In Denmark, phat and all that

2/25/2013

Remember fat taxes? The idea was to place a tax on foods containing bad fats. The more the fat, the more the tax.

It wasn’t long ago that a lot of countries were seriously looking at such taxes. If fatty foods came with a higher price tag, people would be less inclined to buy them…so the thinking went.

But now fat taxes appear to be dead. Why? Because the first country to try fat taxes has dropped them.

Denmark implemented a fax tax in October 2011 and this past January killed it. Yes, the fat tax lasted all of 15 months.

So what happened? That was the subject of a speech last week in Toronto by Jens Klarskov, managing director of the Danish Chamber of Commerce.

Klarskov was in town at the invitation of the Canadian Taxpayers Federation and spoke in front of an audience made up of many food industry insiders.

As Klarskov told the audience, Denmark already has lots of taxes. “We’re marinated in taxes,” he joked. But the fat tax proved to be even more than the Danes could handle.

On the surface the tax was simple enough: 16 kroner in tax ($2.92 in Canadian currency) slapped on every kilogram of saturated fat contained in a product.

But behind the scenes the tax was complex. The tax rate was based on the percentage of fat used in making the product, rather than the percentage in the product on the shelf. As you might imagine, that had food manufacturers’ number crunchers working overtime trying to calculate how much fat they were using.

In one instance, Klarskov recalls, a company that placed fruit on oiled paper in order for the fruit not to stick had to calculate how much oil it was spreading across thousands of square feet of paper each month.

Prices went up across the board. For example, the price of butter rose to 18 kroner ($3.29CDN) from 15.50 kroner (CDN).

Klarskov said that consumers in particular didn’t appreciate paying the tax, which was placed on thousands of items, from cheese, to chicken breasts.

Denmark sits on the border with Germany and since both countries are members of the Euro Zone citizens are free to spend as much as they want in each other’s countries, without penalty.

Sensing an opportunity, German grocery retailers pounced. They launched advertising campaigns declaring there was “no fat tax” in Germany. Klarskov estimates that one in two Danes began to do some of their food shopping in Germany.

When the tax was first imposed, the Danish government estimated that it would add years of life to the average Danish citizen. Klarskov said that studies in fact showed it would add just 5.5 days.

Interestingly, Klarskov said it wasn’t necessarily a giant lobby of Danish businesses that killed the tax. Instead “the tax fought itself. No one really liked it.”

Yes, even the Danes, who love taxes (Klarskov says there are 13 different taxes on ice cream, for instance, including a tax on sugar) couldn’t stand the fat tax.

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