Denmark is set to significantly increase its security spending to 5% of its GDP, a move announced by Prime Minister Mette Frederiksen. This decision follows a proposal by NATO Secretary General Mark Rutte for increased defense budgets among member states.

The Danish government plans to allocate 3.5% of GDP directly to defense and an additional 1.5% to other security measures, including cybersecurity, and border and coastal security. Economist Niels Storm Knigge estimates the increased annual expenditure on defense and security to be around DKK 90 billion if Denmark directly raises expenditures from 2% to 5% of GDP.

According to Mark Rutte, the 1.5% allocated to “resilience” can include investments in infrastructure like roads, ports, and electricity grids suitable for troop and heavy tank transport. Knigge suggests that Denmark and other member countries may already be spending money that qualifies under NATO’s resilience criteria.

Despite the substantial investment, the government may avoid implementing new taxes due to improved public finances. Finance Minister Nicolai Wammen upgraded the fiscal headroom, and an analysis by Knigge projects DKK 82 billion to be gained in fiscal headroom by 2035. This headroom could cover the increase from 2% to 3.5% of GDP spent directly on defense while still accommodating welfare demands.

Knigge notes that the economic impact will depend on how much of Denmark’s existing spending can be counted towards the 1.5% resilience target. He acknowledges that these expenditures will affect the Danish economy, as Denmark lacks a large arms industry and will need to import military hardware, drawing labor from other sectors.

Mette Frederiksen acknowledged the significant cost but emphasized its necessity for peace and security. Peter Viggo Jakobsen from the Defence Academy said that NATO’s divided financial contribution goals accommodate countries like Spain, Italy, and Portugal, who may not feel as threatened and prefer spending on other priorities. He supports Knigge’s view that a significant portion of the 1.5% for resilience can be financed by existing expenses. Jakobsen also believes that reaching 3.5% is sufficient for NATO’s military competitiveness, even if the remaining 1.5% comes from pre-existing expenses.