Denmark has decided to abolish its fat tax after barely a year, citing too many negative side effects hitting businesses. A proposed sugar tax that was meant to be introduced in 2013 has also been scrapped.
In October 2011, Denmark became the first country in the world to introduce a fat tax on meat, dairy products and cooking oil. The centre-left government now plans to abolish the tax in January 2013.
The previous right-wing government introduced the fat tax to limit the population’s intake of fatty foods. The Danish National Health and Medicines Authority says 13% of the Danes are obese.
Other nations such as Hungary and Britain have also discussed introducing fat taxes as part of a solution to obesity problems.
“These taxes created big administrative costs. This is not what we need in this economic situation,” Danish Minister for Taxation Holger Nielsen said in a statement, adding that the government had listened to the “concerns” that had been raised.
Instead, the Danish government is to launch a new tax and competition plan.
“With the new plan, we will keep jobs in Denmark, reduce border trade and the companies’ administrative costs. This is good,” said Margrethe Vestager, minister for Economic Affairs and the Interior.
Burden without comparison
The vice president of the Danish Grocers’ Trade Organisation (DSK) Claus Bøgelund Nielsen said his members had experienced both a decline in revenues in their shops and a lot of unnecessary administrative work.
“The politicians have finally realised that our and other people’s predictions have come true. The fat tax created administrative burdens, a dramatic rise in border trade and uncertainty among consumers about what food products should cost. To be honest, I’m sad that I was right about this,” Nielsen told EURACTIV.
Nielsen said that because of the fat tax, DSK members who imported food products from other countries had spent many hours trying to explain foreign food producers how the Danish fat tax worked.
For example, they would try to explain a lasagna maker in Italy that the tax only applied to saturated fat and only special types of saturated fat, and then leave it up to the lasagna producer to figure out how much of the lasagna would be hit by the fat tax.
“That was a burden without comparison and a huge problem,” Nielsen said.
In shops, the fat tax has had a big psychological effect on consumers.
“The rise in the price on single units was actually limited, but the fact that we all talked about the new tax … that created a notion among consumers that if they went abroad, it would probably be a good idea to bring home some of the daily food products,” Nielsen said.
According to DSK, the Danes’ border trade in Germany concerning daily food products has increased dramatically and effectively more than can be justified by the raised taxes.
Three months ago, a survey by DSK showed that the Danes’ border trade in Germany had sky-rocketed.
The poll showed 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.
Nielsen said he is pessimistic when it comes to the border trade in Germany, adding that it would probably continue at a high level as a new “rhythm” has been created.
“The change in behaviour which has happened among the consumers will unfortunately probably continue in the long run even when the Danish groceries adjust to the new lower prices,” DSK’s vice president said.
He added that Denmark had lost many jobs in the retail sector due to the fat tax, but it would be too difficult to estimate exactly how many, and the country is unlikely to get them all back. However, many administrative jobs were also created as a result of the fat tax, Nielsen joked.
Uncertain health effects
Whether the fat tax did work according to its intention, to improve public health, remains to be seen.
According to statistics from FDB, Denmark’s largest consumer goods retailer, Danes had started changing their eating habits because of the tax. Between November 2011 and August 2012, consumers preferred buying meat with 6-8% fat instead of meat with 8-12% fat.
Overall, FDB’s retail businesses sold six tonnes less of fat during those months.
Research has also shown that during the first three months after the tax was introduced, the sale of butter, oil and margarine fell 10-20% in Denmark.
However, Nielsen stated that the fall in butter consumption had nothing to do with the fat tax. It’s a trend that has been going on for years.
“The past many years, there has been a small decline in the butter sale every year because we have healthier lifestyles now than previously. People don’t buy margarine anymore. They buy olive oil and fry on a dry pan,” Nielsen stressed.
“We have witnessed the same trend with milk where people now drink skimmed milk instead of whole milk. So there’s nothing new in those figures,” DSK’s vice president said.