Denmark’s first coalition between left and rightwing parties since the 1970s will cut a public holiday to boost defence spending, increase the country’s climate ambitions and reduce taxes for most high earners in a historic agreement.

Social Democrat prime minister Mette Frederiksen will carry on in the job but, for the first time since an ill-fated coalition in 1978, her centre-left party will share power with their centre-right arch-rivals the Liberals, as well as new centrist party, the Moderates, led by her predecessor as premier, Lars Løkke Rasmussen.

Frederiksen was forced to call early elections because of her botched handling of a cull of all of Denmark’s 17mn minks, but sought to regain the initiative by proposing a centrist coalition to address the war in Ukraine and the twin energy and cost of living crises.

“Danes have put together a parliament that must co-operate. We do that now, across the middle [of politics] . . . We believe that we can make the decisions that are necessary. We will aim high,” Frederiksen told a press conference on Wednesday.

Denmark becomes the latest European country to end, at least for now, its system of left and rightwing blocs that have governed the rich Scandinavian country alternately for decades. Its only previous peacetime left-right coalition lasted less than 14 months in 1978-79 during an energy and inflation crisis but was marred by infighting between the parties.

The Liberals and Moderates both agreed to drop their demands for a legal investigation into the handling of the mink scandal by Frederiksen, widely regarded as the most powerful modern Danish prime minister after centralising much of the government’s power in her office.

The new three-party coalition, the first government to command a majority in Denmark’s parliament in three decades, aims to reach Nato’s target for defence spending of 2 per cent by 2030, three years earlier than announced earlier this year, as part of the reaction to Russia’s full-scale invasion of Ukraine.

A large part of the increase in the defence budget will come from scrapping one of Denmark’s up to 11 public holidays, as this would stimulate more economic activity and reduce overtime payments.

The new government will also cut the income tax rate for earners of more than DKr750,000 ($107,000) but increase it for those earning more than DKr2.5mn ($360,000).

Denmark, which has one of the leading offshore wind industries in the world, will aim to become carbon neutral by 2045, five years ahead of its previous schedule.

“Despite our disagreements, we have decided to come together. We have all had to compromise. But the result is a reform government that will address the challenges the country is facing,” said Liberal leader Jakob Ellemann-Jensen.

The new ministers will be unveiled on Thursday. The centrist Social Liberals, who sparked the early elections and have long wanted a centrist government, quit the coalition negotiations on Tuesday hours before they were concluded.

Danish political experts have hailed the new coalition as “historic”, but also stress that it takes Denmark into relatively uncharted waters. Parties to the left of the Social Democrats, which had won a slim majority for a leftwing government in the elections in November, have denounced the new coalition and the compromises given on rightwing policies such as tax cuts.