A leading economist is cautioning against the immediate spending of Denmark’s recently increased financial leeway, which has surged to over 100 billion DKK. Carl-Johan Dalgaard, a chief economist and professor from the University of Copenhagen, warns that unexpected negative economic developments could diminish the funds, similar to how homeowners’ equity can suddenly decrease.

Dalgaard emphasizes that the financial leeway is not a concrete sum of money readily available, but rather a projection of future revenues until 2030. He criticizes the common misconception that it’s akin to a company’s warehouse inventory, asserting that it’s based on estimates that are subject to change.

The Danish government’s increased financial leeway reflects a stronger-than-expected economy, with record-high employment and successful exports. While Dalgaard acknowledges the positive economic performance, he expresses concern that the substantial increase in the financial leeway could lead to premature spending commitments.

He draws a parallel to homeowners potentially overextending themselves based on current home equity, only to face financial strain if housing prices decline. If the government spends the financial leeway and economic conditions worsen, it may be forced to raise taxes or implement budget cuts.

Despite the uncertainties, Dalgaard stresses the importance of the financial leeway for long-term economic planning, noting that it has contributed to Denmark’s strong public finances compared to the deficits experienced from the 1970s to the mid-1990s. He maintains that this approach is significantly better than operating without a long-term financial plan.