You can’t tax yourself thin

Denmark’s tax went too far.

Feeling flabby? Plenty of folks think they have a cure for that: more taxes. In the name of slenderizing the nation (and your wallet), the Ontario Medical Association recently demanded new taxes on junk food and grotesque warning labels on pizza boxes, similar to the ones on cigarettes. Quebec’s Coalition Poids wants higher taxes on soft drinks, as does the Alberta Policy Coalition for Chronic Disease Prevention. Can food taxes make you healthier? Or just angrier?

Ask a Dane. Denmark is the reigning world champion of taxes. Its value added tax sits at 25%. Personal income tax rates top out at 55%. Businesses face an advertising tax and a transportation tax. And don’t forget the famous 180% registration fee for new cars. The total Danish tax burden is nearly 50% of GDP.

In 2011, Denmark broke new ground with the world’s first fat tax. Food items containing more than 2.3% saturated fats were taxed at approximately $3 per kilogram of fat. The price of butter and margarine instantly rose 20%. Meat and processed foods faced similar hikes. And then, something snapped in this tax-loving country.

In November, after just 13 months taxing fat, the Danish government announced it was abandoning the levy. A planned tax on sugar was also scrapped. What happened?

Last month, Jens Klarskov, head of the Danish Chamber of Commerce, visited Canada as guest of the Canadian Taxpayers Federation to explain how the most heavily taxed nation on earth went a tax too far. His story suggests how Canadians might protect their own fridges from the grasping hand of government.

“Denmark is marinated in taxes,” Klarskov told me in an interview. “We are used to being a high-tax country.” But the fat tax managed to offend just about everyone.

The tax was overly complicated and arbitrary. Jalapenos packed in oil in glass jars were taxed as if consumers drank every last drop of that oil. Packaged dried fruit was taxed on the oiled paper inserted between layers. Nuts, on the other hand, were exempt from the tax, despite high fat levels.

It was damaging to the Danish economy. Cross-border shopping in Germany skyrocketed during the tax. “Danes were used to buying their alcohol in Germany,” reports Klarskov. “But then meat and dairy became cheaper as well. The tax turned German shopping trips into a habit for everyone.” The Chamber of Commerce put job losses in the Danish retail sector at 1,200.

Finally, it was intrusive and unnecessary. “This was not a health issue,” gripes Klarskov, pointing out obesity levels are lower in Denmark than many other developed countries. And even if it had worked as claimed, the fat tax would have added a mere 5.5 days to the lifespan of an average Dane over the course of a decade. “It was just a new way for the government to get our money,” he says. Besides pushing consumers to buy cheaper cuts of meat and lower-quality cheeses and boosting sales at discount stores, it also raked in $200 million.

Unlike their neighbours in France or Greece, Danes aren’t known for taking their democracy to the street. Instead, a polite but persistent cacophony of complaints built up from across the country, finally forcing the government’s hand.

The fat-tax saga ought to take the wind out of Canadian advocates as well. The tax didn’t work. It unleashed a host of unintended consequences. And it revealed that consumers—even deferential, tax-accepting ones like the Danes—feel strongly enough about their food to push back. As for dark warnings from public-health worriers that rising levels of obesity mean Canadian children will live shorter lives than their parents, the evidence to support such a claim simply does not exist. Last year, Statistics Canada once again hiked its life expectancy figures for the average newborn Canadian by 2.4 months—it now stands at a record 81.1 years.

“I’m just happy politicians recognized they made a big mistake,” says Klarskov of his experience with the fat tax. “That doesn’t happen very often.”

Peter Shawn Taylor is a writer specializing in economic issues