Taxing Fat, Killing Jobs


Dark clouds of uncertainty now hover over the future of some 26,000 European companies and their 2.6 million employees. These firms represent Europe’s food industry, which ranks as the third largest sector of the EU’s economy. The reason for this uncertainty is the failure of EU member states to oppose proposals by the World Health Organization (WHO) for higher food taxes around the world. If the EU adopts the WHO’s idea, these higher food taxes may hurt the European food industry’s opportunities to grow and to create new jobs – a prospect few people will welcome, at a time when average unemployment in EU members states runs at 8.1%.

The WHO’s demands for higher taxes on food are laid out in a planning document known as the “Draft global strategy on diet, physical activity and health.” 

The draft strategy calls on WHO member states to “use tax policy and other fiscal measures in a manner that promotes health.” The document elaborates on this point further. It notes that food prices directly influence “consumption choices” and points out how some countries “use taxes to increase or decrease consumption of [particular kinds of ] food.” The WHO believes that, globally-speaking, “excessive consumption of fatty, sugary and salty foods” has reached crisis proportions. The WHO therefore wants governments in developed countries – especially those where upwards of 10% of the population is obese – to force consumers to change their eating habits by imposing taxes on fatty foods.

On January 19, the Confederation of the Food and Drink Industries of the European Union (CIAA) issued a press release pledging support for the WHO’s proposed tax hike, as announced. The CIAA, according to the release, “welcomes the WHO Global Strategy and looks forward to work with WHO and national governments in its execution.” To say that many observers were surprised to see an industry association publicly cheering on the prospect of higher taxes on its members’ products is an understatement. But the CIAA – the “voice of [the] EU food and drink industry” – has spoken.

Fat tax just the start

What the CIAA may not be aware of is that direct taxes on the sale of fatty foods may just be the beginning. Take the example of alcohol taxes. During a January 5 debate in the British House of Commons. Ross Cranston, a Labour Party MP, described alcohol as “a product that, in certain circumstances, has serious negative consequences for our health and society,” and mused about the question of finding new ways to force the alcohol industry to “take financial responsibility for [these] social costs [associated with abuse of alcohol].” He also alluded to a debate underway in the Labour Party about using special taxes on alcohol advertising to recoup these costs. Following Mr. Crantson’s remarks, Melanie Johnson, the Parliamentary Under-Secretary of State for Health, said she looked “forward to hearing what people have to say about the proposals for an advertising levy” at a major upcoming Labour Party meeting. Using taxation policy to mould consumer behavior is hardly a new thing. Across the Atlantic, governments in Canada and the United States at 

various jurisdictional levels have long used so-called “sin taxes” on things such as alcohol and tobacco. These taxes are supposed to accomplish two things. One, of course, is to raise money. The other is, nominally, to improve public health by reducing consumption of these allegedly “sinful” products.

There’s an odd contradiction at the heart of the WHO’s demand for higher taxes on fatty foods – a contradiction that has coincidentally dogged the spread of sin taxes in the North American context. It’s a contradiction that the CIAA, had it been more keen on standing up for its members’ interests, might have wanted to point out to the WHO.

The contradiction is as follows: as American economist Phineas Baxandall has observed, “singling out a vice for taxation indirectly promotes the activity as a virtuous contributor to the public purse.” For example, when North American lawmakers increase taxes on cigarettes, even though they claim that their objective is to discourage consumers from smoking, their actions betray what Baxandall calls a “tacit acceptance” of the very same activity they say that they oppose. This raises questions about whether they in fact really want to discourage smoking. If legislators truly want to stamp out smoking, then they should instead be trying to use what Baxandall calls “non-tax measures” to actively discourage smokers from using tobacco products. They could ban all sales of cigarettes, rather than simply taxing them. The legislators’ professed concern about public health, from this perspective, looks like a disguise for another, more self-serving goal – raising taxes and tapping into a new revenue source.

Revenue opportunity

We can use this example to tease out one possible explanation for why no EU member state spoke out forcefully against the WHO’s call for higher food taxes. If EU member governments really did believe that the global food industry knowingly promotes products that contain dangerous levels of “saturated fats, sugar and salt” to consumers, and that these products threaten public health, then one would expect them to make plans to banish all such products from the marketplace. But they have not.

Like their North American counterparts and their “sin taxes,” EU member states may see the WHO’s tax on fatty foods as an opportunity to develop a new revenue stream. They have good reason to, given the current economic situation in Europe. As a January 21 report by the European Commission noted, in the eurozone region, “the average nominal budget deficit worsened further in 2003 to 2.7 percent of GDP.” A sin tax on candy bars, potato crisps, foie gras, cheese, and other fatty food products could plug that deficit rather nicely.

The next major WHO meeting takes place in May, at its annual World Health Assembly. Given the stakes – the economic fortunes of up to 26,000 companies and their 2.6 million employees – one hopes that the CIAA can rethink its knee-jerk support for the WHO’s call for higher food taxes.