I chatted with Radio New Zealand about fat taxes on Wednesday. I talked about the problems of defining healthy and unhealthy foods, and the lobbying waste that can result around boundary cases if we go the route of taxing specific foods rather than content. And I noted that Denmark dropped its fat tax because of the administrative cost it placed on Danish firms, as well as the cross-border shopping it induced. So the summary here isn’t quite accurate. I wouldn’t have said that it was abandoned because of the difficulty of defining healthy and unhealthy foods; I gave that as a reason against implementing one here, but that wasn’t quite what happened in Denmark.
For more on Denmark’s abandoning of fat taxes, see:
- Small producers will have problems in paying the tax up front while waiting for payment of product. Not sure there’s much that can be done about it other than giving a bit of time to make payment. I know that some of the smaller alcohol producers worry about this when looking at cash-flow.
- Some food products are both input and output – you can either buy sugar or fats as a consumer product, or you can buy them as an input for making other stuff. If any sugar bought as an input turns 100% into something present in the consumer product, then this doesn’t matter. You tax it at point of production and the effect flows through the system. But what of food production where the sugar or fat itself disappears but is a necessary intermediate good? If you fry with butter, only some of that butter makes it into the food (compared to, say, just eating a stick of butter). If you turn sugar into alcohol, the sugar’s then gone. Any sugar or fat that cooks off or is turned into other things as part of the food production process means that you’re going to have to have a tax rebate system for people using sugar or fat as an input.
- You might think this is easily solved by taxing only those who sell directly for final use. But you still need a way of registering and tracking those who buy products for intermediate good use from the same outlets that sell to final consumers. And you’d still have the problem of assessing things properly for home-based production. If we tax based on the average amount consumed, people who eat sticks of butter are relatively under-taxed while those who use it for greasing cast-iron pans are over-taxed. The same problem holds for cooking with alcohol, and is recognized with tax-free salted cooking wines and sherries. Maybe it is a less important problem in cooking – I do not know enough about food chemistry to know. But I do know that some home brewers and distillers use sugar; maybe taxing them on sugar they don’t eat is a second best workaround for there being no tax on small-scale home distillation.
- If you tax sucrose, people will switch to fructose and glucose. You’ve gotta tax all the sugars to avoid any inefficient switching, but if there’s reason to expect that any of the sugars are less bad than the others, you could levy different taxes.
- You’d need to set up a regime for assessing tax on imported food products, with the importer then being liable for any fat/sugar tax. So long as imported products have all the nutritional labelling that would allow accurate and timely excise assessment, great. Delays at the border kinda suck though, especially for fresh fruit that should be subject to any sugar tax. I suppose that we could deem different categories of fruit to contain some average sugar content and tax them appropriately. [I still don’t get why folks who want fat and sugar taxes want to subsidise sugar-laden fruits. Fructose doesn’t get any less fructosy for being embodied in a strawberry].
- There are substitutes for fat that are worse than fat. I expect a reasonable amount of awfulness consequent to any large tax on butter, lard, or other common fats.
More realistically, there’s a mix of technological and pecuniary effects. Because people aren’t annually confronted with an insurance bill itemising their failures and the things they could do to lower their costs for the subsequent years, people very likely make some different choices around nutrition, exercise and risk than they otherwise would. But how much of the total cost of their health care would have obtained anyway, and how much is due to the distortion in behaviour caused by the existence of the public health system? Suppose that some of our Chex-eaters, above, shift to eating 4 Chex per day instead of 3 after the free-Marmite policy. That last Chex-and-Marmite bit of wonderfulness is inefficiently consumed and could be subject to Pigovean taxation, but everybody seems to think we need to be charging enough to cover all the free-government-Marmite costs of Chex eaters.
Previously on-topic at Offsetting:
- Paternalism: for children and the lower orders.
- Fat taxes and elasticity with respect to public health
- Penn & Teller on Nudges and Fat Taxes
- Paternalism and class
- Fat Freedom
- Obesity Costs
* I can’t stop thinking about Marmite and Chex now. I hate you Kiwis for getting me hooked on the stuff just before the earthquake shut down the Marmite factory.