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(Bloomberg) — Bernie Sanders’ utopia needs fixing.
The Denmark that the Democratic Party candidate wants the U.S. to emulate is taking a long, critical look at its welfare model as it decides which bits to scale back.

A government commission now says Denmark needs to cut jobless benefits for graduates as part of a series of tweaks to keep other, more basic welfare services affordable. It follows a push by the previous administration — a Social Democrat-led coalition that was ousted in June — that included the introduction of means-testing to limit Danes’ access to state support.
“Welfare is under pressure in Denmark,” Bente Sorgenfrey, a member of the government commission and head of the country’s second-largest trade union, FTF, said in an interview on Monday. “We’re experiencing that all over the place since the crisis, and the absence of funding is putting pressure on payouts.”

Successive Danish governments have pointed to the need for cuts to a system they say grew too bloated in previous decades. Meanwhile economic growth has remained weak as the world’s most indebted households focus on paying back creditors. Denmark’s economy expanded a quarterly 0.5 percent on average between 1991 and 2008. Since then, it’s contracted 0.1 percent per quarter, on average, according to statistics office data.

But Denmark still boasts one of the world’s most equal societies, measured by income distribution. Its fabled welfare safety net is one of the reasons a housing slump rivaling that in the U.S. after the subprime crisis resulted in negligible foreclosure rates for the Danes. As of 2012, Denmark was the European Union’s biggest spender on social protection, at 34.6 percent of gross domestic product, according to Eurostat data.

Denmark is cutting back state support even as revenue as a percentage of GDP rises. The country’s tax burden, the highest in the rich-world club of OECD nations, was 48.6 percent in 2013, having grown every year since 2009.
The anti-immigration Danish People’s Party, on which the Liberal government of Prime Minister Lars Loekke Rasmussen relies for support in parliament, says there’s less money for universal welfare because Denmark is allowing in too many foreigners. As a result, the country has insisted on a much tougher stance on asylum seekers than its neighbor, Sweden, as Europe struggles to deal with the refugee crisis.

“The more people arriving in Denmark who have to have part of the welfare cake, the more pressure there will be on the system,” Bent Boegsted, the DPP’s labor market spokesman, said by phone. The party wants border controls, fewer immigrants and more spending on the elderly.

Economists argue that an aging population is as much to blame for the lack of welfare funds. And business leaders at some of Denmark’s biggest companies have grumbled that the country’s restrictive immigration and refugee policies are hampering their efforts to hire skilled workers as the labor market shows signs it may overheat.

Meanwhile Denmark’s tax ministry — the office that collects all the money needed to pay for welfare services — has been embroiled in a series of scandals leading to firings after it emerged that efforts to digitalize tax collection failed miserably.

The commission’s report, which was published on Monday, recommends forcing Danes without a job to accept more temporary employment. It argues that doing so would free up enough funds to let people unable to work to draw benefits for longer periods. Much of what the report tackles is an inefficient approach to income redistribution, according to its authors.

“We’re trying to add rationality to the system,” Sorgenfrey said. “The way it is today, the system will punish you for working two days because it’ll strip out payouts for an entire week afterwards. That’s insane and needs to be fixed.”
Labor Minister Joern Neergaard will now start talks with lawmakers to decide how to implement the recommendations in the report. The DPP and the Social Democrats have both said they want more funds allocated to unemployment benefits. Coming up with a solution that doesn’t change Denmark’s status as a welfare state, while keeping the model efficient, will be key.
“Defining the welfare state is one of the big themes in Danish politics,” said Rune Stubager, a professor in political science at Aarhus University. “This is really the main theme for both the former and the current government.”

To contact the reporters on this story: Peter Levring in Copenhagen at plevring1@bloomberg.net; Nick Rigillo in Copenhagen at nrigillo@bloomberg.net To contact the editors responsible for this story: Jonas Bergman at jbergman@bloomberg.net Tasneem Hanfi Brögger, Christian Wienberg