October 4th, 2012

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One year ago this week, the ‘fat tax’ came into effect. The tax – technically a surcharge – enjoys little popularity, and the anniversary of its inception was celebrated by few.

Since 1 October 2011, Danes have paid more for butter, cheese, cold cuts and hundreds of other types of food. A poll of 1,042 randomly selected consumers showed that 70 percent felt the fat tax was either ‘bad’ or ‘very bad’. The poll also gives an indication of why the tax has been so difficult to swallow: 80 percent of respondents said it had not caused them to change their shopping habits. Some 70 percent questioned whether it had made them healthier.

We at Dansk Erhverv (the Danish Chamber of Commerce) and Landbrug & Fødevarer (the Agricultural & Food Council) also have significant doubts about the health benefits of the fat tax. The concept is logical enough: by making it more expensive to buy foods containing unhealthy saturated fats, we can get people to eat less of them and in turn improve their health.

The problem is that the tax is applied to nearly all types of food, from lean chicken to jalapeños. By setting it up that way, you wind up applying a minimal surcharge to an enormous number of products, and the primary effect has been to add an administrative burden to the food industry.

The way the fat tax is applied doesn’t actually encourage people to make healthier choices. What it has done, on the other hand, is encourage more Danes to shop in Germany. Our poll showed that, while in February 2011 one in three Danes shopped in Germany, the figure is now one out of every two.

When asked about why they shop outside Denmark, one in three named the fat tax as the primary reason. Long known as the place where Danes shop for booze, cigarettes and sweets, Germany, thanks to the fat tax, large discounts and professional marketing, has now become a place where Danes also shop for food.

German stores now send their brochures, proudly proclaiming “No fat tax here!”, to homes in the vast majority of Denmark. The savings come on top of what Danish consumers could already save in Germany due to a lower VAT and the generally lower price level there.

Denmark ought to be worried about the rapid rise in the number of Danes shopping in Germany. When Danes buy abroad, they take profits away from Danish stores and jobs away from fellow Danes – hardly something we need in an economic downturn.

In addition to benefiting Denmark’s competitors, and thanks to a complicated web of regulations that even legal experts have trouble unravelling, the fat tax directly harms the nation’s companies. Prior to the legislation coming into effect, we used time and effort to help companies – especially small companies – prepare. Those companies are still spending hours upon hours figuring out just how much they need to pay the state. This time could be better used working their way out of the economic slowdown.

The anniversary of the fat tax comes just two weeks after the Business and Growth Ministry released its report on the nation’s competitiveness, and it wasn’t good. Denmark has become less competitive since 1995 in a number of key areas, including productivity, relative wages and the country’s ability to attract foreign investment.

When it comes to wages alone, Danes received an average wage of 291 kroner per hour, while German employees received 200 kroner per hour. When it comes to consumer taxes Danes pay 3 kroner in VAT and other surcharges for every 2 kroner Germans pay.

According to our calculations, the fat tax alone has cost 1,300 jobs – and this is in addition to the impact of other taxes companies are levied for things like emitting nitrous oxides, the environmental impact of their packaging, sewage treatment, power consumption … the list goes on, and it is getting longer; soon companies will be paying a sugar tax, an advertisement tax and a transport tax.

If the fat tax has benefitted neither people’s health nor the nation’s economy, has it helped anybody?

As far as we can tell, no, it hasn’t. Parliament, too, seems to be coming around to this fact. Over the past month, MPs from both sides of the aisle have expressed their support for abandoning the fat tax, meaning this could be one regulation that doesn’t live to see a second anniversary.

Søren Gade is the managing director of Landbrug & Fødevarer and the former defence minister. Jens Klarskov is the head of the Dansk Erhverv.