The Danish fat tax

Paul Walker blogs a summary of a new report by Christopher Snowdon on The Proof of the Pudding: Denmark’s fat tax fiasco. The findings are:

• 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 fifteen months later when the unintended consequences became clear. This paper examines how a policy went from having almost unanimous parliamentary support to becoming ‘an unbearable burden’ on the Danish people.
• The economic effects of the fat tax were almost invariably negative. It was blamed for helping inflation rise to 4.7 per cent in a year in which real wages fell by 0.8 per cent. Many Danes switched to cheaper brands or went over the border to Sweden and Germany to do their shopping. At least ten per cent of fat tax revenues were swallowed up in administrative costs and it was estimated to have cost 1,300 Danish jobs.
• The fat tax had a very limited impact on the consumption of ‘unhealthy’ foods. One survey found that only seven per cent of the population reduced the amount of butter, cream and cheese they bought and another survey found that 80 per cent of Danes did not change their shopping habits at all.
• The fat tax was always controversial and it became increasingly unpopular as time went on. Objections came not just from business owners, but also from trade unions, politicians, journalists and the general public. It was widely criticised across the political spectrum for making the poor poorer. By October 2012, 70 per cent 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 criticised policies we have had in a long time.’
• Denmark’s fat tax remains the leading example of an ambitious anti-obesity policy being tested in the real world. The results failed to match the predictions of the health lobby’s computer models and the failed experiment has since been largely swept under the carpet in public health circles. 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 policy-makers who are considering ‘health-related’ taxes on fat, sugar, ‘junk food’ and fizzy drinks in the UK and elsewhere. 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.’

There are lessons from this regarding all sorts of targeted taxes. They can sound great in theory, but can be a disaster in practice.

Hat Tip: Whale