of the individual taking rowing capacity – e.g. those who have recently qualified. responsibility. As part of a reform, consideration should be given to whether the rules could be changed to make the loan in- As part of this initiative, Naalakkersuisut will prepare a re- terest-bearing with repayment by instalments after 30 vision of rent legislation. years.

Initiative 15. Publicly owned housing Revision of 20/20/60 financing Special subsidy schemes for publicly owned housing asso- On the recommendation of financial institutions, a ciations should be avoided, and they should be on a par with change-of-ownership contribution of 10% of the original private housing associations. Moreover, Naalakkersuisut principal amount of the loan is proposed. An early re- intends to retain and boost the rent-to-own scheme.

154 Initiative 16. suitable for young people, the elderly and others to live in. Public lending tailored to the market Private borrowers can use the 20/20/60 scheme or a co- Naalakkersuisut proposes that public lending should be operative housing model (ABF1) made up of 50% public- aligned with the market, cf. Table 4.18. sector loan, 45% mortgage credit and a 5% deposit of their own. As mentioned in the introductory sections, Greenland’s In Qaqortoq, Sisimiut and Ilulissat, the burden of providing housing market is highly diverse, and there are major dif- housing can be shared between 50% private and 50% ferences in a property owner’s options for borrowing. public. The public sector bears its part of the burden by Naalakkersuisut therefore wishes to identify a model that building versatile homes suitable for young people, the el- ensures that those who wish to provide a home for them- derly and others to live in. Private borrowers can make use selves are offered suitable borrowing options, no matter of the 30/30/40 scheme or a cooperative housing model where they live. (ABF2) made up of 55% public-sector loan, 40% mortgage credit and a 5% deposit of their own. One model could be based on a division into four geographical markets, two possible forms of ownership (pri- In Maniitsoq, Aasiaat and Tasiilaq, the burden of providing vate or public), financing liability (burden of providing housing can be shared between 60% private and 40% housing) as well as a number of loan and subsidy schemes. public. The public sector bears its part of the burden by The model is based on the desire to build as many homes building versatile homes suitable for young people, the el- as possible at the lowest possible cost to the public sec- derly and others to live in. Private borrowers can make use tor in terms of subsidies. That means the subsidy element of the 35/35/30 scheme or a cooperative housing model should be least for homes in Nuuk, slightly more in the (ABF3) made up of 60 % public-sector loan, 35 % mort- next-largest urban areas, and rising gradually in the small- gage credit and a 5% deposit of their own. er villages and settlements. Elsewhere in Greenland, the provision of housing is 100% The housing market is dynamic and can change rapidly, e.g. by private individuals who are registered as the property as a result of increased economic activity in an area as a owners but have public-sector loans. Here, people are cur- result of increasing tourism, mining operations, etc. For rently offered construction packages where the self-fi- that reason, the breakdown below should be regarded as nancing element depends on household income. The GoG pertaining to the current situation. provides loans related to household income starting from 5% for incomes below DKK 200,000 and up to 30% for in- In Nuuk, the burden of providing housing can be shared becomes over DKK 500,000. The loan is partially interest- tween 80% private and 20% public. The public sector free with zero instalments. bears its part of the burden by building versatile homes

Table 4.18. Markets and finance options. Current situation. ABF 1, ABF 2 and ABF3 are the borrowing options for the cooperative housing described.

Markets Nuuk Sisimiut, Ilulissat and Qaqortoq Maniitsoq, Aasiaat and Tasiilaq Other settlements Owners- Private Public Private Public Private Public Private Public hip ABF 1. ABF 2. ABF 3. Illorput Subsidity Small Construc- & & Small homes & Small homes scheme homes tions 20/20/60 30/30/40 35/35/30 Share 80% 20% 50% 50% 60% 40% 100% 0%

155 Initiative 17. ing a home, car, boat for public or private enterprise, as Better organisation of administration for housing well as procurement, will be treated as salary income, so Both the municipalities and the GoG currently run housing tax will be withheld prior to payout of the amount. Tight- associations. Naalakkersuisut wants to reorganise the ar- ening this up will make tax payment more effective. Simi- ea of public-sector housing to transfer responsibility to larly, pay in the form of contributions in kind as well as the municipalities. That will provide better scope for de- other fringe benefits will be changed to make them taxa- veloping a private housing market suited to each particu- ble on a par with salary income. lar municipality. With this change, GoG housing will be transferred to the municipalities, and the legislation will Lack of, or not overly strict, taxation of fringe benefits is be adapted to enable the municipalities to set up housing a strong incentive for transforming salary income into associations. contributions in kind and results in depleting the tax base. High and middle income brackets are most likely to have The current drag in renovation and maintenance will then fringe benefits as part of their pay package. become the responsibility of the municipalities. The municipalities will be better able to plan the work, and it will Taxation of capital gains; taxation on sale of shares be possible to achieve successful interplay between cur- Naalakkersuisut expects to introduce a bill on taxation on rent housing needs and the employment situation. This the sale of securities. This expresses a desire for a con- will also make it possible to establish close cooperation sistent tax system that treats income uniformly, irrespec- with local businesses regarding planning so that projects tive of the type of income. Simple rules will be introduced can be planned and scope for creating apprenticeships for taxing securities so that gains from securities will be can be improved. taxed on a par with other income. The goal is clear rules to promote the development of a healthy investment culture. The smaller administrative units will make it easier to put Buying and selling shares, etc., should as far as possible be many services out to tender in the housing departments. based on which investment provides the best return; it That could help to develop private enterprise. Studies should not be based on tax considerations. show that services can be more cost-effective and can be delivered more effectively via procurement and hence ex- Taxing pension returns posure to competition. The housing associations can then Just as capital gains are not currently taxed, no tax on pen- focus on their core tasks. sion returns (PAL tax) is payable from pension savings in Greenland’s pension funds and banks. Increased pension Sector plans will be prepared for all villages/towns with savings enhance the sustainability of finance policy, so multifamily housing. The sector plans will be included in tax on pension returns will be more relaxed than tax on the block grant negotiations when the homes are trans- capital gains on excess funds. ferred to the municipalities. The municipalities will take over these homes on an informed basis. The municipalities In its 2012 double taxation agreement with Denmark, will be able to choose to take over homes after completion Greenland committed to collect PAL tax and to transfer to of renovations and demolitions, or they can take them SKAT the revenue from people who are taxpayers in Den- over and undertake the projects with the funding outlined. mark. Denmark has a reciprocal obligation. In 2014, Green- land received DKK 22 million in PAL tax from the savings Initiative 18. of Greenland’s taxpayers in Danish pension funds. Widening the tax base Tightening up the A-income concept Taxation of contributions to foreign pension schemes General tightening up of the A-income concept will im- Today, taxpayers enjoy a right of deductibility/exemption prove payment of taxes. Freelancers, consultants and in- for payments into a pension fund. The tax is deferred to dividuals who charge fees, etc., will be equated with wage- the point of payout, and tax payments from an individual earners, irrespective of whether they issue invoices. Rent- are distributed more evenly over the person’s lifetime.

156 The double taxation agreement with Denmark establishes Initiative 19. that tax from pension payouts to individuals who have Mandatory pension saving pension savings with a Danish pension fund will go to Den- The requirement to save for a pension may be accommo- mark if those individuals are resident in Denmark at the dated either by coverage via labour market pensions or by point of payout. signing up to a private pension scheme. In cases where a person is not covered via a labour market pension or has In 2014, almost DKK 140 million was paid into Danish pen- not signed up to a private pension scheme, Naalakkersu- sion funds with no tax being paid in Greenland. That cor- isut is working to establish a basic savings scheme for responds to a loss of tax revenue of DKK 58 million. There such individuals. A bill regarding this will be put out to will still be a need for taxpayers living in Greenland for a consultation. Part of the intention here is for the scheme short or extended period of their working lives, but who to be administered by the Tax Agency in cooperation with are not resident in Greenland at that point. Naalakkersu- a pension fund – most likely Greenland’s SISA pension isut will therefore tax payments into foreign pension fund. schemes so that the Treasury of Greenland does not lose out on the revenue. Interaction with retirement pension The new retirement pension structure, introduced in the Critical review of the area of taxation Autumn Session 2015, must be viewed in the context of Naalakkersuisut will review the arrangement of legisla- the desire to encourage more saving. A basic pension has tion and administration to ensure, first of all, that import been introduced, contingent solely on the retiree’s own in- duty has the desired performance effect in relation to come, and it is only tapered once the retiree’s income ex- health and the environment and, secondly, that there is a ceeds average income (around DKK 220,000). fair balance between the revenue effect of a duty and its administration in terms of tying up resources for the tax Salary income stops and is replaced by pension income authorities and individuals. when someone retires. A degree of cover of at least 70% is considered sufficient, as pensioners bear less of a de- Any change would initially have a neutral impact on the pendency load than people of working age and do not need budget in terms of taxes and duties as a whole, and any ad- to save; cf. Table 4.19. ditional revenue from this can be used to finance other reform initiatives in this area.

Table 4.19. The need to save as a function of income, factoring in the state pension. 2016 rates

State retirement Need for savings/self- Monthly salary Annual salary 70% coverage Self-financing element pension financing

15.500 186.000 130.200 133.200 -3.000 0% 20.000 240.000 168.000 133.200 34.800 21% 25.000 300.000 210.000 126.175 83.825 40% 30.000 360.000 270.000 77.075 192.925 71% 50.000 600.000 420.000 0 420.000 100% Source: Ministry of Finance

157 The table shows how the need to save rises concomitant tax on contributions to pension funds abroad. with income. The low income bracket will be fully covered by the state retirement pension, while the high income The combined drop in tax revenue as a result of rising con- bracket will need to self-finance their entire pension in- tributions to pension schemes is expected to be around come. DKK 115 million once the scheme has been fully phased in. This assumes that 50% of contributions will be to pension The mandatory pension scheme cannot currently be set schemes abroad, and that tax on these will be brought for- higher than 10%, as a higher rate would mean people in ward. the low income bracket with the current state retirement pension would achieve coverage in excess of 100%. More- The drop in tax revenue will thus be funded out of revenue over, interaction problems would arise with a high com- from taxation of contributions to pension schemes al- bined marginal tax rate as a result of tapering of the state ready set up outside Greenland, as well as schemes that retirement pension. In fact, pension contributions are are expected to be transferred from Greenland to Den- therefore at risk of being taxed harshly if the requirement mark imminently. The remaining DKK 10 million is expect- to save is set too high. ed to be funded via savings on public-sector spending.

The expectation is that the minimum requirement for re- What this means for the individual cipients of A-income should be phased in continuously Mandatory pension saving will mean a reduction in dispos- from 4% in 2018 to 10% in 2024, while for B-income, it able income after tax and pension contributions for peo- would be phased in starting at 2% in 2018 and rising to ple who are not currently paying sufficient contributions 6% in 2022. to fulfil the minimum requirements. Most people on an SIK agreement and salaried employees are already saving for Short-term decline in tax revenue a pension and will not be affected by the new legislation. A calculation on the basis of tax and income data from Self-employed people, including hunters and dinghy fish- 2013 shows that pension contributions will rise by more ermen, usually do not save for a pension and will have to than DKK 500 million once a mandatory pension scheme contribute 2% rising to 6% of their profits to a pension has been fully phased in 2023. Introducing mandatory scheme. pension savings should be viewed in the context of a change in the Income Tax Act entailing the introduction of

Table 4.20. Significance of savings for a self-employed person (e.g. dinghy fishermen).

Savings for 40 years, medium-risk saving (DKK)

Monthly income 15.000 20.000 30.000 50.000 Savings percentage 6% 6% 6% 6% Reduction in disposable income (at 43 % tax) per month 513 684 1.026 1.710 Pension payment per month from savings 3.305 4.485 6.845 11.565 Retirement pension (single person, 2016) 11.183 11.183 10.579 8.454 Combined income 14.488 15.668 17.424 20.019 Coverage 97% 78% 58% 40% Source: Bank pension calculator and the Ministry of Finance.

158 Initiative 20. Objectives and outcomes Higher coverage of labour market pensions Naalakkersuisut wants to work towards everyone having a The amount from Reform Tier 4 is low, but this is due to tax pension income of around 70% of their income when of incentives and working tax credits of 300 million. These working age. The low and middle income brackets will be things will increase the provision of work, which will pro- covered by mandatory pension savings combined with the duce contributions from the other Reform Tiers. state retirement pension, while people with a higher income from work will need to save 15–20% in order to Figure 4.9 Combined effect of Reform Tier 4 by 2030 achieve coverage of 70%. Naalakkersuisut expects to re- Reform track 4 1.110 bn solve this via collective agreements, etc., leaving this to Reform track 3 1.090 bn the representatives of management and labour.

0.820 bn "gap between Footnotes revenue and consumption" 1 The public-sector element is not a fixed benefit but an emergency benefit. This means a number of fixed expenses are paid for a recipient of public assistance, and a small amount (DKK 55 per day) is given for other expenditure such as food. The example is based on average figures, so it is possible to construct examples that either reduce or increase the net degree of compensa- Reform track 2 0.390 bn tion.

2 Major consumption refers to alcohol consumption in excess of the recommended limits of 7 units per week for Reform track 1 0.120 bn women and 14 units per week for men.

3 Binge drinking refers to an intake of more than 5 units Reform Tier 4 DKK Million on the same occasion. Tax reform 60 Social reform -23 Housing reform -17 Overall net effect 20 Note: The figures are based on an estimate

159 160 APPENDICES

APPENDIX 1: Central macroeconomic assumptions

as a % (nominal) Projection factor per year from 2016– 2030 Interest, % 4.75%

Productivity growth, % 1.25%

Inflation, % 1.75%

Net debt, % of GDP 3.30%

Nominal growth in block grant, % 2.64%

Real-terms growth in individual consumption, public- 1.25% sector consumption and transfers GD 3% per year + change in workforce

GDP per person in the potential workforce Projected GDP relative to projected potential workforce Gross national income (disposable GNI) GNI: projected GDP(3.0%) + projected block grant (2.64%) GNI per person in the potential workforce Projected GDP relative to projected potential workforce INCOME Block grant, etc. 2.64% per year Other transfers 3.0% + change in workforce Import taxes 3.0% + change in workforce Income and wealth taxes 3.0% + change in workforce Tax 3.0% + change in workforce Sundry income 3.0% + change in workforce Consumption Health service 3.00% + demographic changes Leisure, Culture and Religion 3.00% + demographic changes Education programme (age 6–17) 3.00% + demographic changes Education (> age 17) 3.00% + demographic changes Illness and disability 3.00% + demographic changes Old age 3.00% + demographic changes Family and Children, etc. 3.00% + demographic changes Collective consumption, etc., total 3.00% + demographic changes TRANSFERS Retirement pension 3.00% + demographic changes Early retirement pension with disability 3.00% + demographic changes Unemployment 3.00% + demographic changes Illness 3.00% + demographic changes Public assistance 3.00% + demographic changes Maternity leave 3.00% + demographic changes Child benefit 3.00% + demographic changes Rent allowance (boligsikring) 3.00% + demographic changes Educational support (j) 3.00% + demographic changes Other transfers 3.00% + demographic changes CAPITAL EXPENDITURE Capital accumulation, total 1.25% Capital transfers, total 1.25%

161 APPENDIX 2: Contributions from the reforms.

Millions in 2016 prices 2020 2025 2030

Reform Tier 1

More people compieting study programmes faster 74 127 195

Cost of multiciple children in institutional childcare -20 -37 -17

Class 11 provision -46 -42 -31

Fewer students starting 0 0 4

Internships - school-based practical training -11 -10 -9

Short vocational programme -3 -3 -2

New scientific study programmes + law -8 -15 -14

Reform Tier 1, Total -14 20 126

Reform Tier 2

Resource tax on fisheries 50 50 50

Mine operations 1 138 122 122

Tourism 31 69 107

Reform Tier 2, total 219 241 279

Reform Tier 3

Budget Act at a max. of 0.5% real-terms growth per year 67 370 700

Reform Tier 3, total 67 370 700

Reform Tier 4 2

Tax reform 80 70 60

Social reform -37 -32 -25

Housting reform -21 -18 -16

Reform Tier 4, total 22 19 20

Total contribution from reform 294 650 1125

Note 1: Income is based on estimates associated with significant uncertainty, e.g. economic variables in the world economy. Note 2: The figures are based on an estimate.

162