Denmark’s fat tax offers a real-life look at the adverse effects of nutrition taxes, says a new study from the Institut économique Molinari (IEM)

Media release

Paris, Thursday, May 2, 2013 – Following a French tax on sodas, the question of a Nutella tax has come up, though only briefly. Nutrition taxes have nevertheless gained a foothold in France, and there is a risk they could be here to stay.

The Danish experience shows that this is a dangerous policy for producers, distributors and consumers alike in terms of jobs, competitiveness and well-being. One year after the world’s first tax on saturated fats (the fat tax) came into force, it was abolished. Too many adverse effects had cropped up, and the impact on consumption patterns was far from conclusive. The Danish government has just announced it will soon be eliminating its soda tax as well, a relic dating back to the 1930s.

Lower consumption without taxation

Accused of promoting obesity and causing illness, saturated fat was taxed in Denmark at a rate of 2.15 euros per kilogram. The use of fiscal constraints was all the more surprising, considering that Denmark’s per capita fat consumption has actually fallen substantially in recent decades:

• Butter: -67%

• Margarine: -48%

• Fats: -20%

• Pork: -44%

• Total fat consumption: -43% (between 1958 and 1999)

27 million euros in losses for the wholesale and retail trade

Instituting the fat tax proved to be a regulatory headache for Danish companies, which lost competitiveness because of it. Extra management and computing costs rose to 201,000 euros for a margarine producer and to 57,000 euros for a small industrial bakery. For the wholesale and retail trade as a whole, costs have been estimated at 27 million euros.

Loss of purchasing power with price rises up to 34 times the European average

With purchasing power under threat everywhere, the fat tax pushed prices up in the last quarter of 2011. Prices of oils and fats rose 14% (34 times the European Union average). Meat prices were up 4%, and milk, cheese and egg prices climbed 3%.

Waste: Denmark “beaten” by Germany and Sweden

Induced to shop in other countries, Danes boosted business in Germany and Sweden while deserting their own companies, which found themselves having to export products rather than selling them locally. It is estimated that 1,300 jobs were lost.

In going elsewhere to stock up, Danes wasted time and fuel on needless trips.

A negligible 0.4% impact

The fat tax’s effects on consumption and health appear to have been negligible, or even counterproductive.

• Between October 2011 and July 2012, the decline in consumption was reported to be just 0.4%, even with a downward trend long under way.

• Eighty per cent of those questioned said they had not changed their consumption patterns. Others said the choice sometimes came down to substituting cheaper, lower-quality goods.

“Taxing food for health reasons is ill-advised at best and counterproductive at worst,” the Danish finance minister has warned.

Titled “Nutrition” taxes: the costs of Denmark’s fat tax, the study is available on our website.

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The Institut économique Molinari (IEM) is an independent, non-profit research and educational organization. Its mission is to promote an economic approach to the study of public policy issues by offering innovative solutions that foster prosperity for all.

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Information and interview requests:

Cécile Philippe, PhD

Director, Institut économique Molinari

cecile@institutmolinari.org

+33 6 78 86 98 58