A fat tax is a tax which is put on fattening foods to prevent people from getting overweight and getting health issues. Fat tax is used to decrease the consumption of certain foods that cause obesity. A related idea is to tax foods that are linked to increased risk of coronary heart disease.
Denmark was unsuccessful on implanting the fat tax because the tax on saturated fat caused many negative factors such as inflation, cross-border shopping, job losses and some administrative costs due to collection of tax from unhealthy foods . These Fat tax resulted in rising of prices and caused inflation in economy. Due to Fat Tax and inflation the people in Denmark started buying cheaper brands which did not have tax or started buying from other cheaper countries and continued consumption of fatty foods. So basically in Denmark imposing fat tax did not have a lot of effect on health of people because the consumption of unhealthy food remained the same even after fat tax was imposed. Denmark faced some job losses as consumers preferred buying from other countries so the demand for local products decreased . Local firms would have faced costs due to less demand and less revenue. They would have lost customers and faced losses. To cut their cost they would have started firing people which would lead to job losses. However it did effect the poor people as they could not afford to import from other countries so they had to buy from their own country so they avoided the consumption of food products which had fat tax.
Its demise is discussed in a new IEA report – The Proof of the Pudding: Denmark’s fat tax fiasco – which offers important lessons for politicians in the UK and elsewhere who are under pressure to levy ‘health-related’ taxes on fat, sugar, ‘junk food’ and fizzy drinks. The economic effects of the fat tax in Denmark were uniformly negative. 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 did, however, raise more money than expected, but this only goes to show that it reduced the amount of high-calorie food sold by less than was anticipated. Opinion polls showed that 80 per cent of Danes did not change their shopping habits at all as a result of the tax. The impact on the nation’s waistline is therefore likely to have been approximately zero. The main effect on shopping habits was to push people over the border to Germany and Sweden where prices were lower. Inflation rose to 4.7% in Denmark.
(Source: Christopher Snowdon, 25 May 2013,”Denmark’s fat tax disaster”, Institute of economic affairs, https://iea.org.uk/blog/denmark%E2%80%99s-fat-tax-disaster-the-proof-of-the-pudding)
(Source: Hamburj, 21 November 2012, “Denmark cancels Fat Tax”, BMJ, https://www.bmj.com/content/345/bmj.e7889)
The human population is facing many health problems due to the eating of unhealthy fatty foods. Fat tax could be used to control these health problems faced by people and can give some incentives on buying healthier food to encourage people to buy more of healthy foods. Putting tax on unhealthy foods would make people control their unhealthy diet and have a healthy lifestyle. A healthy lifestyle would help each individual to save more money due to less amount of money spent on healthcare. Fat tax would make a large revenue for the government it would also help the economy to boost as the economy can be saved from debt by help of revenues that they would generate through savings and tax. Government can also use this revenue to reduce health issues in economy by seing up government hospitas and treating patients for free. Imposing fat tax might create some problems for economy in short run but then later it would achieve more from it.
Kerala is the first state in India to introduce a “fat tax” on burgers, pizzas, doughnuts and tacos served in branded restaurants. The recently-elected government says the 14.5% tax is aimed at making people more conscious about food choices and curbing obesity. “This is more of a preventive measure as Kerala’s food habits are changing dramatically. People are eating a lot of junk food and rejecting traditional food,” says Finance Minister (Source: Supriya Menon, 13 July 2016, “Why indian state imposed fat tax” BBC news https://www.bbc.com/news/world-asia-india-36771843).
University of Melbourne research found introducing a series of the taxes would add an extra 2.1 years of healthy life for every 100 Australians. (Source: Tom Mcllroy, 15 February 2017, “The Sydney morning Herald”, www.smh.com.au/politics/federal/sugar-salts-and-fat-taxes-could-save-health-budget-34-billion-and-increase-life-expectancy-20170214-gucbip.html)
To implement a Fat Tax it is necessary to specify which food and beverage product will be targeted. This must be done with care by putting tax on correct unhealthy and fat containing foods which create health problems.
New research by Professor Kanishka Misra shows how a fat tax could work, and help consumers to make healthier consumption decisions. He and co-authors Romana Khan accomplished this by taking a novel look at milk purchases. Their paper, “Will a Fat Tax Work?,” was published in the journal Marketing Science. Their results show that for a fat tax to nudge consumers to make healthier choices, they have to see the actual price difference on the shelf. The way milk is priced and produced allowed the researchers to see this behavior at work. They found that it’s really important for consumers to see the price difference right on the shelf, as opposed to a tax that’s tacked on at the checkout scanner. They saw this in data from milk purchases, because of the unusual way it’s priced. Due to the way milk is processed, the more the fat content in milk the higher the cost. Therefore, whole is the most expensive, followed by 2 percent, 1 percent, and fat-free is the least expensive. In some states retailers follow this pricing structure, where whole milk is on average 5 percent more expensive than 2 percent milk (variable pricing), and in other states, all varieties are the same price (flat pricing). Importantly, they found no demographic differences between stores with the two different pricing schemes. That gave the researchers a natural quasi-experiment. Studying six years of milk purchase data, they noticed that stores with variable pricing have lower whole milk share and higher 2 percent milk shares when compared to stores with flat pricing. They found that even a small difference in price, 10 to 15 cents, is enough to make consumers switch. Most people didn’t pick the cheapest option, but they do move down to one with lower fat content. Importantly, the effect was highest in lower-income areas, where obesity is a more of a problem. They believe this can be duplicated in other food categories that have higher fat or higher calorie varieties next to healthier options — chips (fried vs. baked), and gum (sugar-free vs. sugar). “A selective tax mechanism that lowers the relative prices of healthier options, and is reflected on the shelf, can serve as an effective health policy tool in the efforts to control obesity,” Misra says. (Source: Kanishka Misra, 22 March 2016, “How a Fat Tax Could Work”, Research Focus on Marketing, Business Economics and Public Policy, https://michiganross.umich.edu/rtia-articles/how-fat-tax-could-work)
The downside of these taxes is that they may also encourage people to buy cheaper products which are of lesser price but are also unhealthy. Cross border shopping also occurs where the people avoid buying from their own country due to higher taxes and buy products and import from another country where taxes are lower. So people may also buy unhealthy food from other countries where fat tax is not introduced and continue having unhealthy diet. If many people from same country start importing I would have negative effects such as health issues would continue and since people are buying less from their own country and importing more this would lead to fall in currency.
Fat tax however is not accepted by every person. As fat tax had both pros and cons. some people think that Fat tax is a good idea and should be there in economy while others think that Fat tax might not be a good idea. The people who are in support of Fat Tax think that it is actually a very good way to make people reduce their consumption of unhealthy food as high prices would make them avoid buying more of unhealthy foods. This would reduce the amount of diseases and people would stay healthier in economy. They think it would also raise revenues for government and boost economy. On the other hand people who are against the idea of Fat Tax think that Taxes on unhealthy foods cannot only be a solution to reduce health problems and diseases such as obesity. Because obesity and unhealthy lifestyle is caused by other factors too and not just consumption of fatty foods. There are lots of other factors in an economy which leads to obesity and diseases such as amount of exercise and genetic factors. Apart from putting fat tax obesity and unhealthy lifestyles can still be prevented if people exercise as health is more about exercise than diet.
One worry about a fat tax would be a negative effect on retailers. Store sales are likely to suffer if consumers are encouraged to switch to lower-cost options. But part of a fat tax could include a subsidy for healthier products. This could nudge consumers to make healthier decisions while keeping retailers’ revenue neutral. (Source: kanishka misra, March 22 2016, “How a Fat Tax Could Work”, Research Focus on Marketing, Business Economics and Public Policy)
Critics point out that taxes such as these increases the costs and make life tougher for low socio-economic households. University of Melbourne research report co-author Professor Tony Blakely said combinations of taxes and subsidies would ensure minimum financial pain to households.
“Our modelling shows Australia can achieve maximum health impact for less than one per cent extra impact on household budgets,” he said.
“Critics often say taxes on unhealthy food make life tougher for low socio-economic households, but we’ve demonstrated that the right structuring of incentives means the financial impact on households is negligible, while their health improves.” (Source: Tom Mcllroy, 15 February 2017, “The Sydney morning Herald”, www.smh.com.au/politics/federal/sugar-salts-and-fat-taxes-could-save-health-budget-34-billion-and-increase-life-expectancy-20170214-gucbip.html)