Denmark's Fat Tax Harms Economy

June 6, 2013

Denmark's tax on saturated fat was hailed as a world-leading public health policy when it was introduced in October 2011, but it was abandoned 15 months later when the unintended consequences became clear, says Christopher Snowdon, director of lifestyle economics at the Institute of Economic Affairs.

The economic effects of the fat tax were almost invariably negative.

  • It was blamed for helping inflation rise to 4.7 percent in a year in which real wages fell by 0.8 percent.
  • Many Danes switched to cheaper brands or went over the border to Sweden and Germany to do their shopping.
  • At least 10 percent of fat tax revenues were swallowed up in administrative costs and it was estimated to have cost 1,300 Danish jobs.

The fat tax didn't notably benefit public health at all.

  • The fat tax had a very limited impact on the consumption of "unhealthy" foods.
  • One survey found that only 7 percent of the population reduced the amount of butter, cream and cheese they bought, and another survey found that 80 percent of Danes did not change their shopping habits at all.

It was widely criticized across the political spectrum for making the poor poorer.

  • By October 2012, 70 percent of Danes considered the tax to be "bad" or "very bad" and newspapers routinely described it as "infamous," "maligned" and "hated."
  • Mette Gjerskov, the minister for food, agriculture and fisheries, admitted in late 2012: "The fat tax is one of the most criticized policies we have had in a long time."

Ultimately, Danish politicians weighed the negligible health benefits against the demonstrable social and economic costs and swiftly abandoned it. Few mourn its passing.

The economic and political failure of the fat tax provides important lessons for policymakers who are considering "health-related" taxes on fat, sugar, junk food and fizzy drinks. As other studies have concluded, the effect of such policies on calorie consumption and obesity is likely to be minimal. These taxes are highly regressive, economically inefficient and widely unpopular. Although they remain popular with many health campaigners, this may be because, as one Danish journalist noted, "Doctors don't need to get re-elected."

Source: Christopher Snowdon, "The Proof of the Pudding," Institute of Economic Affairs, May 2013.

 

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