Can you pay your food tax bill?

business-money-pink-coinsFood debates do not seem to settle down in the Baltic region. Just a couple of weeks after I wrote a post about penalties imposed on customers wasting food in Lithuanian restaurants, Latvia is giving a new cause for a heated discussion. The country’s authorities are considering the taxation of unhealthy foods, specifically those containing excessive amounts of trans fats, such as palm oil and margarine. The national industry is on defensive with regards to the initiative with significant decreases in sales and losing business to foreign competitors being the most feared implications of the proposed measure. The Health Ministry retorts by saying that nothing prevents food manufacturers from improving nutritional composition of their offerings, thereby not only avoiding taxation but also contributing to a healthier population. The industry, however, insists healthier options are not liked by consumers and fail to survive, as has already been proved by the meat industry whose low salt sausages could not find a niche in the Latvian market.

While for Latvia the measure is mainly aimed at increasing budget revenues, the idea to tax unhealthy products in order to improve population dietary behaviors and combat ever-rising obesity levels has been already tested out in a number of countries worldwide. Dr Kelly Brownell of Yale University is credited with pioneering the concept of the fat tax back in 1994, when he proposed to add surcharge in the range of 7-10% to unhealthy foods with the aim to decrease the consumption of “bad-for-you” products and simultaneously subsidize the sales of healthier options. The idea is part of the larger concept of the Pigouvian tax – a special tax that is imposed on companies whose business practices lead to negative environmental or social consequences, such as pollution or degradation of population’s health (a typical example is a tax imposed on tobacco and alcohol products). The first country to test the theory in practice was Denmark, where a surcharge on excessively fatty foods was introduced in an effort to reduce population obesity rates. Imposed in 2011, the tax was abolished as soon as 13 months later for it did not prove to improve neither population consumption patterns (Danish foodies did not turn to carrot sticks but began making raids on neighboring Germany to stock up on fatty favourites) nor the national economy (with all fresh and processed products containing more than 2.3% saturated fats being subject to taxation, food prices inflated and the food industry bore great losses as people quickly learned to travel across the border to buy food in bulk, not to mention the loss of a large number of retail an manufacturing jobs). It does not come as a surprise that sugar tax, which was next in line of the obesity-combatting measures considered by Denmark, was never introduced. In Hungary the tax on immoderately salty, sugary and fatty foods introduced in the same 2011 is still in place, although whether it has proved a successful strategy to fight against the lowest in Europe life expectancy rates and soaring population obesity levels remains somewhat unclear.

Although there are obvious reasons for taking radical measures to alter population consumption  behavior with obesity rates being on the highest in many developed countries, the fat tax has gained much criticism, which goes far beyond such pragmatic concerns as higher food prices and decreases in sales. The measure is often criticized for an infringement on consumer freedom of choice and a manifestation of the nanny-state philosophy at its best. Another concern is potential stigmatization of nutritionally important foods, such as cheese which, if consumed in moderation, is a perfectly healthful product and a significant source of calcium, but would be subject to taxation due to quite high fat content. Finally, the measure is said to have the most negative impact on the poor, since unhealthy foods that get taxed are largely consumed by the less well-off parts of the population. The fear is that increased prices may drive consumers to cheaper and equally (if not more) unhealthy product choices. The proponents of the tax, to the contrary, argue that the step would allow to subsidize the sales of healthier foods as well as incentivise food manufacturers to re-design the most “offensive” offerings and replace them with healthier alternatives. In addition, revenues generated from tax could be used to fund nutrition education campaigns to teach consumers to choose and follow better diets.

While debates around the effectiveness and the unintended consequences of the “hamburger tax” are ongoing, tax initiatives have evolved from taxing fatty food to taxing fatty…people. Among the most popular proposals are increased tax rates for overweight people and extra charges for heavier airline passengers. In the first case, it is argued that obese people should be held responsible for the extra financial burden that they place on national healthcare systems. The logics behind the second initiative is that airline ticket pricing should be in line with passengers’ weight and the amount of space required on a plane as heavier passengers generate extra costs in fuel which has not only financial but also environmental consequences. Although the potential of such measures to translate into healthier food habits and, through this, healthier people, is debatable, if that is the next step on the way to combatting obesity, then choosing duty-free can quickly become a new food shopping strategy consumers will have to embrace.

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