2019 Greenland's Economy Nunatta Aningaasaqarnera

Aningaasaqarnermut Siunnersuisoqatigiit

The Economic Council

Nunatta aningaasaqarnera

Greenland's Economy 2019 2018

The Economic Council was established by the Government of Greenland in 2009. This is its 10th report.

The Council is headed by a chairmanship of eight people. The chairmanship is composed of a Chairman, Vice Chairman and six Council Members, all of whom are appointed by the Government of Greenland. No changes have been made to the chairmanship since the publication of the last report.

Apart from the chairmanship, the council consists of members of stakeholder organisations, the government's administration service and scientific institutions. Members representing organisations and scientific institutions are appointed by the relevant organisations. Other members are appointed by the government. Council Members may comment on the content of the Report, but the chairmanship alone bears ultimate responsibility for compiling the report and for its final content.

The secretariat function for the Economic Council is provided by the Ministry of Finance. The Economic Council's duties consist of making regular appraisals of the state of the economy and the sustainability of the fiscal policies pursued.

The chairmanship consists of:

Chairman: Torben M. Andersen, PhD. Professor of economics at Aarhus University and former chairman of the Taxes and Welfare Commission. He was chief economic adviser to the Danish Economic Council between 2001 and 2003, and is still active as a specialist expert.

Vice Chairman: Ulla Lynge, MSc in Public Administration from Ilisimatusarfik. Head of the Secretariat, CSR Greenland and has previously worked for the Greenland Government Authorities, the Municipality of Nuuk Sermersooq Business Council and the pension fund SISA.

The other members of the Chairmanship:

Anders Møller Christensen, MSc-equivalent in Economics, former Assistant Governor at Danmarks Nationalbank. Member of the Consultative Committee for Greenland's Economy between 1988 and 2009.

Anders Blaabjerg is Chief Statistician at Statistics Greenland and has an MSc-equivalent in Economics. He was formerly employed at what is now the Ministry of Finance.

Søren Bjerregaard, MSc-equivalent in Economics, Head of securities and External Statistics at Danmarks Nationalbank. Previously a member of the Consultative Committee for Greenland's Economy.

Ida Helliesen, BCom, has considerable executive experience from Norwegian trade and industry and from directorships, including Norges Bank and what is now Government Pension Fund Norway.

Claire Armstrong, PhD in fisheries economics. She is a professor at the University of Tromsø and has an extensive scientific body of work.

Najaaraq Christiansen, MSc-equivalent in Public Administration from the University of Greenland. Has worked at Statistics Greenland for a number of years.

Members of the Economic Council:

Brian Buus Pedersen, Director at Greenland Business Association (Grønlands Erhverv). Jess G. Berthelsen, Chairman of SIK. After the dissolution of KANUKOKA, a representative from the municipalities is expected. Ken Jensen, Chairman of PK and appointed by IMAK, AK, NPK, ASG and PK Martin Kviesgaard, Director of Grønlandsbanken (Bank of Greenland) and appointed by the banks. Gitte Adler Reimar, Rector of Ilisimatusarfik (University of Greenland). Lars Geraae, Office Manager, Statistics Greenland. Jørgen Isak Olsen, Permanent Secretary at the Ministry of Fisheries, Hunting and Agriculture. Jørn Skov Nielsen, Permanent Secretary at the Ministry of Industry, Labour, Trade and Energy. Nikolai Sten Christensen, Permanent Secretary at the Ministry of Finance. This Report was finalised September 4th, 2019.

Cover illustration: Ivínguak' Stork Høegh

Table of contents

Summary ...... 4 Chapter 1 Economic outlook ...... 8 Chapter 2 Current economic policies ...... 21 Chapter 3 Health spending and financing ...... 37

Summary The economic trend in Greenland remains buoyant. Economic activity increased in 2018 by 3.5 per cent, matching the average growth rate in 2016 and 2017. For 2019, the projection is for growth of just over 2 per cent, which is fair given the capacity pressure affecting the economy. For 2020, the growth rate is expected to increase to just under 4 per cent.

Economic growth in 2018 was driven by Greenland's fisheries. The volumes fished increased significantly for the majority of species except cod. Meanwhile, the prices of the most important species increased by an average of approx. 6 per cent. Growth was widely diversified, with improvements in both private and public consumption and in investment. For 2019, the expectation is of continued growth in the fisheries sector, though not on the same scale as in 2018.

In 2020, economic growth is expected to increase by almost 4 per cent owing, for example, to the commencement of construction works at the Nuuk and Ilulissat airports, while high activity is likewise expected in other segments of the building and construction sector. The anorthosite mine at Kangerlussuaq will be in operation for the whole year. An improvement is also anticipated in the tourism sector following a slightly disappointing 2018.

The healthy economic climate is reflected in increasing employment and earnings. The labour market is under intense pressure, with a high rate of employment in all skilled worker categories. The shortage of labour is impacting many projects, which are either delayed or more costly than budgeted. There is a real risk of an overheating of the economy, not least because the two airport projects are being carried out almost concurrently. While labour for carrying out the airport projects is largely expected to be sourced from outside Greenland, the current shortage of local labour is very likely to intensify.

The high level of activity is also reflected in increased tax and duty revenues. In recent years, the the public budget has been in surplus. However, the surplus masks overspending relative to the price and wage trend, and an increase in public-sector activity. In 2018, the number of employees within the Greenland Government Authorities increased. This increase is problematic for a number of reasons. In years with a buoyant economy, the aim should be to amass buffers to maintain economic flexibility in years of economic downturn. An increase in public-sector activity also conflicts with the strategy laid down in the Sustainability and Growth Plan, which assumes that much of the pressure on public finances caused by an ageing population can be solved through efficiency improvements in order to minimise any increase in spending. There is thus a risk of Greenland's economic policy following a zig-zag trajectory. There is a great need to follow up on the Sustainability and Growth Plan, and to establish not only goals, but also concrete and viable policy initiatives in certain key areas.

The presented Budget Act Bill meets the Budget and Accounting Act's requirement for zero deficits over a four-year term. However, this requirement has only just been met, in spite of the economic upturn. Surpluses in the budget years should be seen in the light of proposed initiatives, which, as a whole, are set to reduce public finances by just over DKK 60m in the period 2020-2023. This is a net sum, as some initiatives positively impact public-sector finances whilst others have a negative impact. The Ilanngaassivik payment system is expected to make a budgetary contribution of DKK 75m, while the introduction of an earned income tax credit will impair public finances by just over DKK 50m net. In addition, a requirement

has been incorporated for annual economies of DKK 40-50m, together with an assumption that the trend in operating expenditure can be kept somewhat below the projected rate of price and wage increases.

Vulnerability to fluctuation in both prices and catch volumes is running high in the fisheries. Recent years have seen an improvement in both prices and catch volumes. Previous experience points to the likelihood of substantial fluctuation in both prices and volumes, in both a positive and negative direction. In this report, we assess the vulnerability of Greenland's economy to fluctuations in the fisheries by analysing the impact of an all-species price-drop of 20 per cent. This would be a significant price drop, but not an unrealistic scenario historically. A price drop on this scale would directly reduce public revenue from resource rent taxes, income and corporate taxes by just under DKK 230m. This would be compounded by the indirect impact on public finances of lower derived activity in the country. Vulnerability to fluctuation in the fisheries is thus a significant factor. In recent years, price and catch-volume trends have tended in a positive direction, but estimates underline the severe consequences of a negative trend. This highlights the importance of maintaining stable management of fish stocks and of amassing buffers within public finances during buoyant periods. Ultimately, it will be crucial to diversify into a broader industrial base in order to reduce reliance on a single sector.

Surpluses in the public budgets in recent years have been spent on consolidation. The Greenland Government Authorities have thus virtually paid off Greenland's foreign debts, have injected capital into companies such as KAIR/Greenland International Airports, and liquidity is sound. This is a favourable starting point, although the Greenland Government Authorities are still contending with substantial risk exposure. Going forward, mounting debts are expected in the municipal limited companies and limited companies owned by the Greenland Government Authorities. Many activities undertaken by companies wholly or partly owned by the Greenland Government Authorities are of crucial importance to society, such as Air Greenland, and can therefore not be wound up in the event of financial problems. The Greenland Government Authorities are thus exposed to serious risk, which only increases with increased public borrowing and self-financing of trade and industry activities. Basically, the total exposure holds no 'swings and roundabouts', which thus intensifies the need for consolidation. There is a need for a more clear-cut policy for the Greenland Government Authorities' financial commitments in various trade and industry ventures, and analyses of the entailed risk exposure.

One of the structural problems on the labour market is a modest to non-existent financial incentive to take up employment. The Budget Act Bill proposes to reduce this problem by introducing an earned income tax credit. As a tax offset, this will increase the annual disposable income of people in employment by just over DKK 4,000 (2019 level). As stated previously by the Economic Council, there is a great need to boost the incentives for being in employment, and to pursue an active labour market policy to encourage job-seeking. The bill put forward for an earned income tax credit is, however, beset by a number of problems. For technical reasons, the allowance cannot be calculated and disbursed until the beneficiary's tax assessment has been completed. This means that the allowance for 2020 would not be payable until August 2021, and the result for anyone unemployed who transitions to employment will not be any immediate increase in disposable income, making it uncertain whether this form of "future carrot" will incentivise the unemployed to seek work, or will rather be seen as a "windfall" when the allowance is disbursed a year later. The allowance scheme will drain public-sector finances of DKK 45-50m annually, and is therefore far from cost-neutral. Structural reforms should boost both employment and public finances. To that end, the

actual format of the earned income tax credit is costly and not precisely targeted, since many people already in employment will also be entitled to the allowance. This form of 'quick-fix' solution is not expedient, and the focus should be on coherent reform measures to address societal challenges and enable more people to be able to pay their own way. There is a need for a larger scale, coherent reform of the welfare safety net.

Free access to a health service capable of offering healthcare to modern standards is a key objective of Greenland's economic policy. This core task is duly a significant item in public-sector budgets, since the health service is largely financed by taxes. The health service is facing major challenges. At present, there are problems due to staff shortages, and in future, the pressure is set to increase. This is due especially to a growing elderly population, compounded by constant calls for new, better and often more costly, forms of healthcare.

While the health service is a major expenditure item in the public finances, Greenland spends relatively less on healthcare than the majority of other countries, and this disparity has increased in recent years. This is not attributable to Greenlanders' enjoying better health than the populations in other countries. In fact, public health in certain key areas is challenged. While life expectancy is rising, it is still lower than in Iceland, the Faroe Islands and the Nordic countries. A large proportion of the population is affected by critical obesity and an increased risk of diabetes, while the large number of smokers is at increased risk of COPD and cancer.

Meanwhile, Greenland's health service suffers from the diseconomies of its small scale, in that it serves a limited and geographically very widely dispersed population. This makes the production of health services costlier than in other countries, making it difficult to offer the same standard of service to everyone. Transportation of patients and relatives accounts alone for 1/10th of health spending. In short, due to the diseconomies of small scale and staff shortages, Greenland gets less "health" than in other countries for its spend.

A distinct age-dependency is also evident in the drain on the health services, with children and the elderly representing the principal care burden. As the age of the population increases, health spending will increase, even if standards of care were to remain unchanged. While ageing is for many so-called 'healthy ageing', where health problems arise, on average, at a later age than for earlier generations, the altered age composition is set to drive health spending up considerably. Projections indicate that an ageing population will increase health spending from its current approx. 7.5 per cent of GDP to between 8.5 per cent and 9.5 per cent of GDP. This does not factor in any increased spending on new forms of healthcare or other improvements in healthcare delivery. There will be an increasing need to prioritise health service spending solely in order to maintain the current standard of healthcare.

This financing challenge is part of the so-called 'fiscal sustainability problem' linked to the fact that public- sector spending will in future outstrip revenues as a result of an ageing population. This highlights the importance of the Sustainability and Growth Plan and the need to specify concrete initiatives. If this is not achieved, the pressure on core welfare sectors such as the health service will only increase. However, the challenges facing the health service concern not only financing but also capacity. The health service is already now under the severe pressure of staff shortages, including the great need for health professional locums. If this situation remains unchanged, increased activity in the healthcare sector will require

additional procurement of locum services and also healthcare abroad. The heavy churn in personnel and extensive use of nursing and medical locums are not tenable in the long term, and encouraging more young Greenlanders to gain a training in both the specialised and more elementary branches of healthcare is a focal vocational education concern.

The pressure on the health service could be reduced by means of an intensive public health campaign. Preventive initiatives targeting the most prevalent lifestyle diseases would benefit both public health and ease pressure on the health service. One of the most pressing areas is to achieve a significant reduction in the prevalence of smoking.

Chapter 1 Economic outlook In recent years, Greenland has achieved favourable economic development. Economic activity in 2018 is assessed as having increased by 3.5 per cent measured in terms of the increase in gross domestic product (GDP), adjusted for price increases. This corresponds to the average growth for 2016 and 2017. Growth in 2018 was primarily due to growth in the fisheries sector. The volumes fished increased significantly for the majority of species, with cod as a significant exception. Meanwhile, the prices for the most important species increased by an average of approx. 6 per cent. Growth in 2018 was widely diversified, with improvements in both private and public consumption and in investment.

In 2019, the outlook is for a slight dip in growth to a rate of just over 2 per cent. Further growth is expected in the fisheries sector, but not as strong as in 2018. In addition, growth in public consumption is expected to decrease on the back of a 1.5 per cent increase in the number of full-time employed public-sector employees in 2018. Investments increased, due especially to the acquisition of 6 new trawlers for the fisheries. However, these new acquisitions have not increased activity to any real extent this year, as they are counteracted by increased imports. Towards year-end, investments will also be leveraged with the expected commencement of construction works for the Nuuk and Ilulissat airports. An improvement is also anticipated in the tourism sector following a slightly disappointing 2018.

The economic progress has been accompanied by a significant fall in the number of registered job-seekers. Many local communities are affected by labour shortages with the attendant risk of certain traditional jobs either not being performed, being delayed or being more costly than budgeted.

In 2020, economic growth is expected to increase by almost 4 per cent owing, for example, to the building and construction investments entailed by the Nuuk and Ilulissat airports, and other construction projects. Against that, there is no outlook for acquisition of further new trawlers, which is why imports are expected to decrease and investment overall to show only a modest increase in spite of the many building and construction projects. This puts the economy at risk of overheating, not least because the two airport projects are being carried out almost concurrently. Although the labour for construction of the airports is largely expected to be sourced from outside Greenland, the shortage of local labour for support industries and for other sectors in the economy will in all probability be even more severe than at present.

Table 1.1 Supply balance, annual real growth in %. Share of 2013 2014 2015 2016 2017 2018 2019 2020 GDP in 2017 Forecast Private consumption 37.3 -1.1 0.6 0.2 1.2 2.4 2.4 2.6 2.6 Public consumption 43.4 4.1 -0.2 -0.6 1.5 3.5 1.8 0.7 0.7 Gross investment 22.7 -20.7 -21.9 10.2 9.3 -2.9 5.9 37.7 0.6 Exports of goods and services 40.2 2.4 11.8 -9.9 16.9 -7.6 11.3 4.5 1.6 Total final consumption 143.7 -3.4 -1.2 -1.1 6.7 -1.0 4.8 8.6 1.4 Imports of goods and services 43.7 -6.6 -11.5 1.7 8.2 -5.5 7.3 21.1 -2.6 Gross Domestic Product 100.0 -1.3 4.7 -2.5 6.0 1.0 3.6 2.2 3.8 Note: 2013-15 final figures; 2016-17 provisional figures; 2018-20 Economic Council estimates. The real growth indicates progress adjusted for price rises. Source: Statistics Greenland and the Economic Council's own estimates.

In spite of the economic upturn in recent years, substantial unresolved structural problems persist in the form of a very narrow industrial base and the low educational attainment of the workforce. A significant drop in the price of fish and shellfish will rapidly create major economic problems. The same applies to a drop in catches of the most important species of fish. A fact of life for the fisheries is that volumes and/or prices fluctuate over time. Because the economy is heavily dependent on the fisheries, it is thus also vulnerable to its fluctuations. A fall in volume or prices will affect the earnings of the fisheries and put the public finances under pressure. The importance of the fisheries for the public finances is borne out by the fact that tax revenue from catches of prawn, mackerel and halibut increased from virtually zero in 2008 to approx. DKK 425m in 2018. Ordinary corporate and income taxes come on top, which will also be affected by a fall in prices or volumes. A more diversified industrial base will be essential in preventing fluctuations in the fisheries from dominating economic growth overall. It will also lead to a higher and more stable level of prosperity.

1.1. Fishing Greenland's fisheries have had several good years. Since 2018, halibut and cod prices have been at least 50% higher than in 2010, while prawn prices have more than doubled; see Figure 1.1. By comparison, consumer prices rose less at just 15 per cent. With slight variation, the favourable price level was sustained in early 2019. Prawn prices fell slightly in the first quarter of 2019 relative to the previous quarter, but were still higher than the average price for 2018. The price of halibut also fell in the first quarter of 2019 to a price approx. 5 per cent below the average price for 2018. The price of cod, however, rose strongly, although this may be a short-term fluctuation in a quarter yielding small catches.

Figure 1.1. Average prices of fish and shellfish, 2012-2019

Index 2010 = 100 250

200

150

100

0 2012 2013 2014 2015 2016 2017 2018 2019 Cod Halibut Prawn

Note: Last observation made in Q1 2019. Source: Statistics Greenland.

In terms of volumes, fishing in Greenlandic waters in 2018 improved by approx. 8.5 per cent in 2017 if catches of halibut, prawn and cod are pooled with the prices obtained for the products. Catches of halibut were up by approx. 15 per cent after an almost equivalent fall in 2017. Catches of prawn increased by 10 per cent in 2018 in extension of a similar increase in 2017. Cod catches, however, were down by almost 20 per cent in 2018 following a fall of 5 per cent in 2017.

Catches in the first quarter of the year tend to be smaller in volume terms than in the other quarters, especially for halibut and cod. However, this is weighed up by the fact that prawn catches in the first quarter of 2019 were 14 per cent higher than in the same quarter of the previous year; halibut catches were 7 per cent higher; while cod catches were down by almost 50 per cent. With the commissioning of new trawlers, it should be seen as realistic for the quota for prawn catches to be fully exploited in 2019. The prawn fishery is the most important fishery economically in Greenland, and is MSC-certified as sustainable.

Figure 1.2 Catches by Greenlandic fishers and vessels in Greenland's waters, 2012-2018

Tons 120.000120,000

100.000100,000

80.00080,000

60,00060.000

40,00040.000

20.00020,000

0 2012 2013 2014 2015 2016 2017 2018 Halibut Prawn Cod Mackerel

Source: Statistics Greenland.

1.2. Tourism After several years of stagnation or decline in tourism, 2015-2017 saw an upturn, though this trend was broken in 2018, presumably only temporarily. 2018 showed a marked fall in the number of hotel bednights for both domestic and international guests; see Figure 1.3.

The trend is subject to uncertainty, as the cruiseship statistics are currently under review due the fact that port fees were not registered for all dockings. The review is expected to result in an upward adjustment of the number of passengers and dockings in 2017, and probably for previous years as well, compared with previously published data. Given the uncertainty concerning the scale of cruiseship tourism, this statistic has not been included in the evaluation of tourism in this section.

In recent years, the number of air passengers taking international flights has remained somewhat constant at 80,000, but rose to just under 90,000 in 2016 and 2017, after which it rose again to almost 93,000 passengers in 2018. As a result of the favourable economic climate in recent years, not only in Greenland, but in the majority of other countries, a proportion of the improvement in air traffic is attributable to trips that do not involve several bednights at Greenlandic hotels, such as cruiseship tourism or Greenlanders on outbound flights. In the first 6 months of 2019, passenger numbers matched the 2018 level.

Figure 1.3 Tourism 2003-2018

No. of individuals

100.000100,000 90.00090,000 80.00080,000 70.00070,000 60.00060,000 50.00050,000 40.00040,000 30.00030,000 20,00020.000 10.00010,000 0 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Greenlandic hotel guests Foreign hotel guests Air passengers out of Greenland

Note: tourism statistics for cruiseships are currently undergoing review and are therefore not included in the figure. Source: Statistics Greenland.

The Government of Greenland is committed to boosting the tourism industry. This was demonstrated by the presentation of the spring 2016 national sector plan for tourism, and the establishment of what was originally a Greenland Government wholly-owned company, Kalaallit Airports A/S, to build, own and operate new or enlarged airports in Qaqortoq, Nuuk and Ilulissat. The two international airports at Nuuk and Ilulissat have since then been hived off into Kalaallit Airports International A/S, in which the Danish Government now holds a one third share and the Greenland Government Authorities a two-thirds share. In extension of the airport plans, private investors have initiated or are planning to initiate construction of additional hotel capacity in the two cities. The improved future transportation options to Greenland are consequently expected to give the tourism industry a needed boost.

1.3. Minerals and hydrocarbons exploitation Following the closure of the gold mine in Southern Greenland in 2013, no mineral resources were mined in Greenland for some years. However, there are now concrete plans to reopen the mine in 2020.

In summer 2017, LNS Greenland Gems started mining rubies near the Qeqertarsuatsiaat settlement. To date, this project, with around 30 employees, has only had modest impact on foreign trade statistics in the form of exports of untreated ruby worth DKK 3m in 2017 and DKK 12m in 2018. The significance for the economy may, however, be greater than that depending on the terms of the agreements concluded in connection with the mining permit.

Hudson Greenland's anorthosite project at the Kangerlussuaq fjord employs more or less the same number of workers in the mining phase as the ruby project. The mine was scheduled to go into operation in 2017, but a delay means that mining will not commence until 2019 at the earliest.

Plans are now well-advanced for mining ilmenite at the abandoned settlement of Moriusaq, close to the Thule Air Base under the Dundas Ilmenite Titanium Project run by a subsidiary of Blue Jay Titanium Mining Company. The company expects to start construction work in 2019 and to employ 60-100 workers in its operations phase.

2018 brought positive reports from North American Nickel's surveys in the Maniitsoq district, but the company is apparently not undertaking further field surveys in 2019. The World Bank and others assess global capacity for nickel mining as constrained and have forecasted rising prices in the coming years. Nickel is important for the production of stainless steel and rechargeable batteries. Battery demand is expected to rise considerably over the next few years.

A permit was granted for zinc and lead mining at Citronen fjord in Northern Greenland in 2016, but it is still uncertain whether mining operations will get underway. In its operations phase, this project will employ almost 500 workers, of which only a few are expected to come from Greenland. The mine will lie a very long way from any populated area.

There are two advanced projects in Southern Greenland concerning the mining of rare minerals, etc. One, close to Narsaq, will produce uranium as an unavoidable by-product. The terms for exporting materials with uranium content have been agreed between the Danish and Greenlandic governments. Work has been in progress on these projects for many years, but mining permits have not yet been granted.

Mineral exploration costs have been decreasing for several years since the high level of activity within hydrocarbon exploration around 2010-11; see Figure 1.4. There are still no figures available for the costs of hydrocarbon exploration in 2018, and these are therefore reported as zero in the figure. This means that the costs of mineral exploration increased by at least 10 per cent in 2018, but from a low level.

The prices of a mineral resource - the current, but more significantly, the forecasted future price - are a key factor for investment in exploration and mining activities in the mineral resources sector. Another key factor is the mineral resources companies' perception of the regulatory conditions governing mining in various countries.

Given the current crude oil prices, there is little prospect of a new surge in exploration for hydrocarbons offshore. Instead, the Greenland Government Authorities are seeking to promote interest in onshore exploration.

Figure 1.4. Costs of hydrocarbon and mineral prospecting, 2003-2018

MDKK. 6.0006,000

5,0005.000

4,0004.000

3.0003,000

2.0002,000

1.0001,000

0 2003 2004 2005 2006 20072008 2009 2010 2011 20122013 2014 2015 2016 2017 2018

Note: The figures for 2004-2014 are final. 2015-2017 are provisional. The values for 2018 do not include hydrocarbon exploration costs. Source: Statistics Greenland.

The prices for a number of minerals have either been very high for several years (e.g. zinc), or have risen from a low level (e.g. nickel). Price indices for a number of minerals are shown in Figure 1.5. The World Bank's Commodity Markets Outlook from April 2019 predicts rising prices for nickel, stable prices for copper, a slight fall in prices for gold and a steeper fall for zinc moving towards 2030. There are no similar statistics for rare earth elements.

The mining companies' perception of national regulatory conditions governing mining is more difficult to report on than the trend in mineral resource prices. A global survey of perceptions is available in private Canadian think-tank Fraser Institute's annual survey of the attractiveness to companies of mining in different jurisdictions. This is a questionnaire-based survey conducted among industry respondents, so it must be assumed that the responses from companies familiar with Greenlandic conditions and regulatory policy are reflected in the responses on conditions in Greenland.

With all due reservations regarding a survey based on a limited number of respondents, it is still a matter for concern that Greenland has come down from a ranking in the top quarter in 2014 in Fraser Institute's Policy Perception Index, to a ranking in the worst quarter in 2018.

The 2020 Budget Act Bill outlines the plan to establish a mineral resources commission. This body would make recommendations on mineral resources legislation and regulatory policy with a view to stimulating and promoting activity in this sector.

Figure 1.5 World Bank metal prices index, 2012-2019

Index, 2010 = 100 170 150 130 110 90 70 50 30 2012 2013 2014 2015 2016 2017 2018 2019 total metals nickel zinc copper gold

Note: Price index in USD. Last observation made in June 2019. Source: World Bank Commodity Markets Outlook.

1.4. Investment In the past, the Greenland Government Authorities' capital expenditures via the Construction and Renovation Fund financed a large proportion of Greenland's building and construction investments. When a project is approved, the funds are transferred to the fund. When an investment was made, the costs were met by drawdowns from the Fund. With the advent of other investors, and the fact that the Greenland Government Authorities have increasingly invested though companies, the significance of drawdowns from the Construction and Renovation Fund has become less important for investment as a whole. In 2014, drawdowns from the Fund accounted for only some 20% of total building and construction investment in the National Accounts, compared to close to 40% in 2011 and 2012.

Drawings on the Construction and Renovation Fund in recent years have been more or less constant around DKK 500 million per year. See figure 1.6. Fluctuations in building and construction investments are thus attributable to other developers, including the municipalities, who have assumed a major role in the construction and administration of publicly owned rental accommodation. Consideration is thus being given to whether the Greenland Government Authorities' some 6,000 rental units should be devolved to the local authorities.

Potential developers report problems getting projects started, and there are indications that the building and construction sector is reaching full capacity. The commissioning of large-scale projects is thus currently at risk of rapidly creating bottlenecks, resulting in rising costs and deferral of other activities.

Figure 1.6 Disbursements from the Construction and Renovation Fund, 2012-2019

MDKK. 1,2001.200

1,0001.000

800

600

400

200

0 2012 2013 2014 2015 2016 2017 2018 2019

Note: Total over 12 months. The last observation is from June 2019. An adjustment of DKK 881m of the value of interest-free and interest-only (amortisation-deferred) mortgage loans at year-end 2018 has not been included. Source: Statistics Greenland.

Based on mortgage credit institution lending in Greenland, the level of activity in construction of owner- occupier homes in recent years is deemed to be rather modest; see Figure 1.7. Total lending for owner- occupied homes has been fairly constant, with the level of new mortgage loans equating to redemption of old ones, as the losses made on these are negligible. The level of activity in construction of owner-occupied homes is expected to rise in 2019 and 2020.

Figure 1.7. Mortgage credit institution lending to Greenland, 2006-2019

MDKK

4.0004,000

3.5003,500

3.0003,000

2,5002.500

2,0002.000

1.5001,500

1.0001,000

500

0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Total Owner-occupied housing

Note: Last observation made in Q2 2019. Source: Statistics Greenland.

The buoyancy of the fisheries sector will mean more investment in all vessel types and in equipment. This is not yet reflected in the foreign trade statistics, and will not immediately affect the level of activity, as the majority of acquisitions will be imports. In 2019, some owners are expected to introduce newly-built trawlers in the offshore fishery. This presents an opportunity to rationalise the industry, thus helping to boost profitability in the future. The inshore fishery has not initiated a corresponding modernisation.

1.5. Consumption Household final consumption expenditure is rising. Private consumption can to some extent be illustrated by retail sales figures for the three largest retail chains; see Figure 1.8. Retail sales in 2018 were 2.7 per cent higher than in 2017, which is indicative of a largely similar volume increase, as the consumer price index remained virtually unchanged in the same period. Growth in retail sales continued in the first half of 2019. Since a large proportion of consumer goods are imported, fluctuations in private consumption have less impact on economic trends than in the majority of other countries, while investments and exports have greater impact on economic fluctuations.

Figure 1.8 Retail sales, seasonally adjusted, 2010-2019

Index, 2010 = 100

130

125

120

115

110

105

100

90 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Note: Last observation made in Q1 2019. Source: Statistics Greenland.

The value of imported motor vehicles and pleasure craft has risen steeply in recent years; see Figure 1.9. This is yet another indicator of strong increases in consumption and earnings.

Finally, recent years have seen a moderate rise in bank lending to households; see Figure 1.10. In Q2 2019, lending to households was approx. 3% higher than in the preceding year. This is a sure sign that the growing consumption is generally not loan-financed.

Figure 1.9 Imports of motor vehicles and pleasure craft, 2010-2018

MDKK 70

10 2010 2011 2012 2013 2014 2015 2016 2017 2018 Motor vehicle imports Imports of pleasure craft

Source: Statistics Greenland.

Figure 1.10. Bank lending, 2014-2019

MDKK 3.0003,000

2.5002,500

2.0002,000

1.5001,500

1,0001.000 2014 2015 2016 2017 2018 2019

Lending to households Lending to others

Note: Last observation made in Q2 2019. Source: Statistics Greenland.

1.6. The labour market Labour market assessment from one month to the next relies exclusively on statistics on the number of registered job seekers. The statistics show the total number of people who have contacted the municipality in a single month because of unemployment. The statistics are influenced by the administrative practice of each of the municipalities and can therefore be difficult to interpret.

The number of registered job-seekers has fallen drastically since 2014 (see Figure 1.11), although the rate slowed in 2017. 2018 and the first months of 2019 saw another steep fall compared with the previous year. The fall was seen in both towns and settlements, but is steepest in towns. The fall is mainly attributable to employable individuals in the so-called match-group 1 (ready to take up employment within 3 months), but recent months have also seen a steep dip in the number of individuals in match-group 2 (ready to participate in a vocational incentive scheme).

Figure 1.11 Registered job-seekers, 2014-2019

Total 5.0005,000 4.5004,500

4.0004,000 3.5003,500 3.0003,000

2.5002,500 2.0002,000 1.5001,500 1.0001,000 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 2014 2015 2016 2017 2018 2019

Note: Last observation made in July 2019. Source: Statistics Greenland.

Statistics Greenland publishes annual registry-based statistics of unemployment amongst 18-64 year-olds ordinarily resident in Greenland. This data is the closest Greenland comes to anything comparable with other countries' unemployment statistics. The statistics do not include anyone who has been in paid employment and registered as a job-seeker in the same month. The number of unemployed persons in 2017 was 1,858, corresponding to an unemployment rate of 6.8 per cent of the workforce, compared to 7.3 per cent in 2016, and 10.3 per cent back in 2014.

The number of registered job-seekers has followed the average unemployment trend in the registry-based statistics very closely in recent years, as the monthly average for registered job-seekers has been 900-1,000 individuals higher than the average unemployment rate per month according to the unemployment statistics for all years from 2012 to 2017. If the workforce is assumed to be more or less unchanged, a mechanical projection puts the unemployment rate at 5.2 per cent in 2018 and at 3.7 per cent in 2019; see Figure 1.12.

Unemployment is particularly high among individuals with no post-secondary (tertiary) education. The registered figures for 2017 show that unemployment in this group was 11.0% compared to 3.2% for those with a vocational qualification, and 0.5% for the highly qualified. Unemployment has also been harder to overcome for those with no tertiary education.

Figure 1.12 Unemployment among permanently resident 18-65-year-olds, 2010-2019

Percentage of workforce

14 12 10 8 6 4 2 0 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Note: Figures for 2010-2017 are from Statistics Greenland, whilst those for 2018-2019 are the Economic Council's estimates. Source: Statistics Greenland and the Economic Council's own estimates.

The fall in unemployment has it counterpart in higher employment. This means that paid-up labour market contribution taxes according to the Treasury's accounts rose by 6.1 per cent in 2018 following increases of 4.8 per cent in 2017 and 7.0 per cent in 2016. The labour market contribution tax accounts for 0.9 per cent of a company's payroll costs and is intended to finance continuing education and upskilling within the vocational training sector.

Overall, statistics and indicators reveal that employment has been rising, and unemployment falling since 2014. This trend has continued strongly in 2019. It is beneficial for both the individual citizens who have gained employment and a basis for providing for themselves and their family, and for the economy, which gains increased tax revenue and reduces its spending on job-seekers, that unemployment in Greenland is now more or less level with unemployment in other countries. It also means that the trend cannot continue at the same rate unless the labour force is enlarged through increased participation among marginal groups on the labour market, immigration or by efficiency improvements in the fisheries for halibut in particular; see Section 2.4. Unemployment is now so low, that the risk of a general overheating of the economy poses a real threat to the coming years' economic development.

Chapter 2 Current economic policies The upturn in the economy is continuing, with increasing earnings and employment. This is encouraging, but should not overshadow the fact that underlying structural problems remain to be solved. The buoyant economic climate provides a good juncture for solving underlying structural problems relating to education and training, groups outside the labour market and the development of a diversified economy. However, this calls for economic policy initiatives, and there is a great need to clarify the economy policy strategy and concrete initiatives in key reform areas.

This chapter examines structural factors in more detail, including challenges facing the Greenland Government Authorities, the vulnerability of the economy and the outlook for transitioning towards a more self-sustaining economy. Section 2.1 discusses trends in public finances, while Section 2.2 contains an update on the sustainability of public finances and Section 2.3 examines trends in immigration and emigration. Section 2.4 assesses the management of fisheries resources, and Section 2.5 illustrates the vulnerability of the economy to trends in the fisheries. Section 2.6 discusses topics relating to the transition towards a more self-sustaining economy.

2.1. Trends in Greenland's public finances The Treasury has reported a surplus for a number of years; see Figure 2.1. This is due primarily to the favourable economic climate, which has increased the tax and duty base. In the Budget Act Bill, the expectation is of near-breakeven for 2019, and also for budget years 2020-2023. The Budget Act requires that the Greenland Government Authorities' finances overall must show breakeven or a surplus for the coming four years.

Figure 2.1. Public sector budget balance, 2010-2023

MDKK 300 250 200 150 100 50 0 -50 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 -100 -150 -200 -250

Realised Budget

Note: Budget balance for the government of Greenland, exclusive municipalities.Positive figures indicate a surplus. 2018 and 2019 are estimates, 2020-2023 are budget years. Source: Budget Act Bill for 2020.

Surpluses in the budget years should be seen in the light of initiatives in the Budget Act Bill, which, as a whole, are set to impair the budget by just over DKK 60m per year over the period 2020-2023. This is a net sum for a number of initiatives, some of which positively impact, and others negatively impact, public finances. The Ilanngaassivik payment system is expected to contribute an improvement of DKK 75m, while the introduction of an earned income tax credit is estimated to impair the finances by DKK 50m; see below. The Bill also includes requirements for annual cost reductions of DKK 40-50m. Finally, the Bill proposes a saving of DKK 50m from a price and wage adjustment for the majority of operating expenditures, which equates to approx. one-third of the anticipated rate of price and wage increases.

There are also improvements in the municipal finances, cf. reporting from Statistics Norway. In the light of the buoyant economic climate, this is a problematic situation. It emphasises the need to tackle the structural problems in the municipalities, and to establish a new funding equalisation system for local authorities.

The public finances vary automatically in line with prevailing economic trends. Years with a positive trend result in higher tax and duty revenue and reduced spending on items such as unemployment benefit and other welfare benefits, and vice versa in years with a negative economic trend. In this way, the public finances fluctuate in line with the economic cycle, and in buoyant years, there should be a surplus and consolidation to amass a buffer for countering an economic downshift without resorting to tax increases or cutbacks. The current budget figures and, not least, the trend projected in the budget years, should be seen the light of this, and modest surpluses or breakeven in good years do not, per se, reflect adequate consolidation of public finances.

During the positive economic situation of recent years, an overspend has occurred relative to the price and wage trends, as illustrated in Figure 2.2. The Figure shows the actual trend in total operating expenditure for the Greenland Government Authorities from 2014 to 2020, as estimated in the Budget Act Bill now presented. This is compared with a scenario in which operating expenditure was maintained at the 2014 level, but projected with price and wage increases over the forecast years. This trajectory thus equates to a situation of unchanged economic activity level in which spending increased solely as a result of price and wage increases.

Figure 2.2. Trend in the Greenland Government Authorities' operating expenditure, 2014-2020

3,1003100 MDKK 3,0003000

2,9002900

2,8002800

2,7002700

2,6002600

2,5002500

2,4002400 2014 2015 2016 2017 2018 2019 2020

FaktiskActual expenditure udgifter estimateSkøn - Forslag – Budget til Finanslov Act Bill

2014 levelniveau projected fremskrevet with medprice/wage pris/lønstigninger increases

Source: The Economic Council's own estimates based on data from the 2020 Budget Act Bill.

In the period 2016-2018, operating expenditure increased more than can be explained by price and wage increases. Net of price and wage increases, the expenditure level in 2020 is just over 5 per cent higher than in 2014. This trend is not tantamount to the absence of adjustments and economies in certain areas, but reflects that notwithstanding these, spending has increased on the basis of the favourable economic climate and the increased revenue from taxes and duty. The increase in spending is also not consistent with the need for rationalisation and efficiency improvements in the public sector in order to overcome the financing problems posed by an ageing population. A key element of the Sustainability and Growth Plan is the goal of boosting public finances by just over DKK 1bn by 2030, the largest fraction of which (DKK 650m) is to be generated by efficiency improvements in order to ease the spending pressure for a good many years. The actual trend, however, is tending in the opposite direction. There is a great need to follow up on the Sustainability and Growth Plan, and to establish not only goals, but also concrete and viable policy initiatives in a few key areas.

The favourable economic climate and Treasury surpluses (see Figure 2.1), have also been instrumental in achieving a consolidation in the form of both a reduction in the Greenland Government Authorities' debts and improved liquidity. By mid-2019, the Greenland Government Authorities' foreign debts had been reduced to DKK 154m. In the same year, shares were acquired in Air Greenland, and going forward, capital will be injected into KAIR/Greenland International Airports. Going forward, mounting debts are expected in the municipal limited companies and limited companies owned by the Greenland Government Authorities. As such, the low level of the Greenland Government Authorities' liabilities does not wholly reflect its total risk exposure. Many activities undertaken by companies wholly or partly owned by the Greenland Government Authorities are systemically crucial to society, such as Air Greenland, and can therefore not be wound up in the event of financial problems. The Greenland Government Authorities are thus exposed to high risk, which is only compounded by further borrowing and self-financing of trade and industry activities. Basically, the total exposure has little risk diversification, which thus intensifies the need for fiscal

consolidation. There is a need for a more clear-cut policy for the Greenland Government Authorities' financial commitments in various trade and industry ventures, and analyses of the entailed risk exposure.

The economy of Greenland is heavily dependent on its fisheries sector, and, as documented in Section 2.5 below, fluctuations in the fisheries could have dire economic consequences, for the public finances too. The options for pursuing proactive fiscal policy during an economic downturn caused by a decline in the fisheries would be very limited. Any downturn in the fisheries sector caused by falling international prices or a decline in stocks could not be countered by fiscal policy measures. Fiscal policy activities, such as construction activities, might stimulate activity in other sectors, but would not deploy the resulting unemployed fisheries workforce, since this would scarcely be in demand for construction work. The consequence of this is that a decline in the fisheries might be very difficult to counteract, which emphasises the importance of pursuing a cautious budgetary policy in a positive economic cycle in order to amass buffers for hard times. Greater resilience will also be achieved by making the most of a favourable economic period for carrying out structural reforms. However, this has not yet been realised to any adequate extent.

A bill has been brought for an earned income tax credit as a means of reducing high aggregate marginal tax rates for individuals achieving the transition from unemployment to employment. The earned income tax credit is intended to make it more financially attractive for more citizens to take up employment. Specifically, the bill proposes granting an annual offset in taxable income of a maximum of DKK 9,600. The allowance is determined on the basis of earnings above the personal and standard allowance. The amount will be tapered so that the full allowance is achieved at an income of (2019 level) DKK 180,400 up to an income of DKK 350,000 (the allowance being fully tapered off at income of DKK 550,000 or more). At a taxation rate of 43 per cent, the maximum earned income tax credit will provide an annual increase in disposable income of DKK 4,128 (2019 level).

As discussed in previous Economic Council Reports, there is a great need to boost the incentives for being in employment, and to pursue an active labour market policy to encourage job-seeking among the unemployed. The bill put forward for an earned income tax credit is, however, beset by a number of problems. For technical reasons, the allowance cannot be calculated and disbursed until the beneficiary's tax assessment has been completed. This means, for instance, that the allowance entitlement for 2020 cannot be calculated until mid-2021, with disbursement thus not being made until August 2021. This means that on making the transition from unemployment to employment, the beneficiary will not immediately see the increase in disposable income afforded by the earned income tax credit. The incentive effect therefore depends on a 'foresight effect' in which the target beneficiary is incentivised by the future reward of being in employment. The immediate effect on disposable income of taking up employment is assumed to be a key factor for many citizens in the liquidity-constrained low and middle income group. The incentive effect of the allowance is therefore questionable. The most certain effect is a concentrated increase over time in disposable income and hence household consumption when the allowance is disbursed. In connection with the presentation of the bill for an earned income tax credit, it is estimated that the direct budgetary expense of the allowance amounts to approx. DKK 80m, though estimated incentive effects or dynamic effects would generate revenue in the order of DKK 35m. Based on these estimates, the earned income tax credit is far from cost-neutral. No detailed documentation has been provided for the estimated behavioural effects, but the magnitude of the envisaged figure must be regarded as optimistic. It is crucial to increase

the rate of employment, especially for groups with low educational attainment or who are marginalised from the labour market. For attainment of the national economic objective, an increase in employment is intended to improve public finances. To that end, the actual format of the earned income tax credit is costly and not precisely targeted, since many people already in employment will also be entitled to the allowance.

There is a need for a comprehensive and coherent reform of the welfare safety net. The total basket of benefits and subsidies is highly complex and difficult to make sense of for citizens and case workers. The interaction between the various benefits is unclear and in many situations results in very low or no financial incentive to take up employment. Meanwhile, active welfare and employment initiatives are fraught by problems. These problems are well-known, and have been analysed in a number of reports by bodies such as the Tax and Welfare Commission, the Economic Council and VIVE, the independent welfare research and analysis centre (2018). 'Quick-fix' solutions are not expedient in this system, and the focus should instead be on coherent reform measures commensurate with the challenge of addressing welfare factors and enabling more people to pay their own way. Organising the welfare safety net is a difficult task, but inspiration may be gained from recent reforms in other countries. The UK has merged a number of benefits in a single, unified system (universal credit welfare reform), which results in a transparent system, simplifies its administration, and reduces the disincentives of conflicting benefits; see also OECD (2013).

A bill has been presented for establishing hydropower plants in Qasigiannguit and Aasiaat together with an enlargement of the existing hydropower utility in Nuuk. The total investment commitment is estimated to be DKK 3bn. The new plants at Qasigiannguit and Aasiaat will not be profitable, while the plant enlargement at Nuuk will be profitable. It is a problem that non-profitable projects and a profitable project have been linked in this way so as to appear profitable collectively. The establishment of the hydropower plants at Qasigiannguit and Aasiaat are associated with considerable risk, while the timing of such major construction activities is also problematic.

2.2. Sustainability of the public finances In recent years, Greenland's public finances have generated a fair surplus. However, further out on the horizon, storm clouds are gathering. The population composition is changing radically, and will inevitably place increasing pressure on public spending; see Section 2.3.

Figure 2.3 presents an update on projected public revenue and expenditure up to 2040. The projection is based solely on enacted legislation and incorporates no effects from reform requirements, etc. The Figure shows that it is important to follow up on the reform requirements in the Sustainability and Growth Plan so that public finances can be sustainably boosted by DKK 1bn by 2030. This applies both to the key requirement of achieving efficiency improvements within the public administration over the long term, and the requirement to transition more citizens from financial dependence to financial independence by means of labour market reforms. Each time a single citizen can be transitioned from receiving public benefits to becoming financially self-sufficient, with earned income corresponding to the union-determined minimum wage, the public finances will be boosted by just under DKK 120,000. The high impact on the public finances is due to the saving on welfare benefits, including housing benefit reduction and the payment of income tax.

The long-term trend in the level of educational attainment, development of infrastructure, trade patterns, etc. will strongly influence the state of public finances 20-30 years down the line. A substantial improvement in the level of educational attainment, for example, will definitely increase employment and reduce the pressure on the welfare system. This benefits economic growth and sustainability alike. The Economic Council and the Ministry of Finance in association with DREAM (Danish Institute for Economic Modelling and Forecasting) are developing a model for Greenland's long-term economic development and the public finances. This will be an important future-oriented reform tool for clarifying the impacts of educational policy, taxation policy, labour market and welfare policy, etc.

Figure 2.3. Projection of public revenue and expenditure as a share of GDP, 2025-2040

48 2025 2030 2035 2040

Projection, public income Projection, public expenditure

Note: the figure shows public revenue and expenditure (exclusive of interest and dividends) for public services and public administration (the Greenland Government Authorities, municipalities and Danish Government). The Danish Government's expenditure is offset by reimbursements (i.e. revenues) in the table and does not therefore affect the primary public balance. However, regular transfers in the form of the block subsidy, EU disbursements, etc., do affect the public balance. The figures are compiled in the national accounts form; see Public Finances, Statistics Greenland.

2.3. Immigration and emigration The population structure is of great significance and is set to change appreciably in the years to come. The projection up to 2028 is for a fall in the total population from approx. 56,000 individuals (of whom around 6,000 were born outside Greenland) to a level of around 54,000 individuals in 2028; see Statistics Greenland's latest population projection. By 2048, the population of Greenland will be an estimated 48,000.

Meanwhile, the population composition will also change radically. Figure 2.4 shows the youth and elderly dependency ratios expressed as the number of children and adolescents (age 16 years and younger) and elderly citizens (age 65+), respectively, as a proportion of the age 17-64-years support age-group. This ratio division illustrates how many children/adolescents and elderly citizens will need to be supported, in relation to the number of people of working age. The total dependency ratio increases over the period from just over 50 per cent to around 60 per cent; the increase being attributable to the net effect of a fall in the youth ratio and a significant increase in the elderly ratio. These shifts reflect the falling birth rate, the ageing of the large 'baby-boom' generation and rising life expectancy.

Figure 2.4 Dependency ratio – youth and elderly, 1996-2050

40 % 30

0 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030 2032 2034 2036 2038 2040 2042 2044 2046 2048 2050

UngebrøkYouth ratio (0-16 years)år) ElderlyÆldrebrøk ratio (65+ years)år)

Source: Statistics Greenland, 2019 Population Projection (not yet published in English), www.stat.gl.

The population trend has a number of socioeconomic consequences and is the principal cause of the fiscal sustainability problem; see Section 2.2 above. However, the trend also has major implications for the labour market. The number of individuals in the 17-64 years age-group is currently approx. 38,000, and this is set to fall steadily to 28,000 by 2050. Basically, this means that the potential workforce will be shrinking in a situation where there is a need for increased economic activity in order to achieve a more self- sustaining economy.

This trend raises a number of questions as to how the workforce can be enlarged, including by means of boosted education, welfare interventions and higher pensionable age. One particular question is centred around the immigration and emigration of individuals born in Greenland.

Figure 2.5 Emigration and immigration, individuals born in Greenland

1,8001800 1,6001600

1,4001400 1,2001200 1,0001000 800 600 No. of individuals of No. 400 200 0 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

UdvandringEmigration – born- født in iGreenland Grønland IndvandringImmigration – - born født in i GrønlandGreenland

Source: Statistics Greenland.

While the birth rate in itself promises a growing population, for a number of years, the level of net emigration has virtually kept the population size constant. The trend in both emigration and emigration among individuals born in Greenland has shown a weak increase, together with systematic net emigration; see Figure 2.5. Around 15,000 persons originally born in Greenland currently reside in Denmark, which is 3,000 more than a decade ago.

Although there is some annual fluctuation, this is not immediately linked to the economic trend (and not measured in terms of Denmark's economic development either). This suggests that the trend is attributable to more structural factors. No in-depth studies exist to account for the migration patterns for individuals born in Greenland. Recent analyses from the IMF and the European Bank for Reconstruction and Development (EBRD) reveal that migration patterns are not driven solely by narrow economic incentives. Other factors, including care and education options for offspring, access to healthcare, housing and infrastructure, external environment and the quality of institutions, are also key incentives. This emphasises the need to improve welfare and educational provisions in Greenland as a crucial condition for achieving an adequate workforce for realising a process towards a more self-sustaining economy.

2.4. Fisheries management The fisheries represent the most important private-sector industry measured in terms of employment, value creation and exports. The fisheries are consequently also crucially important for Greenland's tax and duty revenues; see below. The fisheries policy is therefore a very decisive element in the national trade and industry policy. The revenue from resource rent taxation depends on sound fisheries management, and effective fishery and market conditions. The first two depend on the policy pursued.

As regards sound management of marine resources, these may be regarded as 'capital in the bank', and belonging to the entire population. Every year, this natural capital yields a return in the form of a growth in the stocks that can be fished. If the fishing intensity outstrips the growth in stocks, this natural capital will be gradually reduced, and yield lower future returns. This is the situation that appears to have occurred in parts of the halibut and cod fisheries in recent years. Fishing above the sustainable level yields short-term gains at the costs of future losses.

The trend in quota setting for a number of the most important species continues to give cause for concern; see also the discussion in the Economic Council's 2018 report. Figure 2.6 shows the trend in the quotas – Total Allowable Catch (TAC) – as a percentage of the Greenland Institute of Natural Resources' biological advice. The quotas for for prawn and offshore Greenland halibut are set in accordance with the biological advice, which aim to optimise future fishing. The management of these particular species is thus sustainable. For a number of other species, however, the quotas have been set well in excess of the biological advice. This applies in particular to the inshore cod fishery, the quota for which exceeds the biological advice four times over. This excess has increased in recent years. For Greenland halibut fishing in Disko Bay, Uummannaq and Upernavik, the quotas also significantly exceed the biological advice. This indicates an imminent risk that the fishing is not sustainable. Given that these are important species for the industry, and thus for many fishers, the trend indicates that short-term gains are being made at the expense of the future of commercial fishing. Since a growing proportion of resource rent taxes derive from these species, future catch reductions will also impact tax revenue. The introduction of quotas based on the biological advice on the same basis as for prawns will ensure long-term revenues for both fishers and the Treasury. Meanwhile, prudent quotas should also extend to a larger segment of the fishing industry.

Figure 2.6 Quotas (TAC) as a percentage of the biological advice, 2009-2018.

430

380

330

280 % 230

180

130

80 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Prawn Halibut, Disko Bay Hellefisk Uummannaq Hellefisk Upernavik Cod, inshore* Quota corresponding with TAC

Note: For cod, the 2018 figures are provisional. Source: Greenland Institute of Natural Resources

The quotas for Greenland halibut exceed the biological advice by more than 40 per cent; see Figure 2.6. Without any real constraints on participation in commercial fishing, fishing increases over the short term, as seen in recent years. From 2013 to 2018, the number of vessels/licences within the inshore Greenland halibut fishery increased by more than 20 per cent, while the number of dinghies increased by more than 70 per cent; see the 2019 Political and Economic Report. This is a substantial increase in fishing effort, without any corresponding increase in stocks, as recommended in the biological advice. If fishing effort outstrips the growth in stocks, Greenland halibut stocks will gradually dwindle and future yields will be lower for both fishers and the economy. A small decline in the number of dinghies in 2018 might be an indication that this fishery is not as lucrative as in the past.

Given the pressure on the labour market and the need to diversify into other trade and industry activities, efficiency improvements in the fishery via a proactive reduction in the number of fishers could free up labour and thereby contribute to remedying labour shortages in many other industries. At the same time, it will improve the earnings potentials for the remaining fishers, provided that the fish resources are managed sustainably. Since the fisheries will continue to attract workers for as long as there are sound earnings potentials, a reduction in stocks as a result of overfishing will cause fishers for whom fishing would otherwise have been profitable to leave the industry. The remaining fishers will then have to contend with lower earnings than formerly. For lenders such as banks and the owners of onshore facilities, the result will be increased risk.

2.5. Greenland's economic vulnerability – fisheries trends

Trends in the fisheries sector are key determinants of public revenue both via income and corporate taxes, but also the resource rent taxes. These taxes are a means of generating a return on exploitation of marine resources for the economy. In recent years, rising prices, and in some cases, volumes too, have meant that resource rent taxes are an increasingly significant source of revenue for the Greenland Government Authorities. The prices of fish and shellfish have increased, and in 2017 resource rent taxation was extended to additional species of fish and shellfish. In 2018, the revenue from resource rent taxation totalled DKK 425m as against DKK 22m in 2010; see Figure 2.7. The tax on prawn accounts for just over 60 per cent of total revenue from resource rent taxes.

The resource rent tax is levied either on catch volume or catch value. For the majority of species except for pelagic fish, the resource rent taxation rate is based on the price of the product. The price base is not the price obtained for a given catch, but the average price in a period preceding the quarter in which the catch was made. Incomes after deduction of eligible expenses and paid-up resource rent taxes are taxed like any other income through income or corporate tax.

The tax rate is primarily determined by whether the product is to be exported directly or landed (sold to land-based processing plants). Special rules apply to pelagic fish, however. The revenue from fish destined for direct export in 2018 was just over DKK 325m; the revenue from species landed (sold to land-based processing plants) just over DKK 50m, and the revenue from the pelagic fishery was just under DKK 50m.

Figure 2.7 Revenue from fishing-related taxes, 1991-2019

450

400

350

300

250

200 DKK 1,000s DKK 150

100

0 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019-budg

RejeafgiftPrawn tax HellefiskafgiftHalibut tax PelagicPelagisk taxes afgifter AfgiftTax on påother andre species arter

Source: Ministry of Finance (2019).

The resource rent taxes have become a very important revenue source for the Greenland Government Authorities, but are subject to a risk of major fluctuation from one year to the next. Fish and shellfish prices and catch volumes are liable to rise and fall drastically in a short space of time, with the attendant major consequences for the economy. This will be immediately apparent in variations in revenue from the taxes plus the income of employees or independent fishers' tax payments and the shipping companies' corporation tax. This may be compounded by what are perhaps even more critical consequences in the shape of rising or falling fishing industry employment and in the majority of other private-sector industries.

The resource rent taxes and the revenue from income and corporate taxes are linked. The resource rent taxes reduce profits and thereby the corporate tax and self-employed fishers' tax payments. In addition, trawler workers are generally paid according to the principle of share-fishing in that the resource rent tax expense is deducted from the sale and thus reduces the wage paid to the crew, as compared with a no-tax scenario. However, conversely, this means that the crew pays less income tax.

It is consequently complicated, but at the same time important to highlight public finances' dependency on the prices of fish and shellfish. The following section analyses the vulnerability of the public finances to fluctuations in the fisheries by assessing the effect of a 20 per cent price drop for all species in the fishery based on the average prices in 2018. The catch volumes are based on actual catches in 2018, and the analysis thus solely shows the impacts of price fluctuations. The calculations are based on the resource rent tax rules for 2019.

A 20 per cent fall in fish prices would reduce public revenue directly by DKK 232m. The resource rent taxes would fall by DKK 113m (approx. 27 per cent compared with current revenue), income taxes by DKK 92m

and corporate taxes by DKK 27m. This indicates the direct impact on the national budget, and does not factor in any derived effects.

In the event of a price fall of 10 per cent, resource rent taxes would fall by DKK 41m, or just under 10 per cent, and the aggregate revenue loss would be DKK 101m. These two scenarios exemplify that the link between a price drop and revenue is not linear. When the hypothetical price drop doubles from 10 to 20 per cent, the fall in resource rent tax revenue almost triples (from DKK 41m to DKK 113m). This is due to the fact that not only the price but also the tax rate falls for certain species.

A price fall of 20 per cent is obviously substantial, but cannot be regarded as extreme. In 2018, prawn prices more than doubled compared with 2010, while Greenland halibut and cod prices were 50-60 per cent higher. A fall of 20 per cent is thus within the key variation range for a risk analysis and does not represent an unrealistic scenario although such a price fall is not currently in prospect. MSC-certification of the prawn fishery and parts of the Greenland halibut fishery may, however, have affected prices by making them permanently higher than they would have been without certification. However, this certification also means that the Government of Greenland has greatly constrained options for disregarding the biological advice for the fisheries concerned. Moreover, the prices are still contingent on international demand for the fish products.

The resource rent taxes are a significant element in prudent management of marine resources and for ensuring that the whole of society benefits from the revenue derived from exploitation of common resources. Resource rent taxation – together with other forms of taxation – is consequently also a key source of financing for the public sector. Meanwhile, revenue may fluctuate heavily depending on price and catch volume trends. In recent years, prices and catch volumes have increased. It is important, however, that the economy does not rely on fish prices remaining high. This makes it prudent to maintain large surpluses in the budget in years with high fish prices. This provides a buffer so that cutbacks are not needed when the prices of key species in the fishery fall again at a later stage. This can be provided for in budgetary terms in various ways such as by a fund or by simply raising the requirement for a surplus in public finances when prices are high.

However, the 2020 Budget Act Bill does not live up to this form of precautionary principle. The budget is for revenue from resource rent taxes of DKK 399m or only slightly less than the high proceeds of DKK 425m achieved in 2018. At the same time, the budget act bill proposes only a modest surplus of DKK 6m in operating expenditures and capital expenditures.

2.6. A self-sustaining economy and the Danish block grant A pivotal topic in debate on a more self-sustaining economy for Greenland is the importance of the block grant and other subsidies from abroad. The statement on subsidies from abroad comprises the block grant from Denmark, tasks performed by the Danish Government in Greenland, e.g. policing (so-called reimbursements) and EU subsidies under the Partnership Agreement. Subsidies from abroad account for just under half of total revenue for the public sector (Greenland Government Authorities, municipalities and tasks performed by the Danish State); see Figure 2.8. In addition, are the responsibilities not yet devolved to Greenland from Denmark, together with foreign affairs, defence and security policy

commitments that would also devolve to Greenland, for which no estimate or costing as regards Greenland taking on these commitments is available.

Figure 2.8. Subsidies from abroad as a percentage of aggregate public revenue, 2009-2017

% 30

0 2009 2010 2011 2012 2013 2014 2015 2016 2017

Block grant, etc. Tasks performed by Danish Government EU and others

Note: The Economic Council's own estimates based on data from Statistics Greenland. Tasks performed by the Danish Government are referred to in the statistics as 'reimbursements'. Public revenues are the aggregate operating incomes for the public sector as a whole determined in accordance with national accounting principles.

International subsidies (primarily from Denmark) thus constitute a very substantial proportion of the public sector's financing base. The subsidies facilitate a higher level of welfare services (child care, education, healthcare, etc.) and welfare benefits than could be financed by taxes and duties etc. levied domestically. They also enable a higher income base via both remuneration of public employees and public benefits paid to households. They enable a higher standard of living than what Greenland's economic output in itself would provide for. International transfers are comparable with the export income that makes it possible to finance the import of products and services.

It is not immediately possible to offer a reliable assessment of the state of the economy in the absence of these subsidies. In a scenario where the subsidies were phased out over a very short space of time, the economic consequences would be very great indeed. However, the change would be of such a magnitude that the impacts cannot be extrapolated from current economic conditions. In this scenario, the public sector would lose around half of its financing base, and this would obviously have substantial derived consequences for public welfare and benefits. It would reduce incomes significantly, have major impact on the standard of living and also spell a significantly unequal income distribution. Substituting international subsidies with raised income and other taxes would call for tax rates of double the current level, which would not be realistic and have severe derived impacts on economic activity. Looking to the future, it is more relevant to discuss the extent to which Greenland's reliance on international subsidies could be reduced gradually.

A gradual reduction in the significance of the subsidies will entail the development of new private-sector business and increased productivity. A process along these lines will pave the way for increased earnings and also increased revenue from taxes at the current tax and duty rates. This is a more attractive solution

than tax increases, but will not happen organically. In broad terms, economic activity in the private sector needs to double, and the derived tax increases must be reserved for phasing out the subsidies. If economic development calls for or necessitates increased public expenditure, e.g. on education or healthcare, this will then further step up the financing requirements. Finally, a solution to the fiscal sustainability problems remains to be addressed; see Section 2.2, which also entails financing. The challenge of reducing the dependency on international subsidies is thus substantial if living standards should not fall by a least follow the trends in the Nordic countries.

In purely mechanical terms, a gradual reduction of the relative importance of the block grant from Denmark is already happening. With the Home Rule Agreement, the block grant amount was fixed, save for annual wage and price trends adjustments in Denmark. Since wage and price increases have been higher in Greenland than in Denmark, the purchasing power of the block grant is thus gradually being reduced.

In the period 2009-2017, the subsidies' share of total public revenue fell by an average of just under 0.5 percentage points per annum (corresponding essentially to the price/wage increase differential between Greenland and Denmark). At this pace, it will take around 20 years to reduce the subsidies' share of financing by 10 percentage points.

The slow rate of reduction in subsidy value; see Figure 2.8, should be seen in relation to the favourable economic climate of recent years. This notwithstanding, no budgetary buffer has been amassed to reduce the significance of the international subsidies. This reflects the priority given to a number of other commitments and domains, and highlights the pressure on the public finances. The main change in the taxation area in this period has been the phasing in of the resource rent taxes, which now contribute considerable revenue (2018: DKK 425m); see above. At the present time, it is difficult to identify other areas in which it would be possible to increase the taxation rate without adverse socioeconomic impacts. The realisation of an 'erosion strategy' whereby the relative importance of the subsidies is gradually reduced thus also presents a major challenge.

One erosion strategy proposes to lock the block grant at its current monetary value, possibly with reserves of funds for devolvement of responsibilities from Denmark to Greenland. In 2015, the Faroe Islands signed an agreement with the Danish Government on a so-called nominal freezing of the block grant disbursed annually to the Islands (international subsidies accounting for less than 10 per cent of aggregate public revenue in the Faroe Islands). To illustrate the derived adjustment requirements, Figure 2.9 shows the actual trend in block grant disbursements with the agreed wage and price adjustment (solid line) versus a scenario in which the nominal block grant (dashed line) remained unchanged in the period since the Home Rule Agreement was signed. In 2017, the difference between the two trajectories amounts to around DKK 300m. A permanent nominal freeze on the block grant would increase this difference year on year.

Figure 2.9: Block grant trend 2009-2019 – actual and without indexing

3,800

3,750

3,700

3,650

3,600

3,550

3,500

3,450

3,400

3,350

3,300

Note: The horizontal line represents the block grant in 2009 corresponding to an unindexed block grant in the subsequent years. Source: Statistics Greenland.

A reduction in the relative significance of the international subsidies will also result in a different risk profile for public finances. The block grant is a wholly reliable source of income, unaffected by the economic cycle, fish prices and other factors. Alternative sources of financing based on increased economic activity will be less stable. This is already in evidence today in the impact of variations in the fisheries sector on public finances; see Section 2.5. In a realistic scenario for a more self-sustaining economy, economic activity will continue to be heavily dominated by a few industries, and risk exposure will hence remain high. Equally, the Greenland Government Authorities contend with high risk exposure through their wholly or part- owned limited companies; see above. Most recently with the acquisition of shares in Air Greenland. This strong concentration of ownership poses certain governance problems, but is also less than ideal in the interests of risk diversification.

A reduction in the relative significance of the international subsidies will thus be contingent on two key criteria. Trade and industry activity and income generation must be increased, and derived increases in revenue from taxes must be reserved for phasing out the international subsidies. The economic growth in recent years indicates that increased economic activity does not automatically result in a financial buffer for reducing reliance on the subsidies.

Increased trade and industry activity generates a multiple of derived requirements. Firstly, it requires the development of new commercial prospects in sectors such as mining and tourism, and secondly it requires an increase in productivity. The increase in productivity is wholly crucial. The requirements for increased activity cannot be met solely by the domestic population (including in a scenario of mass migration back to Greenland). There are basically two options for stepping up productivity: (i) by rationalising and freeing up labour in both the fisheries and public sectors, but also a geographical adjustment of habitation patterns in

relation to economic activities; (II) by increasing the level of educational attainment whereby more citizens gain vocational qualifications, and at a higher level. An increase in educational attainment will not only benefit the public finances but also raise the standard of living, the employment rate and thereby pave the way for more equitable income distribution. In previous reports, the Economic Council addressed the education sector and the acute need for improvements in this sector.

Regional factors are important and are challenged by disparate opportunities for economic development that require political decision-making. The regional issues are debated in the context of airports, hydropower plants, fisheries policy, the location of public institutions and the transfer system among the municipalities. There is a great need to clarify the opportunities and potentials of each region. Without political intervention, the risk increases that regional policy issues will block a process towards a more self- sustaining economy.

A process towards a more self-sustaining economy requires stronger integration into the global economy with regard to mineral exports and attracting tourists. A self-sustaining economy cannot be obtained through self-sufficiency. The economic policy ambitions for prosperity, welfare schemes etc. can only be achieved with an economy that is closely integrated with the global economy. International trade is a prerequisite for greater prosperity. Greenland is rich in mineral resources, and the value of those assets will not be realised through self-sufficiency but through trade with other nations. International trade holds opportunities for maximising the benefits of a division of labour. This is what generates greater productivity and prosperity. This also applies in relation to foreign capital, which can bring both new know-how and new leadership insights to Greenland. Domestic financing and ownership enable only a very protracted process and also entail very high risk exposure. There is a need to attract labour, capital and know-how from outside.

Although Greenland is heavily reliant on international economic factors (the prices of fish, prawns, minerals, etc.), the critical barriers to a process towards a more self-sustaining economy are domestic and contingent on economic policy initiatives. This is clearly framed by the current lack, not of jobs, but of qualifications. An increased level of educational attainment is thus a crucial factor for a process towards a more self-sustaining economy.

References

VIVE (National Welfare Research and Analysis Centre), 2018, Analyse af offentlig hjælp, Copenhagen.

OECD, 2013, Work incentive and universal credit – reform of the benefit system in the United Kingdom, Economics Department Working Papers No. 1033 (Jon Kristian Pareliussen).

Chapter 3 Health care spending and financing The health service is facing major challenges. There is a chronic shortage of health personnel, mounting pressure on healthcare standards and a growing elderly population. These are well-known problems faced by many other countries.

The challenges for the Greenland health service are highlighted by the challenges posed to public health in key areas. At the present state of public health, the average life-expectancy of a newborn boy is 69.9 years, and of a newborn girl, 74.5 years. This equates to life expectancy at birth in Nunavut, but is a good deal lower than in benchmark countries such as Island, the Faroe Islands and the Nordic countries. The pressure on the health service is also greater than in other countries in a number of areas, including the proportion of the population affected by critical obesity and at increased risk of diabetes, the number of smokers in the population at increased risk of COPD and cancer, the number of abortions and the prevalence of sexually transmitted disease.

The health service provides some of the welfare society's core services, and financing of its expenditure consequently is a major factor for the economy. Expenditure rounded the DKK 1.5bn mark in 2017 (or 14 per cent of total spending1), and going forward, there is no prospect of the pressure on health expenditure easing. The increasing number of elderly citizens and an increasing range of treatment options are increasing the pressure on the health service. The trend in health spending is consequently a significant determinant in future pressure on public spending, and thereby the means of balancing public expenditures and revenues over the coming decades; see Section 2.2.

This chapter focuses on the trend in health spending and its financing. Section 3.1 describes the trend in health spending, and Section 3.2 identifies a number of factors influencing the trend in, and composition of, expenditure items across countries. Section 3.3 describes the consumption of health care. Particular focus is placed on age differences in the population's need for health services. Section 3.4 focuses on how age differences are reflected in public health spending, in that elderly citizens have greater healthcare needs and thus account for a larger share of health service spending. The long-term trend in health spending is described in Section 3.5, and Section 3.6 and 3.7 examines the options for financing the mounting spending pressure in the health sector.

3.1. The trend in health spending Public healthcare is a core element of the welfare society. More than DKK 1.5bn is spent annually on treating, remedying and preventing diseases within the health service. In 2017, this equates to 8.4 per cent of Greenland's Gross Domestic Product (GDP), and 6.4 per cent if , including the block grant from Denmark. The majority of Greenland's healthcare is paid for by the public sector and is financed by taxes and the block grant. Increased pressure on health spending will necessarily entail economies in other public expenditure items if taxes increases are to be avoided. The increase in health spending has consequently been focal in many countries.

1 This equates to 14 per cent of the total expenditure in public service and administration in 2017; see Public Finances 2017, Statistics Greenland. The data used for health spending in this chapter are from the statistics for public finances compiled from the principles set out in the national accounts. Accrual of expenditures etc. entail that there may be minor differences in budgetary and accounting data for health expenditure.

In the OECD countries, health spending as a share of GDP has generally been growing over a very long period. 50 years ago, total health spending accounted for an average of 5 per cent of GDP. By 2018, that share was almost 9 per cent. In the decade following the global financial crisis, spending increased at virtually the same rate as income, but there are indications that healthcare spending is now increasing at a faster rate than income; see Spending on Health: Latest trends, OECD 2018. Health spending in the Nordic countries has largely tracked the international trend towards rising health spending as a share of GDP.

Health spending in Greenland has developed somewhat differently than the rising international trend. Measured in terms of income sources, i.e. GDP and the block grant, spending on health has remained fairly stable at around 6-7 per cent since the mid-1990s. Considered in relation to GDP alone, spending on health fell from a value well over the OECD average in 1994, but has now settled below the average; see Figure 3.1.

Figure 3.1. Health spending as a share of GDP in Greenland, the Nordic countries and OECD, 1994-2017 0.120,12

0.110,11

0.10,1

0.090,09

0.080,08

0.070,07

0.060,06

0.050,05 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Greenland (share of GDP) OECD (share of GDP) Nordic countries (share of GDP) Greenland (share of GNI)

Note: Total health spending (publicly and privately financed) as a share of gross domestic product (GDP). For Greenland, health spending is also shown as a share of Gross National Income (GDP plus income from international sources, mainly in the form of the block grant). 1994 is the first year with comparable figures. Source: OECD Health database 2019 and National Finances and National Accounts, Statistics Greenland.

Health care systems across the OECD are widely differing in terms of factors such as their opportunities for achieving economies of scale. Countries with a large number of patients are able to maintain a more specialised health service in which the fixed costs per patient are lower than in countries with a small patient base. The health service in Greenland spans highly differentiated services ranging from local community clinics, through health centres in towns, to regional hospitals and the national hospital – Dr. Ingrids Hospital (DIH) – which is served by the most extensive medical specialisation. In addition, are the treatment options in Denmark. With a small and geographically widely dispersed population, the health service in Greenland suffers from the diseconomies of its small scale, which both make the production of health services more costly than in countries with a denser population, and affect the level of service available from the health system. The transportation of patients and relatives alone accounts for 1/10th of health spending, which is more than in countries with a higher population density. This therefore also

makes it difficult to compare health systems across countries solely on the basis of spending on the health sector. All things being equal, due to the diseconomies of small scale, Greenland gets less "health care" than in other countries for its spend. Geographical factors combined with the small population also present challenges in guaranteeing all citizens equitable access to healthcare.

However, in spite of the diseconomies of small scale, health spending in Greenland, measured in terms of income (GNI), is lower than in other countries. In the Nordic countries, which also have a publicly financed health service offering equal and free healthcare to all citizens, health spending amounts to as much as 10 per cent of GDP; see Figure 3.1. The low health expenditure relative to income may to some extent be linked to the fact that the population of Greenland is younger on average than in other countries, but also points to the fact that Greenland's health service offers fewer treatment options as compared with its usual benchmark countries. For some years, emigration from Greenland may also have lowered health spending. Among 61-70-year-olds born in Greenland, more than 30 per cent were residing outside Greenland, mainly in Denmark, so that just under 70 per cent live in Greenland. For comparison, that share was 84 per cent in 2001. An effect of the emigration trend is thus that a number of derived health expenditures on the elderly segment are taken up by the Danish health care service. The low spending level compared with other countries may also mask a growing gap between the health care services available in Greenland and its population's preferences and needs, which may also be affected by the treatment options other countries are able to extend to their citizens. If this gap is too great, it may also influence migration patterns; see the discussion in Section 2.3.

The determinants of public health care expendituresAffluent countries spend far more per capita on health compared with less affluent countries. This holds true both when we measure health spending in absolute monetary value and as a share of income. However, across countries there is a distinct tendency for health spending as a share of GDP to grow as GDP grows. This correlation is illustrated in Figure 2. The slopeof the line through the dots shows that the health spend per capita increases by 1.38 per cent when income per capita increases by 1 per cent. An income elasticity in health spending over 1 is attributable to the fact that populations expect better health and more quality-of-life-years when the level of prosperity increases.2 With that in mind, it is striking that the recent decades' of greater prosperity have not resulted in a higher rate of increase in health spending relative to GDP here in Greenland. This trend may be indicative of a growing gap between the healthcare options available and the population's preferences and needs.

2 The OECD has analysed income elasticity and finds, generally, that income elasticity for microdata is typically less than 1, while more aggregate analyses tend to find higher income elasticity, and macrostudies typically find elasticities of more than 1. However, analyses of microdata can rarely correct for reverse causality, i.e. that increased use of health services as the result of disease may be the cause of lower income; see Pedersen & Hansen (2006).

Figure 3.2. Per capita health spending and income, using purchasing power parities and log-scaled, OECD 2017

Per capita health spending and income (log scale) within OECD 2017 4.34,3

4.14,1 3.93,9 3.73,7

3,53.5 y = 1,3839x - 2,8417 3,33.3 R² = 0,8127 3,13.1

2.92,9 2,72.7 4,24.2 4,44.4 4.6 4,6 4,84.8 5 5,25.2

Note: OECD country health spending per capita relative to GDP per capita (both using purchasing power parity and log-scaled) in 2017. The slant on the trend line may be interpreted as a macro-elasticity of 1.38 between health expenditure (y axis) and income (x axis). Source: The Economic Council's own calculations based on data from the OECD Health database, 2019.

The correlation between health spending trends and a number of explanatory factors has been extensively discussed in health economics literature, such as "The future of health and long-term care spending", OECD 2015. In addition to the relationship between income and health spending, the literature also points to a link between consumption of health services and demographic factors. Changes in the population's age distribution, extended life expectancy and changes in morbidity thus impact health spending trends. Elderly citizens avail themselves of health services more than the young, and more elderly people in the population thus result in a trend towards higher health spending. Finally, the literature points to a number of other key factors influencing health expenditure trends. On the one hand, the productivity trend in the health sector may slow expenditure press when advances in medical science make treatments more effective. On the other hand, new, enhanced treatment options may be associated with relative costly care pathways. The institutional constraints on the health service thus impact health expenditure trends, and cost-intensive health initiatives may be prioritised politically; see Figure 3.3.

Figure 3.3. Determinants of public health spending

Health spending

Demographics Income Other factors

Population Institutions and Technology and Public health composition policies productivity

Note: This figure was compiled from the presentation in "The future of health and long-term care spending", OECD (2015). Other health economics articles employ a similar method of presenting factors influencing the long-term trend in health spending.

To quantify the relative contribution of each driver over the past two decades, an accounting analysis was carried out. Across the OECD countries, demographic changes played a lesser role in health spending growth, while income growth and other factors ('residual growth') had more influence on the health spending trends; see Table 3.1 below. Similar results were obtained in earlier studies; see Pedersen and Hansen (2006), and the findings are fairly reliable across countries, including in the Nordic countries. Going forward, demographics are forecasted to play a significantly greater role in health spending trends within the OECD countries in step with the ageing of the large post-war cohorts.

It is not possible to compile a fully comparable analysis of Greenlandic health and income data. For the period 2003 to 2017, the estimates in Table 3.1 do reveal, however, that the trend in health spending was less than the contribution accounted for by income and population growth alone. The average annual real growth in health spending from 2003 to 2017 is estimated to be 2.1 per cent, which is slightly lower than the real growth in income in the same period. The average annual contribution to health spending from population growth is estimated at 0.8 per cent in the same period. Overall, this points to a negative contribution from other factors, i.e. negative residual growth. When health spending decreases as a share of GDP, this is thus linked to negative residual growth. Bearing in mind the health indicators for the population and the diseconomies of small scale, the negative residual growth can hardly be interpreted as reduced demand or greater productivity progress here in Greenland. The negative added growth can however be interpreted as the accumulation of Greenland's 'backlog' relative to improvements in healthcare options in other countries.

Table 3.1. Breakdown of annual growth in health spending, OECD 1995-2009 and Greenland 2003-2017

Health spending, Contribution Contribution Contribution growth 1995-2009 from from income from demographics 'residual growth' OECD countries (1995- 4.3 0.5 2.3 1.5 2009) Denmark (1995-2009) 3.7 0.2 1.0 2.5 Finland (1995-2009) 4.1 0.6 1.4 1.1 Iceland (1995-2009) 3.1 0.4 2.3 0.4 Norway (1995-2009) 3.5 0.1 1.7 1.7 Sweden (1995-2009) 3.2 0.2 2.0 1.0

Greenland (2003-17) 2.1 0.8 2.4 -1.1 Note: The real growth in public health spending within the OECD is for the period 1995 to 2009. Figures for OECD are from "The future of health and long-term care spending", OECD (2015). The table assumes an income elasticity in health spending of 1. The real growth in Greenland's health spending was estimated on the basis of nominal expenditure divided by the deflator for individual public consumption. Greenland's real income trend figures were obtained from the national accounts and the contribution from demographics was calculated on the basis of the population trend and health spending broken down by age in the fiscal sustainability model.

3.2. The population's consumption of health services The population of Greenland avails itself of a wide array of health services ranging from ordinary medical care in the health regions through hospital services at DIH, the main national hospital, to different types of treatments in Denmark.

Greenland has around 22,000 hospital admissions annually, which result in around 112,000 annual bed- days (2018 level). Citizens' use of the health service is registered in the electronic health record system in which all data on clinical work is recorded continuously. This relates to e.g. information on tests, conversations, contacts, diagnoses, case notes etc. In this way, the electronic health record system makes it possible to break the use of health services down by age group. The electronic health record system reveals that the use of these hospital services does not break down evenly across the population. Older people, for example, are more often hospitalised, and have more bed-days compared with the younger fraction of the population. There are more admissions of newborns compared with older children. Young people in their twenties are admitted to psychiatric wards more often than children and older citizens. Figure 3.4 shows admission incidence and number of bed-days per admission in 2018 for somatic and psychiatric admissions, respectively, broken down by age.

Figure 3.4. Admissions and bed-days per capita in 2018 Somatic: Admissions per capita Somatic: bed-days per admission

1.41,4 8 1.1,22 7 6 1 5 0,80.8 4 00,6.6 3 0,40.4 2 0,20.2 1 0 0 00-04 05-09 10-14 15-19 20-24 25-29 30-34 35-39 40-44 45-49 50-54 55-59 60-64 65-69 70-74 75-79 80-84 00-04 05-09 10-14 15-19 20-24 25-29 30-34 35-39 40-44 45-49 50-54 55-59 60-64 65-69 70-74 75-79 80-84

Psychiatric: Admissions per capita Psychiatric: bed-days per admission

0,0120.012 30 0,010.01 25

0.000,0088 20

0,0060.006 15

0,0040.004 10

0,0020.002 5

0 0 00-04 05-09 10-14 15-19 20-24 25-29 30-34 35-39 40-44 45-49 50-54 55-59 60-64 65-69 70-74 75-79 80-84 00-04 05-09 10-14 15-19 20-24 25-29 30-34 35-39 40-44 45-49 50-54 55-59 60-64 65-69 70-74 75-79 80-84

Source: the Greenlandic Health Service. The data were obtained from the electronic health record system (Cosmic) and from the national patients' registry (GLLPR) .

Outpatient care consists of ordinary medical service, health care, home nursing, etc. and various types of contact within the surgical, medical and (to a lesser extent), the psychiatric area. With around 370,000 annual outpatient consultations, this concerns a significant fraction of the health system. On average, each individual had between 6 and 7 outpatient consultations in 2018, and the electronic health record system shows a marked trend for more treatment given to senior citizens; see Figure 3.5.

Figure 3.5. Number of outpatient treatments per capita, 2018 20.020,0 18.018,0 16.016,0 14.014,0 12.012,0 10.010,0 8.08,0 6.06,0 4.04,0 2.02,0 0,00.0 00-0405-0910-1415-1920-2425-2930-3435-3940-4445-4950-5455-5960-6465-6970-7475-7980-84

Note: The age distribution of outpatient treatments was estimated on the basis of contact types, which are equated with provision of one outpatient treatment. Outpatient consultations are surgical, medical and psychiatric.

3.3. Health spending increases with age With total public spending on the health service at DKK 1,555m and a population of almost 56,000, the average health spend per capita was DKK 27,800 in 2017, and breaks down almost equally between inpatient and outpatient consultations. This expenditure is financed by the Greenland Government Authorities and is spent on health personnel payrolling, pharmacy and devices procurements, patient transportation, maintenance of buildings and administration of the health service generally.

The use of health services entails that health spending on the elderly population is far higher than for the rest of the population. Health expenditure on children aged 0-4 years is somewhat above the level for the rest of the population, as a result of extra expenditure on maternity care and the child's first year of life.

The price of a hospital bed-day depends on the type of admission. Intensive care is significantly more costly than other hospital care. Equally, there is a large spread in the costs incurred for outpatient care depending on whether it is surgical or medical.

No detailed price estimate is available for the individual types of treatment, and an estimate therefore has to be based on the average costs, which include both fixed and variable expenditure per patient. The fixed expenditure per patient may be considerable when the patient base is small; see the foregoing discussion on diseconomies of scale in the Greenlandic health service.

With around 112,000 somatic and psychiatric bed-days per annum and total spending on hospital services of just under DKK 700m, the average price of a single bed-day was just over DKK 6,000.3 With around 370,000 outpatient treatments and total spending on outpatient care at DKK 741m, this equates to an average price of DKK 2, 000 per consultation. The average prices comprise the total health spend on payroll, medicine, transportation, medical devices and equipment, etc.

Figure 3.6. Health care expenditures per capita, by age group, 2017 100,000100000 90,00090000 80,00080000 70,00070000 60,00060000 50,00050000 40,00040000 30,00030000 20,00020000 10,00010000 0

Inpatient Outpatient Other

Note: The age distribution of hospital services is estimated on the basis of admissions and bed-days (2018 level) and the estimated average price for a bed-day. The age distribution of outpatient consultations was estimated on the basis of a defined volume of contact types, which are equated with outpatient consultations. Other health expenditure (administration, etc.) is assumed to be constant per capita.

Figure 3.6 shows health care expenditures by age-group based on data from the electronic health record system and estimated average prices of hospital services and outpatient consultations. The expenditures are high for newborns and infants, for whom maternity care and healthcare are heavy investments. The expenditure falls for children and adolescents and then rises again for the age-groups 25-30 years, where women's maternity care raises spending. People in their twenties also account for the highest incidence of psychiatric admissions. For the age-groups from 30 to 50 years, health spending is stable at a low level, but spending rises for population groups over the age of 55 years as a result of an increasing rate of admission, longer care trajectories and a higher number of outpatient consultations. In this way, the age-distribution of health spending in Greenland corresponds with that reported by many other countries; see OECD (2015).

3 Hospital care covers both treatment in Greenland and abroad, while bed-days are solely in Greenland. The price is therefore an approximation of a Greenlandic bed-day incl. overheads for bed-days abroad. In addition, the use of healthcare figures are from 2018, while statistics for public finances are available only up to 2017. The prices are thus at the 2017 level and assume the same healthcare production in 2018 as in 2017. The estimate of age-distributed health spending is not contingent on this assumption.

3.4. Future trends in health care spending Future trends in health spending can be divided into a demographic contribution and a residual contribution which is attributable to increased demand as a consequence of increased prosperity, and which is partly due to the increased range of healthcare services available, as advances in technology and medical science make it possible to treat an increasing number of diseases.

Many healthcare studies point to a close link between residual life expectancy and health spending; cf. OECD 2015. The health spend per capita in a given age-group falls when the residual life expectancy increases. This is due to the fact that expenditure on death-related costs ("DRCs") is deferred because residual life expectancy increases. This effect is popularly referred to as "healthy ageing" and stems growth in health expenditure.

In the population projection from Statistics Greenland, average life expectancy increases annually by 0.15 years up to 2050. This puts life expectancy for a woman in 2050 at 79.2 years as against 74.5 years in 2018. Life expectancy for men rises from 69.9 years to 75 years in the same period. Figure 3.6 reveals that the assumption of healthy ageing will mean that the need for health services in 2050 by a 65-year-old will be approx. one quarter less than for a 65-year-old today. This is the equivalent of a 65-year-old in 2050 having virtually the same health status as a 60-year-old today. Healthy ageing thus means that age-distributed health spending is set to decrease gradually with rising life expectancy; see Figure 3.7. This effect is incorporated in the projections.

Figure 3.7. Age-distributed health care expenditures decrease as a result of longer life expectancy and healthy ageing. 100000100,000 90,00090000 8000080,000 70,00070000 6000060,000 5000050,000 40,00040000 30,00030000 2000020,000 1000010,000 0 00-04 05-09 10-14 15-19 20-24 25-29 30-34 35-39 40-44 45-49 50-54 55-59 60-64 65-69 70-74 75-79 80-84 85-89 90-94

Health spending, 2018 Health spending, 2030 Health spending, 2050

Note: Life expectancy increases by 0.15 years per annum up to 2050, which corresponds to a total extension in life expectancy of approx. 5 years. The age-distributed health expenditure decreases correspondingly for the age 45+ years age-groups, and health expenditure on a 65-year-old in 2050 equates more or less to expenditure on a 60-year-old in 2018. Age 45 was selected as the dividing line, as health spending on the adult fraction of the population is lowest at this age.

In the past, income trends and other factors were established as the main explanation for the trend in health spending in Greenland's usual benchmark countries. This is due both to the fact that increasing prosperity increases health spending correspondingly, and that a number of countries additionally report an annual residual growth in health spending; see above.4

Figure 3.8 shows projected health spending by age-group and as a share of gross domestic product. The demographic effect holds an assumption of healthy ageing, and the real increase in health care spending is assumed to grow at the same rate as the national improvement in income. No residual growth has been factored into Greenland's future health spend over and above the general income improvement. In the event of there being a "health backlog" at baseline, this is assumed not to be closed within the projection period.

Figure 3.8. Projection of public health spending as a share of gross domestic product, 2018-2050 10% 9% 8% 7% 6% 5% 4% 3% 2% 1% 0%

0-15 16-64 over 65

Note: The projection is based on the age distribution of health services and the assumed effect of healthy ageing. The population projection is from Statistics Greenland. The GDP trend is based on projection of the potential workforce and average productivity growth of 1.25 per cent; the same growth as in the individual health expenditures.

Based on current standards in Greenland's health service, the larger number of elderly citizens will cause health spending to rise from under 8 per cent of GDP at present to 9 per cent of GDP from around the year 2035 and onwards. The expenditure pressure is part of the fiscal sustainability problem, which is to be addressed via the reform strategies of the Sustainability and Growth Plan. Meanwhile, the health service will be affected by shifts in which healthcare delivery to the elderly population will be more cost-intensive

4 The assumption that income growth entails a corresponding growth in health spending also informs the calculation of fiscal sustainability; see Section 2.2. The residual growth, however, is set at zero in the fiscal sustainability estimates. As regards income trends, this chapter presents projections based on the principles of the sustainability model, i.e. of constant productivity growth of 1.25 per cent per annum and annual inflation of 1.75 per cent up to 2050. Employment is assumed to track the potential workforce, i.e. persons aged 16-65 years. The population projection from Statistics Greenland assumes a net emigration exceeding the birth surplus, and consequently a fall in job supply and employment up to 2050.

than at present. This relates to conditions caused by hypertension, osteoarthritis, cataracts and diabetes, which are relatively more prevalent in the elderly population. At present, approx. 20 per cent of total health spending is on individuals over the age of 65 years. That percentage is set to rise to almost 40 per cent as the number of elderly individuals rises, even allowing for the effect of healthy ageing. Even by as early as 2040, there will be 3,400 more individuals over the age of 65 years, as compared with at present.

The future expenditure pressure in the health sector is thus closely linked with the ageing of the population, and the trend in the population's health status. If, for example, Greenland fails to improve the health of its elderly population as that population gains life expectancy, the outlook is for substantially greater pressure on the health service and public spending. Figure 6.9 shows a projection of health spending with respect to differing assumptions regarding the population's health status. At the "unhealthy ageing" extreme, health status remains unchanged compared with present status, and the outlook is for high spending pressure as the population acquires more elderly individuals. In this way, healthy ageing will almost halve the pressure on health spending as compared with the scenario of no healthy ageing. Another extreme is the situation of "healthy ageing and very low mortality" in which public health improves and the mortality rate falls drastically. In this scenario, by 2050, male life expectancy will increase by almost 10 years and female life expectancy by 7 years, while the population's health status will improve correspondingly. In this situation, pressure on health spending will decrease even more; see Figure 3.9. In sum, all of these scenarios point to a significant increase in health spending towards 2035, and hence the significant financing pressure on the economy as the population of elderly individuals increases.

Figure 3.9. Population health status and future pressure on health spending, percentage of GDP 10.0%10,0%

99,5%.5%

9,0%9.0%

8,5%8.5%

88,0%.0%

7,5%7.5%

77,0%.0%

SundHealthy aldring UnchangedUsund aldring HealthySund aldring ageing og and meget very lav low dødelighed mortality ageing health standard Note: Healthy ageing shows the projection of health spending as a share of GDP from the main scenario in which age-distributed health spending decreases with life expectancy gains. Unhealthy ageing is a scenario in which age-distributed health spending remains unchanged through the projection period. The scenario of healthy ageing and very low mortality is based on the population projection from Statistics Greenland with very low mortality, in which life expectancy increases by 0.25 years per annum up to 2050.

The projections do not include any residual growth in spending attributable to factors other than population trends or income growth. In recent decades, the majority of wealthy nations have reported this form of residual growth, which is driven by factors such as new and enhanced modes of healthcare. Greenland, however, has not reported residual growth to the same extent; see Section 3.2, which may mean that it has developed a gap in the scope and quality of health services compared with other countries. The projection does not factor in the consequences of closing this type of gap. Mounting expenditure pressure in the health sector requires not only financing but also a means of increasing activity in the sector. With the current staffing situation in the health service, increased activity in the healthcare sector will require additional procurement of temporary services and also treatments abroad. To the extent that such recruitment is difficult, the cost of guaranteeing certain healthcare options will increase even further. The options for guaranteeing a modern health service consequently depend extensively on access to qualified staff.

3.6. Health personnel shortages A well-known challenge facing Greenland's health service is the widespread shortage of skilled health workers, especially doctors and nurses, which results in the use of costly short-term contracts and temporary services. Many countries face similar challenges. Across countries, there is substantial rising demand for health personnel, who also account for a rising share of employment. At the same time, the health sector is undergoing increasing specialisation; see Health at a Glance 2017, OECD 2017. With its small and geographically widely dispersed population, the personnel challenges for the Greenlandic health service consist in attracting and retaining professionals with wide-ranging general medical skills are therefore considerable. The lack of opportunity for professional specialisation may in isolation inhibit career progression for doctors and nurses and make it difficult to attract and retain these professional groups to Greenland.

In the short term, it is consequently necessary to use locums in the health service in order to guarantee a politically determined level of healthcare provision. Expenditure on locums has been rising for a number of years, reaching DKK 60m in 2018. The increasing use of locums is closely linked with the high personnel turnover rate in the health sector, which in recent years has been at around the 40 per cent mark (discounting the shedding of personnel in relation to the number of appointments). This testifies to the special challenge for the Greenlandic health service of retaining personnel, especially in the more specialised branches of healthcare.

Ultimately, the high rate of personnel churn and heavy use of locums is not sustainable. No country is wholly self-sufficient within all specialised professional functions in their health service. On the contrary: there is now rising migration across countries by health workers, and small nations especially will always have a need to attract people with specialised skills from other countries; see OECD 2017. However, economically, there is also a major educational challenge in persuading more young people to gain qualifications in both the specialised and more elementary branches of healthcare in order to secure greater influx to the health sector of people with a long-term connection to Greenland. This in itself will serve to reduce personnel churn. The personnel challenges facing health sectors are consequently closely linked to the basic challenge of an educational “backlog” compared with other countries.

Table 3.2. Number of individuals with educational attainment in healthcare, resident in Greenland 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Born in Greenland 438 461 522 592 639 674 752 776 800 838 895 Master's degree etc. 14 16 19 22 25 28 34 31 31 34 37 Vocational bachelor's degree etc. 113 122 125 145 157 158 176 175 173 179 198 Vocational education 311 323 378 425 457 488 542 570 596 625 660 Born outside Greenland 305 282 297 330 347 335 333 325 307 321 325 Master's degree etc. 87 83 78 91 94 89 91 92 88 94 92 Vocational bachelor's degree etc. 208 190 210 230 243 236 231 223 207 215 220 Vocational education 10 9 9 9 10 10 11 10 12 12 13 Health sector total 743 743 819 922 986 1009 1085 1101 1107 1159 1220 Note: The master's degree (and equivalents) cover medicine, pharmacy. Vocational bachelor's degree covers nurses, midwife auxiliaries, etc. Vocational qualifications within the health sector include healthcare qualifications within rehabilitation, care-giving, etc. The individuals are tallied by educational attainment level and not by current profession, meaning that some individuals with healthcare qualifications work in sectors other than the health service.

In 2017, there were a total of 1,220 individuals residing in Greenland who had healthcare qualifications. For comparison, there were 743 such individuals a decade ago. This means that more people have been trained, especially by health professional vocational programmes; see Table 3.2. The challenge is to a great extent associated with the highly specialised healthcare qualifications, i.e. doctors and nurses, where progress has been more limited, and where staff shortages are now widespread. The number of individuals educated within the health sector and who were not born in Greenland has for some years been between 280 to 330. In 2017, the figure was 325, 92 of whom had a master's degree equivalent, e.g. a doctor or psychologist, while 220 held a vocational bachelor's degree, e.g. nurses.

3.7. Dealing with the pressure on health spending The projection of health spending in this chapter indicates that even with tight control of health care spending, i.e. without residual growth in expenditure over and above demographic factors, the outlook is for rising spending pressure over the coming decades.

The coming decades' mounting health care spending is part of the fiscal sustainability problem, which is to be addressed by the reform requirements of the 2016 Sustainability and Growth Plan. The reform requirement for modernisation of the public sector is a major determinant in guaranteeing long-term financing of welfare in Greenland. This modernisation will require both actual economies in order to balance income and spending and reprioritisation internally within the public sector. The population shift towards relatively more elderly persons will increase pressure on resource requirements in the care and health sector and hence the need to reprioritise public spending; see the 2019 Political and Economic Report.

To that end, in support of the 2019 Budget Act, a number of expenditure analyses have been initiated in order to improve efficiency in the public sector. In healthcare, the expenditure analysis will identify options for freeing up resources for health services and whether the early intervention programmes could be optimised.

Healthy ageing is a key element in managing the future pressure on health spending. Longer life expectancy with more years in good health in later life reduces the pressure on the health service. The mounting prevalence of a number of lifestyle diseases such as diabetes, hypertension, obesity and COPD is therefore cause for concern (see National Institute of Public Health, University of Southern Denmark, 2019). Preventive initiatives targeting the most prevalent lifestyle diseases will therefore benefit both public health and pressure on the health service. One of the most pressing measures would be a marked reduction in the prevalence of smoking over a short span of time. Initiatives have already been introduced such as smoking cessation counselling and initiatives for smoke-free classrooms. These initiatives may have local effects, but have not generally reduced the prevalence of smoking. More than 50 per cent of men and women in Greenland today are smokers.

The import duty on cigarettes and tobacco is around DKK 150m, and has been falling for a number of years, as a result of reduced consumption. The tobacco tariffs have meanwhile been eroded as they have not kept up with the general price trends in the economy. Tobacco duty has remained unchanged since 2007, which is why tobacco products have become cheaper in relation to various other consumer goods in Greenland. This conflicts with the ambition of reducing tobacco consumption. Consideration should be given to whether a general increase in the duty on tobacco would reduce the prevalence of smoking more effectively than current initiatives, not least in the direction of fewer smokers among young people. However, the price of tobacco products is already high while consumption is high. This is indicative of need for a broad-based initiative to counter smoking, in which higher duty might be one of several targeted initiatives.

Recent years have brought a focus on private health insurance, which may be either taken out personally or paid by an employer as a contractual benefit. The prevalence of these insurance schemes in Greenland has not been established; see Government of Greenland 2019. The healthcare covered by these insurance schemes will largely be provided abroad, and will thus not directly affect the Greenlandic health service. If private health insurance is to do more to ease the pressure on the national health service, this will require that it covers healthcare that would otherwise have been provided within the Greenlandic health service. However, the non-working elderly segment of the population will typically not be covered by employer- paid health insurance, which is significant, since this segment accounts for a relatively large proportion of outpatient consultations and inpatient bed-days within the health service. Although the Greenlandic health service is not directly involved in provision of healthcare covered by private insurance schemes, there will be derived activity impacts in the form of medical opinions, possible post-surgical care, rehabilitation, etc.

Extensive uptake of private health insurance might also influence demand for treatment in the publicly financed system. Increased inequality in access to diagnostics and treatment might in itself spur political calls for extended treatment options in the health service. Although private health insurance might immediately ease the pressure on public waiting lists within the health service, a number of factors would prevent private healthcare from easing the pressure on health spending in the long run.

References The Economic Council, Danish Economy Autumn 2009, Chapter 3 "Health - Spending and Financing", 2009.

Deloitte, Grønlands Sundhedsvæsen: Status og potentialer (Greenland's Health Service: Status and Potentials). Phase 1, Interim Report 2, June 2016.

Deloitte, Grønlands Sundhedsvæsen: Fremtidens sundhedsvæsen (Greenland's Health Service: the Future Health Service). Phase 2, June 2016.

Statistics Greenland, Population Projection, 2018-2028 (2050), January 2019.

Government of Greenland, Response to Section 37 question no. 220/2019 concerning health insurance, July 2019.

OECD, Health at a Glance 2017, OECD Indicators 2017.

OECD, Spending on Health, Latest Trends, June 2018.

OECD, The Future of health and long-term care spending, Christine de la Maisonneuve and Jaoquim Oliveira Martins, 2015.

Political and Economic Report 2019, Ministry of Finance, Government of Greenland.

Pedersen og Hansen, Stigende Sundhedsudgifter – et aldrings- eller et velstandsfænomen, Nationaløkonomisk Tidsskrift 144, 2006.

Pedersen og Hansen, Sundhedsudgifter og finanspolitisk holdbarhed, Nationaløkonomisk Tidsskrift 148, 2010.

SDU 2018, Evaluering af Grønlands Sundhedsreform, Oplevede og målbare effekter 2017.

SDU 2019. Befolkningsundersøgelse i Grønland 2018 (population survey).

The Economic Council

The Economic Council compiles independent analyses and appraisals of the economy of Greenland. The Council is appointed by the Government of Greenland and is led by an independent chairmanship. The Chairman of the Economic Council is Professor Torben M. Andersen.

The analyses serve as an independent contribution to decision-support for Greenland's economic policy. The assessment of economic trends and the sustainability of Greenland's economic policy are recurring topics in the Council's reports. The reports deal with current reform topics geared to making Greenland more economically self-sustaining. Such topics concern the education sector, fisheries management, taxation, the housing sector, labour market and welfare policy, the mineral resources sector and trade and industry policy.

The Economic Council's analyses are published in reports and concise policy-oriented briefings on the Council's website: http://naalakkersuisut.gl/da/Naalakkersuisut/Departementer/Finans/Oekonomisk-raad

The Council also hosts seminars and presentations on topical economic policy themes.

Editions since 2015

Reports:

The Economic Council's Report, 2015, Economic prospects, current economic policies, population trends and regional policies

The Economic Council's Report, 2016, Economic trends, current economic policies and education

The Economic Council's Report, 2017, Economic prospects, current economic policies, academic skills in primary and lower secondary schools, the fishing industry

The Economic Council's Report, 2018

Background materials:

Technical background report 2015-1: Finance policy sustainability 2015

Technical background report 2015-2: The public sector economy – DAU and public finances

Technical background report 2015-3: Pension reforms – early retirement and old age pensions

Technical background report 2015-4: Technical report on demographic estimates

Technical background report 2016-1: Finance policy sustainability 2016

Technical background report 2017-1: Course analyses within education

Policy Briefs:

Policy Brief 2016:1 Growth and wealth

Policy Brief 2016:2 Commercial conditions and efficiency

Policy Brief 2016:3 Experience with state-owned enterprises

Policy Brief 2016:4 The possible implications of mineral mining for Greenland's economy

Policy Brief 2017:1 Economic trend forecasts 2016-18 – current considerations.

Report 2018-1: Implications of the airport package for the national economy