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Sweet Repeal

Denmark will repeal its beverage tax on soft drinks, and reducing its tax on beer. Finance Minister Bjarne Corydon said that the plan had broad political support and will provide a “powerful growth spurt” to the Danish economy.  The soft drinks tax will be halved in July and then abolished next year, and the smaller beer tax will be reduced by 15%. This move follows the small nation’s implementation and subsequent repeal of a tax on foods containing more than 2.3% fat, after only one year.

Reducing the consumption of soft drinks is a major health policy goal. (Photo: Stéfan)

Reducing the consumption of soft drinks is a major health policy goal. (Photo: Stéfan)

The Danish Grocer’s Association commissioned a report which found 57% of Danish households had crossed the border into Germany to purchase beer or soft drinks – a record number in this regular survey. Cross-border purchasing has long been prevalent, as Schleswig-Holstein is merely a short trip away for most Danes and Germany is generally more affordable than Denmark, but it was drastically exacerbated by the new taxes. The tax was intended to promote healthier drinking habits, but the corresponding increase in cross-border purchases may mean that any of the supposed health benefits are illusory. Governments can institute taxes across their own jurisdictions, but cannot control the prices in other nations.

Hoarding

The fat tax was shed, along with the cancellation of the ‘sugar tax’, after negotiations over many weeks for the Folketing’s 2013 budget.  The centre-left coalition minority government and the far-left Enhedslisten (Red-Green Alliance) party have instead chose to lower the personal allowance by 900 kroner and increase the basic rate of tax by 0.19%, along with other measures.

Highly-hyped and hailed as the first of its kind in the world, the ‘fat tax’ was widely criticised by businesses for increasing administration costs and by politicians for burdening low-income families. Peter Giørtz-Carlsen, Vice-President of Denmark’s largest dairy Arla, said: “No one has gained anything from this tax and people aren’t consuming less fat.” Research by Jørgen Dejgård Jensen and Sinne Smed from the University of Copenhagen did demonstrate that the purchases of fatty product did decrease during the first three months of the levy, but the paper speculated this may be due to hoarding before the tax came into effect. Industry statistics showed that Danish consumption habits did not significantly change over the tax’s first year.

Specific food taxation has rarely been used as an actual instrument of health policy, with recent policy proposals being based on model simulations equipped with econometric analysis. It has been more common for governments to tax alcohol and tobacco products. Hungry for new revenue, these food taxes are becoming familiar. Finland revived an old tax on sweets in 2011; Hungary introduced a tax on foods with high fat, salt and sugar content; a French Senatorial committee wanted to triple the taxes on palm oils, labelled “la taxe Nutella”. The models predicted glorious success for these taxes, but Denmark’s experiences have shown that higher taxes on food are unpopular, unworkable and have unintended consequences. In their swift abandonment, the Danish government may finally quench the thirst for fizzy drink taxes.

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  1. Pingback: Sugar Madness | In Defence of Liberty

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This entry was posted on May 1, 2013 by in National Politics and tagged , , , , , , .
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