Denmark’s fat tax fiasco

The Institute for Economic Affairs in London has released a new report by Christopher Snowdon on The Proof of the Pudding: Denmark’s fat tax fiasco. A summary of the findings of the study 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.’

Taxing a product to reduce its consumption sounds all well and good, after all demand curves slope downwards, but the reduction in quantity demanded will be small when demand for the product is inelastic. And the results noted in the third point above suggest that for the Danish at least, unhealthy foods are inelastically demanded. Other methods should be tried if reducing consumption of these foods really is worthwhile.

In short, yet another failed piece of social engineering. Not that this failure will have any effect on the demands of public health campaigners. As Snowdon notes,

Despite the unambiguous results of this natural experiment, public health campaigners in the UK continue to lobby for similar policies. Just four days after the Danes announced the abolition of the fat tax, the National Heart Forum called on the government to introduce a tax on foods that are high in salt, sugar and fat. Two months later, a coalition of 61 organisations demanded a 20p per litre tax on sugar-sweetened beverages (or - as they call them - ‘mini-health timebombs’). Most recently, the Academy of Medical Royal Colleges called for a 20 per cent tax on the same soft drinks. The Academy sheepishly mentioned that Denmark had experimented with ‘a slightly broader plan’, but did not acknowledge that the experiment had ended, let alone explain why.

If one really believes in 'evidence-based policy' should not this evidence be taken into account. Should we not be concerned with what actually happens when policies are tested in the real world? Should evidence of job losses and the cost of living increases not be of concern in policy development? But will health campaigners in New Zealand respond any differently from those in the U.K. when they just ignored the Danish results?