Denmark ditches fat tax as well as plans for sugar

12/11/2012

Denmark has scrapped its controversial fat tax just one year after its implementation, after finding that its negative effect on the economy and the strain it has put on small businesses far outweigh the health benefits, the Wall Street Journal (WSJ) reports.

Also, news agency Agence France-Presse reports that Denmark has decided to cancel plans to introduce a tax on sugar.

The decisions were announced at a Government press conference at the weekend.

The WSJ says countries including Switzerland, the UK, and Germany had pointed to the fat 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 economy struggles.

The failure of the fat tax, the WSJ says, “is a demonstration of how difficult it can be to modify behaviour by putting 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.

"What made consumers upset was probably that an extra tax was put on a natural ingredient," the WSJ quotes Institute of Food and Resource Economics professor Sinne Smed as saying.

The fat tax comes to an end after netting an estimated €170 million (NZ$265 million) in 2012 in new revenue, the WSJ says. Lawmakers will slightly raise income taxes and reduce personal tax deductions to offset the lost revenue.

"This is not what is needed in the current economic situation," Denmark’s Minister for Taxation, Holger Nielsen, told the news conference. "We have listened to objections that were raised."

The tax was created last year to address Denmark's rising obesity rates and relatively low life expectancy. There is little evidence the tax impacted on consumers financially, but it did spark a shift in buying habits. Many Danes have bought lower-cost alternatives, or in some cases crossed the border to Germany, where prices are roughly 20% lower, or to
Sweden.

"Since the introduction of the new tax the demand for butter has risen," Lars Aarup, head of analysis at FDB, a dominant retail chain operator in Denmark, has told the WSJ. He notes that one factor driving demand is the emergence of a cooking show in which the hosts stress how desirable using butter is. "That might outweigh the effect of the tax."

Peter Giørtz-Carlsen, head of the Danish consumer market at Arla Foods—the country's biggest dairy company—says the fat tax has driven consumers toward lower-quality cheeses.