UPDATE 1-Danish government seeks cuts in capital gains tax, faces opposition

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COPENHAGEN, Aug 30 (Reuters) - The Danish government proposed cuts on Wednesday in capital gains tax as part of a broader effort to help remedy a labour shortage now afflicting Danish companies, but its plan has raised doubts among economists and opposition from its main parliamentary ally.

Under the proposal, tax would be capped at 27 percent for the first 100,000 Danish crowns ($16,000) of earnings from equity investments. The maximum rate of 42 percent now sets in at 51,900 crowns.

The government hopes that will lead Danes to invest some of the 850 billion crowns now sitting in bank accounts. It comes a day after the government announced plans to cut income tax and levies on cars and household services by 23 billion crowns per year up to 2025.

The government says the tax cuts should encourage more people to seek jobs, by increasing the difference in income between those who work and those on welfare.

But Denmark’s economy grew at an annual rate of 2.6 percent in the first quarter, and tax cuts would in theory lead to even faster growth. Faster growth could make it harder for companies to find staff, and they are already complaining about a shortage of qualified workers.

“In the worst case, the tax cuts will increase the demand for labour more than the supply of it,” said Jacob Graven, the chief economist at Sydbank. “That would be bad business policy right now.”

Maintaining the balance between faster growth and an adequate work force would be hard enough. But the government also faces tense negotiations with the pro-welfare Danish People’s Party (DF), which it depends on to pass legislation [.

The DF said Wednesday it would seek more funding for health care and the elderly, and tax cuts on equity income were the last thing on the negotiating table. ($1 = 6.2425 Danish crowns) (Reporting by Julie Astrid Thomsen and Erik Matzen; Editing by Jacob Gronholt-Pedersen and Larry King)