Fat tax faces the axe in 2013 budget

The government is still negotiating a 2013 budget that would likely see the end of a fat tax the European Commission thinks may be illegal

All political parties remain in the negotiations for a 2013 budget that is expected to be completed within a week.

The minority coalition government presented its budget proposal in late August, which opposition party Venstre and government support party Enhedslisten announced they did not support.

But after the government last week met with the far-right Dansk Folkeparti, which could alone secure the government a majority, the rest of the parties announced they are still willing to negotiate to ensure they leave their mark.

The finance minister, Bjarne Corydon (Socialdemokraterne), has stated that the government will not rule out negotiating with anyone.

“That’s 100 percent sure,” Corydon said last week “The government only cares about the content. There’s an opportunity for all parties, even Dansk Folkeparti, to join a deal.”

The controversial surcharge on the fat content of foods, implemented last year, and a planned similar surcharge on sugar, are the key negotiating points with the main opposition party Venstre. The party has long argued that Danish businesses are losing out as consumers choose to do their shopping in Germany, where many products are significantly cheaper.

In the government’s budget proposal, however, it did not include in removing these taxes that are forecast to raise 2.5 billion kroner a year.

They government has since said they would agree to eliminating the taxes in exchange for increasing the bundskat, or bottom tax rate, by 0.3 percent to 4.64 percent, in order to make up the lost revenue.

“If it is possible to abolish the fat and sugar taxes, we will, but it will require that every kroner in lost income is refinanced,” Nadeem Farooq, tax spokesperson for coalition party Radikale told Jyllands-Posten.

Abolishing the fat tax would also mean a quiet end to a European Commission investigation into whether the tax illegally gives preferential treatment to some products.

The fat tax is complex and is not applied to all high-fat products. For example the margarine producers union, Margarineforening, has complained that the tax is applied to its member's products, but not to full-fat milk.

In a written answer to Venstre MP Torben Schack Pedersen, the Tax Ministry acknowledged that the European Commission had started an investigation based on these complaints.

According to Jyllands-Posten, the Tax Ministry wrote “the European Commission will decide this autumn, based on their initial investigation, whether there are grounds to start proceedings for a case about [illegal] state support.”

While the government acknowledged that it has been asked to account for the legality of the tax under EU legislation, it has refused to comment on the content of the correspondence with the EU.

Pedersen said the correspondence with the EU is cause for concern.

“I don’t think the commission normally sends out friendly letters to the ministry," Pedersen told Jyllands-Posten. "They only contacted Denmark because there are unanswered questions and problems. The EU’s involvement is another reason to abolish the tax as soon as possible.”

The fat tax was first proposed to parliament in 2009 by the former Venstre-Konservative government. Konservative tax spokesperson Brian Mikkelsen said the European Commission has raised issues with the tax on several occasions.

“There were many problems with EU rules when we introduced it,” Mikkelsen told Jyllands-Posten. "Those problems were never cleared up.”