IEA Current Controversies Paper No.

42

The Proof of
the Pudding
Denmark’s fat tax fiasco
By Christopher Snowdon
May 2013

Institute of
Economic Affairs
IEA Current Controversies Papers are designed to promote
discussion on economic issues and the role of markets in
solving economic and social problems. As with all IEA
publications, the views expressed are those of the author and
not those of the Institute (which has no corporate view), its
managing trustees, Academic Advisory Council or senior staff.
Contents

About the author 4

Summary 6

Introduction 8

Tax reform 9

Fat taxes as a health measure 10

Fat taxes in theory 12

Timeline 14

The effect on fat consumption and health 20

Further economic problems caused by the fat tax 23

Reaction from public health campaigners 28

Don’t let them eat cake 32

Revealed preferences and stated preferences 35

Butter or guns? 36

Postscript 38

References 39
5
4

About the author

 45

Christopher Snowdon is an author, journalist and researcher

who focuses on lifestyle freedoms, prohibition and dodgy
statistics. He is the Director of Lifestyle Economics at the
Institute of Economic Affairs and regularly appears on TV and
radio discussing social and economic issues. He wrote Velvet
Glove, Iron Fist: A History of Anti-Smoking (2009) and The
Spirit Level Delusion (2010). His most recent book is The Art
of Suppression: Pleasure, Panic and Prohibition since 1800
(2011) which looks at the prohibition of alcohol, drugs and
tobacco. Born in North Yorkshire, he now lives with his wife
and daughter in Sussex.
 6

Summary

• 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.’ 1

1 http://online.wsj.com/article/SB10001424127887323894704578113120622763136.html

 7

• 
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.’
8

Introduction

‘It’s the first ever fat tax. It’s very interesting. We haven’t
had any practical examples before. Now we will be able
to see the effects for real.’
 ike Rayner, Director of Oxford University’s Health Promotion
M
Research Group 2

In October 2011, Denmark introduced a tax on saturated fat with

the expectation that it would nudge consumers towards healthier
food products and improve the health of the nation. 3 The idea was
not new. There have been calls to levy ‘health-related taxes’ on
food and drink since the 1990s (Brownell, 1994). Several countries
place ‘sin taxes’ on fizzy drinks and confectionery, including
Denmark, which has taxed sweets for ninety years and has been
levying VAT at 25 per cent on all food products since 1992 (Denmark
is the only EU country which does not have some form of reduced
VAT on food). However, the Danish fat tax was unique in taxing a
specific nutrient in food, rather than a particular product, and it was
heralded around the world as an exciting precedent. The eyes of
the world were on Denmark and numerous politicians expressed
an interest in following the Danes’ lead. Fifteen months later the
tax was scrapped. It had been ‘an unbearable burden’, according
to the Copenhagen Post.

2 Quoted

in ‘Denmark taxes fatty products’, Daily Telegraph, 29 September 2011, http://
www.telegraph.co.uk/health/healthnews/8796522/Denmark-taxes-fatty-products.html
3 Denmark’s

obesity rate in 2009 was 13.4 per cent of the population. This is significantly
lower than the OECD average of 16.9 per cent (OECD, 2012: 6).
 9

Tax reform

Unlike most ‘sin taxes’, the Danish fat tax was not intended to raise
additional revenue by stealth. It was part of broader reforms to the
tax system which had been ongoing since 2004, aimed at improving
the country’s economic competitiveness by shifting the burden from
direct to indirect taxation. Under Denmark’s centre-right coalition
government, the traditional Scandinavian temptation to tax income
at source was tempered by ‘concerns for international competitiveness’
(Jensen and Smed, 2012: 1). Instead, the government opted to
reduce marginal rates of income tax while increasing various sales
taxes, notably on fuel, tobacco and food. ‘Health related taxes’ on
food and tobacco were expected to raise 2.75 billion kroner
(approximately £300 million) in 2012. Of this, the tax on saturated
fat was expected to raise 1 billion kroner (£110 million) (Danish
Ministry of Taxation, 2010: 11-12). A tax on sugar, planned for
January 2013, was expected to raise a further 1.3 billion kroner
(£150 million).
10

Fat taxes as a health measure

The public health justification for fat taxes rests on the simple
assumption that raising the price of high calorie food will lead to
lower consumption and therefore less obesity. Basic economic
theory suggests that increasing the price of a product reduces rates
of consumption (the law of demand), although there are exceptions
(‘Veblen goods’ and ‘Giffen goods’). Basic biology suggests that
reducing calorie consumption will, ceteris paribus, reduce the
probability of gaining body weight.

In Denmark, the fat tax was portrayed as a classic Pigouvian tax

designed to discourage unhealthy eating habits and help pay
towards the putative costs of obesity. The money raised was
originally earmarked for the health service, although this was
dropped within weeks of its introduction on the grounds that such
taxes are an unstable and fluctuating source of income. Instead,
and in common with most other countries which enact ‘health-
related’ sin taxes, the money was directed towards general
government expenditure.

Advocates of fat taxes frequently cite tobacco duty as an example

of taxation being used to reduce rates of harmful consumption and
associated diseases. There are, however, important differences
between cigarettes and food which make taxation an unlikely
panacea for the obesity ‘epidemic’. Nicotine is a mild recreational
drug while food is essential for survival. Consequently, as Mytton
et al. (2012) acknowledge, ‘food consumption is relatively insensitive
to price changes’. While anti-smoking campaigners aim for total
abstinence from tobacco, obesity campaigners can only hope to
 11

shift consumers away from their preferred choice of food and

towards ‘healthier’ alternatives. Not only is demand for tasty food
rather inelastic, but food prices fluctuate naturally, often without
people noticing, and price rises can easily be absorbed in wealthy
countries where food shopping makes up a relatively small part of
the household budget. Those who feel the impact of higher prices
can often downgrade to budget brands or shop in cheaper stores.

Furthermore, obesity is the result of consuming too many calories

from any source. While cigarettes can reasonably be classified as
‘unhealthy’ per se, particularly since they tend to be consumed
immoderately, items of food do not lend themselves to a good/evil
dichotomy. It is the overall diet, rather than particular products, that
should be termed unhealthy, and medical opinion about the best
diet has shifted over the last few decades, with controversy about
the so-called Mediterranean diet and the ‘French paradox’, as well
as mixed views about the role of carbohydrates, meat, butter, fat
and sugar. 4 Finally, there is the question of proportionality. While
sin taxes on tobacco only affect the ‘sinner’, taxes on food and soft
drinks drain the wallets of healthy, moderate consumers and heavy,
obese overeaters alike.

The scientific case for Denmark’s fat tax was made by the country’s
Prevention Commission, which claimed that the policy would give
Danes an extra 3,800 years of life - or, more prosaically, an extra
five and a half days per person. However, the Commission’s estimate
was based on evidence that was eleven years old and did not take
into account the recent shift in the medical consensus. Although
saturated fat was fingered as a major cause of obesity and ill health
in the late twentieth century, more recent research has found the
relationship to be more nuanced. Today, it is generally agreed that
saturated fat should be replaced by unsaturated fat if obesity is to
be prevented and there is considerable evidence that saturated fat
is not a major cause of heart disease (Siri-Tarino et al., 2010;
Jakobsen et al. 2009).

4  he ‘French Paradox’ refers to the observation that the French have traditionally had
T
low rates of cardiovascular disease despite consuming large amounts of saturated fat.
The Mediterranean diet, high in fruit, vegetables, fish and olive oil, became a model for
many in the medical establishment in the 1990s.
12

Fat taxes in theory

Theoretical models have provided mixed evidence about the effect

of fat taxes, with several studies suggesting that the impact on
population health is likely to be marginal (e.g. Tiffin and Arnoult,
2011; Gelbach et al., 2007; Chouinard et al., 2007; Allais et al.,
2010). Based on a computer model, Mytton et al. reported that a
tax on saturated fat ‘could produce modest but meaningful changes
in food consumption and a reduction in cardiovascular disease’
(Mytton et al., 2007). However, in the semi-realistic environment
of an artificial retail store, an experiment conducted by Waterlander
et al. found that ‘price increases did not significantly limit the total
number of products or calories bought. Within specific food
categories, including soda, dairy drinks, or desserts, no significant
effects of the price increases on unhealthier food purchases were
found either’ (Waterlander et al., 2012).

A systematic review of the literature by Eyles et al. (2012) identified

five relevant studies, all of which suggested that fat taxes reduced
fat consumption, albeit with only very modest effects on body weight.
They estimated that a one per cent increase in price leads to a
0.02 per cent reduction in energy consumed from saturated fat
(Eyles et al., 2012: 5). However, they also found evidence that
taxes on saturated fat lead to increased consumption of energy
from other sources, notably sugar. Some studies have concluded
that taxes on saturated fat, dairy and ‘junk food’ may produce worse
health outcomes as a result of compensatory purchasing of substitute
foods (Eyles et al., 2012: 7).5
 13

Until 2011, much of the evidence for and against fat taxes was
based on assumptions and computer modelling. The Danish
experiment offered an opportunity to test these conclusions in the
real world. As the timeline below shows, the experiment turned out
to be short-lived.

5 Evidence is mixed when it comes to subsidies for ‘healthy’ foods, but Eyles et al. esti-
mate that a one per cent reduction in the price of fruit and vegetables leads to a 0.35
per cent increase in consumption (Eyles et al., 2012: 6).
14

Timeline

2009: Idea of implementing a fat tax (‘fedtafgift’) in Denmark is

proposed by the centre-right Venstre-Konservative coalition
government.

January 2010: Romanian government considers tax on food that

is high in sugar or fat but ultimately rejects it.

January 2011: Finland reintroduces its tax on sweets, chocolate,

ice cream and other sugary products at the rate of 75 cents per
kilogram. The tax had been abolished in 1999 and the decision to
bring it back was made in 2009, ostensibly for health reasons.

March 2011: Danish politicians vote overwhelmingly to introduce

a tax on saturated fat, to be introduced in October. They also agree
to levy a tax on sugar from January 2013. Only the free-market
Liberal Alliance party voted against. The far-left Enhedslisten party
abstained.

12 July 2011: The Hungarian parliament votes to introduce taxes

on various sugary drinks, salty snacks, sweets and condiments.
Hungarian Prime Minister Viktor Orban says, ‘Those who live
unhealthily have to contribute more’ (Cheney, 2011). Tax on biscuits
is doubled and an additional 250 florints (72p) is placed on a litre
of soda. These levies, which come into force in September 2011,
are expected to raise the equivalent of £60 million.

September 2011: Irish health minister, James Reilly, says that he

is considering a tax on fizzy drinks.
 15

15 September 2011: The centre-right coalition led by Venstre is

replaced by a centre-left coalition led by the Social Democrats in
the Danish general election.

30 September 2011: On the eve of the fat tax’s introduction, the

liberal newspaper Politiken interviews John and Betina Friis, a
couple who met in a grocery store. ‘We consumers are cheated to
pay more to the treasury all the time’, says John. ‘The fat tax is just
another way to get money out of us.’ ‘We buy what we have always
done’, adds Betina, ‘and the fat tax will not change that.’ 6

1 October 2011: Danish fat tax introduced at 16 kroner (£1.78) per

kilogram of saturated fat on products which contain more than 2.3
per cent saturated fat. With VAT added to this at 25 per cent, the
price of butter and margarine rises by more than 20 per cent and
the price of cooking oil rises by 8.2 per cent (Jensen and Smed,
2012: 4). The Copenhagen Post welcomes the groundbreaking
policy, saying that since the government taxes tobacco and alcohol,
‘there’s no reason why there shouldn’t also be a disincentive to
consuming saturated fats, given their link to heart disease.’ It adds
that if the government were serious about preventing ill health, it
would raise the tax to a ‘prohibitive level’.7 However, the newspaper
also cautions the government to ‘listen closely to the voices of
economists, who question the fat tax’s effectiveness in influencing
people’s behaviour’.

4 October 2011: British prime minister David Cameron says a

Danish-style fat tax is ‘something we should look at.’

5 October 2011: Bob Brown, leader of Australia’s Green Party says

‘we should look at the Danes’ saturated fat tax’ as a way of reducing
the ‘costs of obesity’ (Ryan and Vasek, 2011).

6 http://politiken.dk/mad/madnyt/ECE1409255/john-og-betina-fedtafgift-er-nok-bare-en-
maade-at-faa-penge-ud-af-os/
7 http://cphpost.dk/commentary/editorial/editorial-ounce-prevention-worth-pound-fat
16

23 October 2011: Writing in the New Scientist, Marion Nestle,

professor of public health nutrition at New York University, says:
‘let us congratulate Denmark on what could be viewed as a
revolutionary experiment. I can’t wait to see the results’ (Nestle,
2011). Nestle echoes the views of Jane Martin of Australia’s Obesity
Policy Coalition who hoped the fat tax would encourage other
governments to use tax as a deterrent. ‘Rarely do we get to see
such policies played out in the real world’, she wrote, ‘and the
opportunities to learn from this are very promising’ (Martin, 2011).

29 October 2011: The Danish wholesaler SuperGros estimates that

its deliveries of whipped cream, margarine and cheese fell by a
third in the first two weeks of the new tax regime compared to the
same period in 2010. There are indications that this decline is partly
due to consumers stockpiling food prior to the ban being enacted.8
The company notes that the biggest decline in sales occurred near
the southern border where cross-border shopping into Germany
is common.

November 2011: The fat tax is blamed for inflation rising to 4.7 per
cent in a year in which real wages fell by 0.8 per cent.9

24 November 2011: The European Public Health Alliance, an EU-

funded pressure group, calls on member states to introduce taxes
on ‘unhealthy’ foods. It claims that the fat tax is ‘a two pronged
arrow’ which will ‘tackle the obesity epidemic’ and ‘boost austerity-
stricken budgets.’ 10

1 January 2012: France introduces tax on sugar-sweetened

beverages at a rate of €7.16 per hectolitre. This amounts to the
equivalent of just over 1p on a 330ml can and is widely regarded
as a stealth tax rather than a serious attempt to reduce obesity.

8 http://politiken.dk/mad/madnyt/ECE1434676/fedtafgiften-virker---i-starten/


9 http://politiken.dk/tjek/tjekmad/ECE1408548/fedtafgiften-vil-koste-en-familie-1000-kr-


aarligt/
10 http://www.epha.org/a/4852

 17

April 2012: Mike Rayner, Britain’s best known campaigner for sin
taxes on food and drink, says the Danes have ‘got the right idea’
but expresses concern that they have not gone far enough. He tells
the BBC that ‘a lot of the low-fat foods in Britain are high in salt, so
we might be tackling one problem only to create another... I don’t
care whether it’s hot or cold, whether you got it from a takeaway
or a shop - I’d like us to tax all unhealthy foods from butter to biscuits.
And in doing so we can tackle a problem that will only keep expanding’
(BBC, 2012).

May 2012: Denmark’s health minister defends the yet-to-be-

introduced sugar tax after the food industry warns that it will lead
to further job losses. ‘Businesses cannot take anymore’, says Ole
Linnet Juul from Dansk Industri, a confederation of 10,000
businesses. ‘First a fat tax and now a sugar tax. Does the government
just want companies to shut down?’ (Jyllands-Posten, 2012). A
survey finds that seven out of ten food manufacturers say they
expect to have to cut staff numbers when the sugar tax is introduced
in January 2013 (ibid.).

June 2012: The Danish Chamber of Commerce and two trade

unions - HK Commerce and the Danish Food and Allied Workers
Union - join forces to place advertisements in national newspapers
calling for the fat tax to be repealed.

July 2012: With the political tide turning against the fat tax, the
social liberal party Radikale calls for the sugar tax to be ‘buried’.
The party had previously supported the tax but decides that it is
unworkable. The far-left Enhedslisten party also opposes it,
expressing concerns about how it will affect the poor (Weaver,
2012b).
18

2 August 2012: It is reported that Israel’s Health Ministry is in favour

of introducing a tax on ‘unhealthy foods’. The country’s Tax Authority
is also supportive.11 The idea of introducing a fat tax in Israel had
first surfaced at a health conference in 2006 when the scheme
‘sounded extreme even to many of those whose job it is to promote
healthy living’, according to the Israeli newspaper Haaretz.12

27 August 2012: Politiken reports that the Danish government is

ready to abandon the fat tax and is looking at increasing income
tax to make up the shortfall.

August 2012: Italian health minister, Renato Balduzzi, considers a

tax on soft drinks (later rejected).

October 2012: An opinion poll shows that 70 per cent of Danes

consider the fat tax to be ‘bad’ or ‘very bad’ and 80 per cent say
that it has not made them change their shopping habits (Gade and
Klarskov, 2012).

10 November 2012: Noting that ‘[t]axes on fat and sugar weigh

heavier on the budget of those with low incomes’, the Danish
government agrees to ‘abolish the fat tax and cancel the planned
sugar tax.’ The government releases a statement saying:

‘The fat tax and the extension of the chocolate tax –

the so-called sugar tax – has been criticised for
increasing prices for consumers, increasing companies’
administrative costs and putting Danish jobs at risk.
At the same time it is believed that the fat tax has, to
a lesser extent, contributed to Danes travelling across
the border to make purchases.’ (Skatteministeriet, 2012b)

11 http://www.haaretz.com/news/national/israel-planning-to-slap-special-tax-on-junk-


food-to-curb-ballooning-obesity-1.455329
12 http://www.haaretz.com/print-edition/business/health-summit-debates-healthy-living-


moots-fat-tax-1.190589
 19

To fill the four billion kroner hole in the budget, the government
announces that the starting rate of income tax will be lowered from
42,900 to 42,000 kroner and the basic tax rate (‘bundskat’) will be
raised by 0.19 percent from January 2013.13

The Copenhagen Post, which had initially supported the fat tax,
issues an editorial titled ‘Giving up an unbearable burden’, which
expresses relief at its abolition:


‘The jury remains out on whether people actually reduced
their fat consumption – businesses say we didn’t, while
the only academic study so far says we might have.
The evidence of the fat tax’s negative impact on the
economy, meanwhile, is incontrovertible: it increased
border trade and saddled businesses with a burdensome
administrative procedure.’

‘Add to that the nearly two billion kroner the tax sucked
out of consumers’ pockets over the past 12 months,
and there’s no wonder it had little popular support.’ 14

In an editorial in Politiken, Kristian Madsen says that it is time for

the centre-left to find a third way in matters of public health, one
which does not rely on ‘blind faith in economic incentives or
prohibitions’.15

13 http://cphpost.dk/news/politics/fat-tax-repealed

14 http://cphpost.dk/commentary/editorial/editorial-giving-unbearable-burden

15 http://politiken.dk/debat/profiler/kristianmadsen/ECE1812006/nekrolog-over-den-
forhadte-fedtskat/
20

The effect on fat consumption

and health

‘There have been absolutely no health benefits gained from this

tax’, claimed Ole Linnet Juul of the food industry group DI Fødevarer
(Weaver, 2012c). A spokesman for the country’s largest dairy said
that consumers bought as much milk, cheese and yoghurt in 2012
as they had before, albeit often choosing cheaper brands (ibid.).
And according to the snack food manufacturer Kim’s, the market
for crisps and snacks was ‘growing’ while the fat tax was in effect
(ibid.). There is no incontrovertible data to corroborate or refute
these statements, but such evidence as there is suggests that the
fat tax would not have had a significant impact on health if it had
been kept in place.

When the tax came into effect, Mike Rayner told Channel 4 News
that models predicted ‘a 14 per cent decrease in butter consumption’.16
There is only slender evidence that such a decline took place. In
November 2011, Politiken reported that only seven per cent of the
population had reduced the amount of butter, cream and cheese
they bought 17 and it was reported elsewhere that butter sales fell
by five per cent in the first month while sales of margarines with
less saturated fat rose by the same proportion.18

16 http://www.channel4.com/news/denmark-introduces-fat-tax-on-food;

Rayner cautioned
that the tax might ‘lead to an increase in salt and added sugars, for example, and so
the tax might not have actual health benefits.’
17 http://politiken.dk/newsinenglish/ECE1459080/fat-tax-has-little-effect/


18 http://politiken.dk/mad/madnyt/ECE1434676/fedtafgiften-virker---i-starten/

 21

The only academic study carried out to date found that discount
stores (e.g. Aldi) increased their prices above the rate of tax while
supermarkets sometimes absorbed part of the tax to keep prices
lower (Jensen and Smed, 2012). This confirmed previous research
that showed Aldi to have increased the prices of nine out of ten
products by more than the new rate of tax.19 Despite this, there was
a shift in consumer behaviour from the supermarkets to the (generally
cheaper) discount stores while the tax was in effect.

Jensen and Smed found that average weekly sales of butter fell by
61 grammes per person in supermarkets and by 34 grammes per
person in discount stores. In sum, they estimated that sales of
saturated fat from butter, margarine and oils fell by 10-20 per cent
after the tax was implemented (ibid.: 17-18). Although this is in line
with Rayner’s prediction of a 14 per cent decline, Jensen and
Smed’s evidence is based on the first three months of the new tax
regime only, and they acknowledge that this probably exaggerates
the decline in consumption because of the hoarding that went on
in the weeks before the tax was enacted. A large spike in sales in
September 2011 supports anecdotal accounts of stock-piling on
the eve of the new tax regime:20

19 http://cphpost.dk/business/supermarkets-using-fat-tax-fatten-bottom-line (‘It is not

acceptable to make an extra profit under the cover of the fat tax’, Social Democrat food
spokesperson Orla Hav said, according to MetroXpress newspaper. ‘We would like to
take up a debate on whether there are ways to protect the consumer.’)
20 http://politiken.dk/tjek/tjekmad/ECE1408548/fedtafgiften-vil-koste-en-familie-1000-kr-
aarligt/
22

‘We have had to stock up with tons of butter and

margarine in order to be able to supply outlets’
Soeren Joergensen of Arla Distribution

‘It has been a chaotic week with a lot of empty shelves.

People have been filling their freezers’
Christian Jensen, independent local Copenhagen supermarket. 21

Sales in Danish stores also underestimate the true level of consumption

because of the rise in cross-border shopping (see below).

21 http://www.mnn.com/food/healthy-eating/stories/denmark-levies-worlds-first-fat-tax;
Jensen added: ‘But actually I don’t think the tax will make that much difference.
If people want to buy a cake, they will buy it. But right now they’re saving money.’
 23

Further economic problems

caused by the fat tax

The Danish government expected the fat tax to raise ‘around

1 billion’ kroner (£115 million) per year (Danish Ministry of Taxation,
2010: 12). In the event, it raised 1.475 billion kroner (£170 million)
(including VAT) which further suggests that it reduced fat consumption
by less than was anticipated (Skatteministeriet, 2012b: 2).

Sin taxes are usually designed to generate additional revenue. The

Danish case is interesting because it was carefully calibrated not
to raise extra revenue but to balance out lost revenue from income
tax cuts. The question for the Danish government was therefore
not how to soak consumers for the most cash but how to find the
best way of generating a specific amount of money. There are
several reasons why it eventually concluded that there were fairer
and more efficient ways to raise revenue.

Regressive
Although there are no specific data showing how the burden of the
fat tax fell on different socio-economic groups, it is well established
that taxes on food take a larger share of income from the poor than
from the rich. Indirect taxes of this sort are invariably regressive
unless the targeted product is a luxury or is disproportionately
consumed by the rich, which is clearly not the case here. As
Chouinard et al. (2007) note: ‘fat taxes are unattractive because
they are extremely regressive, and the elderly and poor suffer much
greater welfare losses from the taxes than do younger and richer
consumers.’ Allais et al. (2010) conclude that a tax on fat ‘generates
substantial tax revenue, but is highly regressive.’ The regressive
24

nature of the fat tax partly explains its unpopularity in Denmark,

particularly amongst leftist parties.

Administrative costs
It has been claimed that businesses spent months trying to work
out how much tax should be paid on dried apricots that sat in oily
wax paper (Carlson, 2013). The story may be apocryphal, but there
is no doubt that the policy was intensely bureaucratic for both
government and industry.

It was reported that businesses paid 10 kroner in administration

costs for every 100 kroner the state took in tax and that staff were
being offloaded to cut costs. The business group, Dansk Erhverv,
put the cost even higher at around 200 million kroner (Weaver,
2012c). Other trade associations, such as the Danish Grocers’
Trade Organisation, complained about the numerous transaction
costs involved in setting up IT systems and calculating the tax rate
for thousands of products.

As an example of the ‘administrative nightmare’ faced by

manufacturers, the tax was levied on the saturated fat used in the
production of food and so did not necessarily reflect the amount of
fat in the finished product. It was extremely difficult for Danish
companies to establish how much fat had been used in the production
of imported products. As a spokeswoman for DI foodstuffs told AFP:
‘Products that include other products that include saturated fats
also have to have new prices worked out. Imported goods require
a declaration from the producers abroad on exactly how much
saturated fat has been used in production.’ 22

22 http://www.mnn.com/food/healthy-eating/stories/denmark-levies-worlds-first-fat-tax
 25

Transaction costs on businesses amounted to around 10-15 per

cent of the tax revenue collected, not including the costs of
government bureaucracy. This was acknowledged by the Danish
Minister for Taxation, Holger Nielsen, who greeted the abolition of
the tax by saying: ‘These taxes created big administrative costs.
This is not what we need in this economic situation. We have
listened to objections that were raised.’ 23

Cross-border shopping
Denmark has a longstanding problem with cross-border shopping
and smuggling as a result of its high rates of taxation on food, drink
and tobacco. Tobacco is the most heavily traded commodity
(amounting to 4 billion kroner in 2011) and Germany is the main
source (Skatteministeriet, 2012a: 2-3).

The government was warned that the fat tax would fuel the cross-
border trade before it was enacted. 24 For example, Jørgen Hoppe,
president of the trade union HK Commerce, told Politiken: ‘Every
time you put new taxes on fat, sugar and spirits, people simply
cross the border to shop and that sends jobs out of the country’
(Weaver, 2012). This threat was acknowledged by the government
when it set out the new budget in 2010:

‘T
 axes on health related goods have to be balanced with
respect to cross-border shopping. Too high levels of taxes
will not reduce the total consumption of unhealthy goods,
but only lead to increased cross-border shopping’ (Danish
Ministry of Taxation, 2010: 11).

23 http://www.euractiv.com/science-policymaking/denmark-scraps-infamous-fat-tax-
news-516018
24 http://www.just-food.com/analysis/denmarks-saturated-fat-tax-provokes-industry-an-
ger_id115300.aspx
26

Cross-border purchases had been declining before the fat tax was
enacted. They peaked at 15.6 billion kroner (£1.8 billion) in 2005
before steadily falling to 9.6 billion kroner (£1.1 billion) in 2011. The
Ministry of Taxation estimated that the overall border trade rose in
2012 to 10.5 billion kroner as a result of higher taxes on tobacco,
food and drink (Skatteministeriet, 2012a: 3). However, it noted that
due to the relatively short shelf-life of the food products involved,
the effect of the fat tax on cross-border trade was ‘relatively limited’
(ibid.: 14). Preliminary evidence suggested that the fat tax led to
cross-border sales rising by the equivalent of 100 million kroner
(£12 million) per year (ibid.) and rose thereafter (Smed and
Robertson, 2012).

The cross-border shopping spree was further fuelled by additional

taxes on alcohol (January 2012) and tobacco (April 2012). In 2011,
Danes reportedly bought an average of 420 units of beer and soft
drinks in shops on the German border. 25 A poll conducted in October
2012 found that half the population had shopped in Germany, up
from a third in February 2011 (Gade and Klarskov, 2012). Another
poll found that 57.1 per cent of Danish households had bought beer
or soft drinks in Germany in the past year, an impressively high
figure in a country where only 59.7 per cent of households own a
car. Four years earlier, only 47 per cent of Danish households
reported shopped in Germany in the past year.26

‘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.’ (Gade and Klarskov, 2012)

25 http://www.euractiv.com/consumers/danes-buy-danish-beer-germany-news-514372

26 http://www.dsk.dk/Nyheder/pressemeddelelser/Naesten6udaf10hargraensehandlet.html
 27

In conclusion, the fat tax led to many Danes changing their behaviour,
but not in the way health campaigners had hoped for. For the most
part it led to consumers switching to cheaper alternatives and
shopping abroad. As a result, the food industry estimated that the
fat tax cost 1,300 jobs in its first year.27 Objections came not just
from business owners, but also from trade unions, politicians,
journalists and the general public. Moreover, the fat tax contributed
to a surge in consumer prices and price-gouging, and was widely
considered to be regressive. Consequently, when the tax was
abolished Margrethe Vestager, Minister for Economic Affairs and
the Interior declared: ‘With the new plan, we will keep jobs in
Denmark, reduce border trade and the companies’ administrative
costs. This is good.’28

27 http://cphpost.dk/commentary/opinion/opinion-tax-everyone-wants-see-cut

28 http://www.euractiv.com/science-policymaking/denmark-scraps-infamous-fat-tax-news-516018
28

Reaction from public health

campaigners

The reaction of public health lobbyists to the painful real world

experience of the Danish U-turn ranged from complaints that the
policy had been wrecked by commercial interests to assurances
that the tax could have worked with a little fine tuning. Having
described the fat tax as an important ‘bellwether’ barely a year
earlier,29 the public health establishment now blamed policymakers
for setting the tax too low and/or making it insufficiently complex.
It was, they concluded, a bureaucratic failure rather than a systemic
failure. The abolition of the tax was widely described as a ‘political
decision’, influenced by those who made and sold food.

Writing in the New Scientist, where she had praised Denmark’s

‘revolutionary experiment’ the previous year, Marion Nestle blamed
‘intense pressure from the food industry in an already weak economy’
(Nestle, 2012). Although she conceded that the fat tax had been
‘especially unpopular among Danish consumers’, she nevertheless
insisted that ‘the real reason for the repeal was to appease business
interests’. Nestle argued that the tax was too low to make much
difference to rates of obesity and that a tax on saturated fat in
general was too broad. A better approach, she said, was to target
‘processed food, fast food or sugary drinks’ (arguably an even
broader category). She concluded that the way forward required
‘fighting makers of fatty foods’ by restricting portion sizes, restricting
advertising and, heedless of the Danish experience, more fat taxes.

29 http://www.washingtonpost.com/blogs/wonkblog/post/will-a-fat-tax-make-denmark-
healthier/2011/10/04/gIQA3D5nKL_blog.html
 29

A similar note was struck by Gary Sacks, writing for the Australian
public health blog The Conversation. Like Nestle, he accepted that
it was impossible to say whether the tax would have had the ‘desired
impact on public health’, but its abolition was, he said, ‘another Big
Food victory’. He complained that the decision had been ‘a political
one’ and that ‘given the enormous influence of Big Food, it is
reasonable to expect that they had at least some influence over
this decision’ (Sacks, 2012). He expressed hope that events in
Denmark would not discourage other governments from pursuing
fat taxes, soft drink taxes, advertising bans and restrictions on
serving sizes.

Tam Fry of the National Obesity Forum said that the Danes ‘have
found the water too hot and given up. The clear message for the
UK is that it is time for the government to get tough with food
manufacturers and impose maximum acceptable levels of saturated
fat, sugar and salt.’ 30 A different strategy was suggested by Alberto
Alemanno, the editor of the European Journal of Risk Regulation,
who argued that the failure of the Danish fat tax could be used to
justify an EU-wide tax. The cross-border trade that had undermined
the fat tax was, he said, due to a distortion of the internal market
which required action from the European Commission (Alemanno,
2012).31

30 http://www.foodmanufacture.co.uk/Regulation/Denmark-to-drop-fat-tax-and-shelve-
sugar-tax-plans
31 In other words, the mere existence of potential distortions in the internal market could enable
the EU to step in. Yet, at the same time, by scrapping such a tax Denmark is set to weaken the
case for an EU-wide tax as the distortions will be eliminated. It is indeed undisputed that only a
critical mass of domestic fat tax schemes might empower the EU to enact an EU-wide fat tax.
30

In the post-ban rhetoric of fat tax campaigners, the possibility that

politicians had simply responded to public opinion was seldom
entertained. For them, it is axiomatic that the interests of industry
are in irreconcilable conflict with the public interest. No explanation
is required for why the industry should prefer selling ‘unhealthy’
food to ‘healthy’ food, nor is it necessary to explain why, if ‘Big Food’
wields so much political power, it was unable to prevent the tax
being introduced in the first place. (The term ‘Big Food’, which until
recently would only ever be used satirically, is clearly intended to
draw parallels with ‘Big Tobacco’ and to imply great power.)

From the perspective of self-appointed public health experts, it is

only they who act on evidence while everybody else is motivated
by the mysterious and unpredictable force of ‘politics’. Alberto
Alemanno wrote that ‘the circumstances surrounding the withdrawal
of the tax suggest that politics rather that an evidence-based policy
assessment justify the decision of the Danish government’
(Alemanno, 2012). But politics covers a multitude of interests.
Evidence of widespread unpopularity is a legitimate reason to ditch
a policy in a liberal democracy. The fat tax never had the support
of the majority of Danes and it became even less popular as time
went on. The proportion of the population who disagreed with the
statement ‘in general it’s a good idea to tax saturated fat’ rose from
43 per cent in 2009 to 50 per cent in November 2011.32 By October
2012, 70 per cent of Danes considered the tax to be ‘bad’ or ‘very
bad’ (Gade and Klarskov, 2012) and by the time it was scrapped,
newspapers were routinely describing the tax as ‘infamous’,
‘maligned’ and ‘hated’. The liberal newspaper Politiken’s editorial
about the tax’s abolition was headlined ‘Obituary for the hated fat
tax’. Mette Gjerskov, the minister for food, agriculture and fisheries
said: ‘The fat tax is one of the most criticised policies we have had
in a long time.’33

The indifference of health campaigners towards public opinion

came as a surprise to Stephen Dubner, co-author of Freakonomics,

32 http://fdb.dk/analyse/fedtskatten-har-forel%C3%B8big-flyttet-f%C3%A5

33 http://online.wsj.com/article/SB10001424127887323894704578113120622763136.html
 31

who attended a public health conference in November 2012 at

which fat taxes were praised: ‘One objection that I was surprised
no one raised: the simple fact that taxpayers might hate the tax
and rebel against it to the point where it becomes politically and
economically impossible.’ 34

Some in public health wear this unpopularity as a badge of honour.

‘The fat tax may be unfair and unpopular but it will certainly make
people sit up and take notice’, Tam Fry of the National Obesity
Forum told Deutsche Welle when the tax came into effect. ‘It’s a
shock treatment but a necessary one to cure an epidemic.’35 But
shock treatment rarely goes down well with voters, especially when
the economy is on the rocks. Concerns about job losses and the
cost of living may not be paramount to public health campaigners,
but it is quite understandable that the government would place
these considerations ahead of what is likely to be, at best, a small
reduction in the population’s waist line.

There is, then, good evidence that the fat tax was widely unpopular
in Denmark. There is equally good evidence that the tax encouraged
cross-border shopping and put an unreasonable burden on shoppers
and food producers alike. There is circumstantial evidence that the
impact on consumption patterns was so limited that any benefit to
public health would have been negligible even if the tax had stayed
in place for years. And it is almost certain that the fat tax was, by
its very nature, regressive.

None of this is of interest to the health campaigners. From their

perspective, the only evidence that could justify revoking the tax
would be if rates of obesity had unequivocally risen. Even if that
had happened, their response would likely have been to demand
a more punitive tax rate across a wider range of products. As health
campaigners, they are entitled to take a narrow view, but politicians
are not obliged to do likewise. The wider social and economic
perspective is too important to be dismissed as mere ‘politics’.

34 http://www.freakonomics.com/2012/11/13/fans-of-a-fat-tax-will-be-saddened-by-the-
news-from-denmark/
35 http://www.dw.de/fat-tax-gains-weight-in-europe/a-15445105-1
32

Don’t let them eat cake

Since there is no reliable evidence of what effect the fat tax had
on calorie consumption, the Danish experience shows us nothing
as far as public health lobbyists are concerned. From their standpoint,
the policy was neither a success nor a failure, it was merely a non-
event which demonstrated nothing except the excessive power of
corporations to nip well-intentioned policies in the bud. This attitude
may explain why there has been little in the way of serious analysis
of the Danish experiment and almost nothing has been published
in academic journals to assess the economic, social or public health
impact. For the most part, public health advocates simply returned
to their computer models and resumed campaigning.

Within days of the fat tax being scrapped, Jack Winkler, professor
of nutrition policy at London Metropolitan University, told the
Guardian that ‘the Danish reversal will prove the high water mark
for such policy proposals, and interest in the subject will now recede’
(Campbell, 2012). He could not have been more wrong.

On 14 November 2012, just four days after the Danes announced

the abolition of the fat tax, Britain’s National Heart Forum called on
the government to introduce a tax on foods that are high in salt,
sugar and fat. Reporting this news, the Guardian claimed that ‘”Fat
taxes” are increasingly popular internationally’ (ibid.).

The following day, France narrowly avoided a ‘Nutella tax’ when

the Socialist government’s social security budget was voted down
by conservatives and communists in parliament. The tax would
have quadrupled the tax on palm oil, a key ingredient in Nutella
 33

chocolate spread, from €100 to €400 per metric tonne. The proposal
had drawn protests from Malaysia, one of the world’s biggest
exporters of palm oil and was unpopular with much of the French
public for whom Nutella on bread was a cherished part of breakfast.
The French Communist Party voted against the tax because they
saw it as an attack on the working class.

The ‘Nutella tax’ had been promoted by environmentalists who

claimed that the palm oil industry was responsible for deforestation
and by public health lobbyists who objected to the saturated fats
in palm oil. The tax’s chief advocate in government, Yves Daudigny,
said: ‘Many people have questioned the reasons for taxation. So
I repeat one more time, it has only one purpose: to fight against
obesity and cardiovascular disorders.’36 It was expected to have
raised €400 million per year. Subsequent attempts to levy sin taxes
on aspartame and energy drinks for public health reasons were
also rejected.

The momentum accelerated in 2013. In January, a coalition of 61

organisations called on the British government to introduce a 20p
per litre tax on sugar-sweetened beverages (or ‘mini-health
timebombs’ as they called them). The campaign was led by the
lobbying charity Sustain, whose chairman was Mike Rayner.

In February, the Ontario Medical Association lent its support to fat

taxes. Asked about the real-world evidence from countries such
as Denmark, the association’s president, Doug Weir, replied: ‘There’s
no evidence that it [taxing] doesn’t work… I think what we’re saying
is that the problem is too big to wait until we get the evidence from
other jurisdictions’ (Ryckewaert, 2013).

36 http://www.foodnavigator.com/Legislation/French-Senate-rejects-palm-oil-tax
34

In the same month, Britain’s Academy of Medical Royal Colleges

unveiled a ten-point plan to combat obesity that was explicitly
inspired by anti-smoking legislation. Most notably, it called for a 20
per cent tax on sugar-sweetened beverages. The Academy’s report
mentioned that Denmark had experimented with what it called ‘a
slightly broader plan’, but there was no acknowledgement that the
experiment had ended, let alone any explanation of why (Academy
of Medical Royal Colleges, 2013: 29).
 35

Revealed preferences and

stated preferences

Public health campaigners talk a great deal about ‘making healthy

choices easier’.37 The implication of this slogan is that people’s
consumption habits do not reflect their true preferences, but are
merely the consequence of an environment that pushes ‘unhealthy’
products under their noses while making ‘healthy’ food expensive
and inaccessible.38 The solution, therefore, is to remould the
commercial environment to make it easier for people to act upon
their latent preference for ‘healthy’ food.

There is little evidence from the real world to support this hypothesis.
Firstly, it is by no means clear that ‘unhealthy’ foods have an unfair
advantage in the retail environment. Low- and zero-calorie fizzy
drinks are stacked alongside their sugary cousins on the shelves,
for example, and are on sale at the same price. Similarly, low-fat
food products compete on an even footing with high-fat alternatives.
Nothing in the price, availability or advertising of food and drink
implies a systematic bias against ‘healthier choices’.

Secondly, there is no reason to assume that people’s revealed

dietary preferences do not closely mirror their true preferences. In
the case of the fat tax, the willingness of many Danes to go out of
their way to stockpile butter or to drive considerable distances to
buy basic foodstuffs strongly suggests that their preference for
‘unhealthy’ products is conscious and very real.

37 For
example, the British government’s 2004 white paper, Choosing Health: Making
Healthy Choices Easier.
38 Inthe case of diet, the word ‘obesogenic’ has been coined to describe an environment
in which physical activity is perceived to be inconvenient and ‘unhealthy’ food is per-
ceived to be too readily available (Foresight, 2007).
36

Butter or guns?

While public health campaigners search for solutions, the public

deals in trade-offs. In this instance, the campaigners pursue a
solution to an ‘obesity epidemic’ while the public makes a trade-off
between weight gain and the pleasure of eating. As Tim Harford
put it: ‘If you tax ice cream, people will be less obese, which is
good, but they will also be enjoying less ice cream, which is bad’
(Harford, 2012). Before the Danish fat tax was introduced, the
Prevention Commission predicted that it would increase average
life expectancy by five and a half days. Leaving aside the remarkable
precision of this estimate, it is debatable whether most people
would willingly trade the sacrifices of money and pleasure for this
negligible increase in longevity.39 It is by no means obvious that
those who prefer to indulge themselves in a lifetime’s pleasure of
eating their favourite foods at the expense of being overweight are
making an irrational choice.

It is true that some people say that they would like to eat less fatty
and sugary food, but stated preferences are less informative than
revealed preferences. If they actually liked eating less fatty and
sugary food they would do so. What they really mean is that they
wish they enjoyed ‘healthy’ food as much as enjoyed ‘unhealthy’
food. But they do not. They wish that ‘healthy’ foods were their
first-order preference, but must ruefully admit that this is not so.

39 http://www.foodnavigator.com/Legislation/Danish-food-industry-sources-slam-fat-tax
 37

Campaigners might talk about ‘making healthy choices easier’, but

the most they can do is make ‘healthy choices’ more appealing in
relative terms by making ‘unhealthy choices’ more expensive and
therefore less appealing. Unfortunately, this does not make the
‘healthy’ choices cheaper in real terms, nor does it make them any
tastier. The government can make the consumer’s first-order
preference less attractive in terms of its pricing, packaging and
availability - and this may force some consumers to resort to their
second-order preference - but those who switch will still get less
enjoyment from their second-order preference than they would
have got from their ‘unhealthy’ first-order preference. In short, the
public health intervention can only work by reducing pleasure or
reducing wealth. This explains why the Danish policy was widely
unpopular.

Once implemented, a fat tax creates two distinct groups. There are
those who continue eating what they like but who are somewhat
poorer as a result, and there are those who are coerced into eating
their second-preference food and therefore get less pleasure from
eating. The first group - which probably makes up the majority - is
unambiguously worse off financially. The second group is not worse
off financially but is no longer maximising its utility. In the best case
scenario, some of the members of the latter group might enjoy
modest weight loss which might or might not result in better health
outcomes.

From the narrow perspective of obesity campaigners, any reduction

in body mass is to be welcomed and any policy that reduces calorie
intake is a ‘solution’. But the rest of society deals in ‘trade-offs’
rather than ‘solutions’, and so the success or failure of a policy does
not depend solely on whether it achieves its primary objective. We
also need to know how much it cost and what the unintended
consequences were. If we move beyond the ‘health at any cost’
viewpoint and instead see trade-offs between health, wealth and
enjoyment, it is not difficult to see why taxes of the sort tried out in
Denmark face significant opposition.
38

The costs are visible and affect many people, whereas the benefits
affect a relatively small number of people and are barely perceptible.
Even the few who benefit may still begrudge having to sacrifice
their first-order preference. Such an arrangement is not conducive
to winning votes, but, as Kristian Madsen noted in Politiken when
the tax was abolished, ‘doctors don’t need to get re-elected.’40

Postscript
In April 2013, as this paper was going to press, the Danish
government announced that it was abandoning its tax on soft drinks
and will lower the excise duty on beer. The tax on soft drinks will
be halved in July 2013 before being abolished completely in January
2014. The beer tax will be reduced by 15 per cent in July 2013.
Both taxes have been blamed for cross-border sales of these
products reaching record levels. Margrethe Vestager, the Deputy
Prime Minister, said that the tax cuts ‘will promote growth and
employment. That is our key priority’ (Stanners, 2013).

40 http://politiken.dk/debat/profiler/kristianmadsen/ECE1812006/nekrolog-over-den-
forhadte-fedtskat/
 39

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