As governments struggle to address the rising prevalence of obesity and other chronic diseases there have been increasing calls for taxation on selected foods as a means of improving the quality of national diets. Last year Denmark introduced the world’s first ‘fat tax’, but in an abrupt turnaround the much maligned tax has been repealed. What went wrong?

Targeted taxation of foods

The rationale for targeted taxation of foods to improve health draws on the fundamental economic principle that the demand for any good is related to its price. If the price goes up, the demand goes down, and vice versa. Hence the demand for goods is said to be ‘elastic’. Viewed through this prism, addressing diet-related chronic disease becomes straightforward – use the tax system to increase the price of junk foods and lower the price of healthier foods. Too easy.

Taxing saturated fat

The Danish approach was to apply a tax to all foods with a saturated fat content above 2.3%. Dear oh dear – flawed science from the very beginning. Readers of this blog will know that ‘Limit saturated fat’ is no longer evidence-based advice. Lowering dietary saturated fat only lowers the risk for heart disease when it is replaced with unsaturated fats. Replacing saturated fat with carbohydrate has no effect on coronary risk, yet this is precisely what the Danish fat tax encouraged.

As the saturated fat level was set low at 2.3% the tax effectively became a tax on all fatty foods – it applied equally to both butter and unsaturated vegetable oils. So rather than encouraging the replacement of saturated fat (butter) with unsaturated fat (oils), the tax encouraged the replacement of both fats with carbohydrate. The carbohydrate-for-saturated fat exchange has no effect on the risk for coronary heart disease but the carbohydrate-for-unsaturated fat exchange actually increases risk. As this has been known since 2009 there was really no excuse for introducing a flawed policy initiative two years later.

Even earlier in 2007, in a thoughtful paper titled ‘Could targeted food taxes improve health?’ academics from the University of Oxford highlighted ‘unintended potentially detrimental effects’ of taxation applied to saturated fat. Here are some extracts from their paper:

When designing the best outcome taxation strategy, we found it hard to achieve a reduction in serum cholesterol: when taxing broad categories of foods, if the intake of saturated fat is reduced the intake of other fats such as polyunsaturates and monounsaturates is also reduced. The reduction in intake of polyunsaturates and monounsaturates causes a rise in serum cholesterol that counters the fall achieved from the reduction in saturated fat.

… we observed that reducing saturated fat consumption tended to increase salt consumption and that fruit consumption tended to fall as a result of taxation on milk and cream … [and that this might] … result in more deaths than it averts.

With both nutrition science and specific studies into the effects of taxing saturated fat clearly indicating it was a flawed concept you have to wonder why it was agreed to proceed.

Image: source

The public response

Predictably the fat tax was disliked by food producers and retailers but it was the response from consumers that brought the tax unstuck. When the price of cheese went up following the introduction of the tax the expectation was that demand for cheese would go down. Instead, many well-to-do Danes jumped in their cars and crossed over into Germany to stock up with their favourite cheeses at lower prices. Less well off people just bought cheaper cheese. So the price signal from the tax affected human behaviour but not in the intended way. The rationalism of economics only goes so far when it rubs up against the deep engagement that people have with their food.

Butter consumption actually went up after the introduction of the tax, the result of a popular cooking show extolling the virtues of butter – a temporary win for the dairy industry and the taxman but not the result that public health advocates were looking for.

Better health or better revenue?

When announcing the repeal of the tax Mette Gjerskov, the Danish Minister for Food, Agriculture and Fisheries, stated “The fat tax is one of the most maligned we [have] had in a long time … Now we have to try improving the public health by other means.”

In a frank moment she might have conceded that this exercise wasn’t really about public health at all. Had the fat tax been a genuine public health initiative the Danish government would have deployed all of the revenue from the tax towards lowering the price of healthier foods, but this did not occur. Like most governments in Europe the Danish government is strapped for cash and the fat tax was just a revenue-raising exercise dressed up as a health policy.

Image: source

Furthermore, the fat tax was regressive. As low income earners spend a greater proportion of their income on food than high income earners, the fat tax had a greater financial impact on the less well off. Also, without an associated fall in the price of healthier foods one effect of the fat tax was to force those in the poorer sections of society seek out cheaper products, with potentially adverse nutritional implications.

Opportunity lost

The experiment with the fat tax in Denmark has been a failure, the death knell for such taxes around the world. Should any future initiatives for such a tax be suggested the critics will point to the Danish example and say “It has been trialled and it failed”. In a related decision to the repeal of the fat tax the Danish tax ministry cancelled plans for a sugar tax. Just days before, plans to impose a tax on sugary drinks in California were canned.

The opportunity for improved public health nutrition through targeted taxation of foods has been squandered by a combination of poor science and ulterior motives.