Danish Government may scrap 'Fat Tax'

25/9/2012

The Danish Government is considering scrapping its controversial ‘fat tax’ – the world’s first such tax – because it is not working, according to two authoritative websites.

Global Tax News (Tax-news.com) reports that “empirical evidence shows that [the tax's] negative effects outweigh the benefits for the Danish Treasury”.

“In particular, reports point to job losses in the food processing industry and Danes crossing the German border to buy cheaper products.”

In October last year, Denmark became the first country in the world to introduce a fat tax in a bid to combat obesity and raise tax revenues. The tax – of 16 crowns (NZ$3.40) per kilo – is applied to meat, dairy products, and cooking oil which consist of more than 2.3 saturated fat.

The tax has been widely criticised for hitting the weakest groups in society.

Global Tax News says proposals to scrap the tax have been included in the 2013 draft budget, which is currently under consideration by the Danish Parliament. 

The independent specialist European Union affairs website Euractiv.com is reporting that a survey by the Danish Grocers’ Trade Organisation (DSK) shows that the tax is driving shoppers to Germany at an unprecedented level.

It says the survey shows that 60% of Danish households had bought beer or soft drinks in Germany within the past year. Only four years ago, 60% of the households said in the same survey that they “never” traded at the German border.

“This [the rise in the border trade] is due to the tax increases on specific consumer goods which were introduced by the Danish government at the start of the year. This is what we see the effects of now,” Claus Bøgelund Nielsen, vice-president at DSK, told EurActiv.

On 1 January, the Danish Government introduced higher taxes on beer, wine, chocolate, candy, sodas, ice, cream, coffee, tea and light bulbs.

Euractiv.com says Danish governments have in recent years raised taxes on certain consumer goods in order to improve public health and balance the country's budget.

Ever since the fat tax was introduced there has been a heated debate among consumers and the food industry over prices and administrative problems.

Arla, the biggest dairy producer in Scandinavia, has made its products smaller in order to keep the same prices for its products.

“We think there is a limit as to how big a price increase you can pass on to the consumer,” Marketing Director at Arla Jakob Knudsen told the newspaper Jyllands-Posten, Euractiv reports.

Many food producers have, like Arla, decided to shrink the content of their products, trying to avoid breaking a ‘psychological price cap’ which makes it impossible to sell a product.

”It does mean a lot if a product costs 19.95 or 21.65 crowns (NZ$4.20 or NZ$4.50). So it’s only natural that they try to fit the products to the prices the consumers want,” said Ole Linnet, branch director at the umbrella organisation Danish Industry.

Footnote: A large amount of the beer bought by Danes at German border shops actually comes from Denmark. Last year Danish breweries exported 1.2 billion units to the border shops from where Danish families on average bought 420 units of beer or soda.