Danish lawmakers have killed a controversial “fat tax” one year after its implementation, after finding its negative effect on the economy and the strain it has put on small businesses far outweigh the health benefits.
Nations including Switzerland, the U.K, and Germany have held up the tax, which applies to any food containing more than 2.3% saturated fat, as a potential model for addressing obesity and other health concerns. But in Denmark, it has been a source of pain for consumers, food producers and retailers as the nation’s economy struggles.
“The fat tax is one of the most maligned we [have] had in a long time,” Mette Gjerskov, the minister for food, agriculture and fisheries, said during a news conference Saturday announcing the decision to dump the tax. “Now we have to try improving the public health by other means.”
The failure of Denmark’s fat tax is a demonstration of how difficult it can be to modify behavior by slapping additional duties on products seen by many as essential staples, especially during tough economic times. Products such as butter, oil, sausage, cheese and cream were subject to increases of as much as 9% immediately after the new tax was enacted.
So why was it dropped?
Lone Saaby, director of economic policy at Denmark’s Landbrug & Fødevarer farmers association, said the fat tax “increased border trade as well as administrative costs,” putting Danish jobs in jeopardy. Ms. Saaby’s organization lobbied the government to kill the fat tax and abandon the sugar tax before the impact to employment became too noticeable.
Mr. Giørtz-Carlsen said the fat tax cost his company about €670,000 over one year, and estimates “smaller companies probably had disproportionately higher costs.”
Many want to use the tax system to incentivise what they see as good behaviour. But the more complex you make it, the less effective it is. The best tax system is broad base and low rates with minimal exceptions.