A recent study published in Nature Food sheds new light on how fiscal policy can encourage healthier and more sustainable dietary habits across Europe. By rethinking value-added tax (VAT) rates on food, researchers suggest governments could simultaneously address public health crises, environmental challenges, and economic inefficiencies.
The Current Landscape of Food and VAT in Europe
Food systems in Europe are a paradox. While they contribute to economic growth and cultural identity, they are also at the center of public health and environmental crises. Poor diets, marked by excessive consumption of meat and dairy and insufficient intake of fruits and vegetables, are among the leading causes of premature deaths globally. Meanwhile, food production—especially of animal-based products—accounts for a significant share of greenhouse gas emissions, land degradation, and water use.
Currently, many European countries apply reduced VAT rates to food items. Meat and dairy, for example, often benefit from lower VAT rates, typically about half the maximum rates. Similarly, fruits and vegetables also see reduced VAT, though the potential for further reductions remains largely untapped. The study’s authors argue that these reduced rates present an opportunity to incentivize healthier consumption and align fiscal policy with environmental and economic goals.
A Proposal for Reform
The researchers, led by Marco Springmann from the University of Oxford, combined health, environmental, and economic assessments to explore the potential of VAT reforms. They proposed three main scenarios: eliminating VAT on fruits and vegetables, increasing VAT on meat and dairy to the maximum rates, and a combined approach.
Their findings revealed that the combined scenario—zero VAT for fruits and vegetables coupled with maximum VAT for meat and dairy—offered the most comprehensive benefits. Health improvements stemmed predominantly from increased access to affordable fruits and vegetables, while environmental and economic gains were largely driven by reduced consumption of meat and dairy.
Impacts on Health, Environment, and Economy
The health outcomes of the proposed VAT reforms are striking. The combined approach could prevent approximately 170,000 diet-related deaths annually across Europe, equivalent to a 3% reduction in mortality from diseases such as coronary heart disease, cancer, and stroke. These benefits were most pronounced in countries with high VAT rates on fruits and vegetables, such as Hungary, making these foods less accessible to vulnerable populations.
On the environmental front, the reforms could reduce food-related greenhouse gas emissions by 6%, while cutting land and freshwater use by a similar margin. These reductions are primarily linked to decreased consumption of meat and dairy products, some of the most resource-intensive foods to produce.
Economically, the study projected an increase in food-related tax revenues by a third or approximately $45 billion annually. This additional revenue, paired with reduced societal costs from healthcare and climate-related damages, would create a net economic benefit equivalent to 0.18% of Europe’s GDP.
Carbon Taxes as a Complement to VAT Reforms
While reforming value-added tax (VAT) rates offers a powerful tool for incentivizing healthier and more sustainable food choices, other fiscal measures, such as carbon-equivalent (CO2eq) taxes, can further strengthen efforts to address dietary and environmental challenges. A recent study from Germany provides a compelling example of how targeted carbon taxes on agricultural goods could complement VAT reforms to achieve broader policy goals.
The study analyzed the impact of a CO2eq tax on Germany’s most emission-intensive agricultural products, including meat and dairy. By assigning tax rates proportional to the carbon intensity of each product, the proposed measure aimed to encourage consumers to shift toward less carbon-intensive options, such as plant-based foods. The results were striking: the tax could reduce agricultural emissions by 15.3 million tons of CO2eq annually—equivalent to a 22.5% reduction in Germany’s agricultural emissions. This figure exceeds Germany’s 2030 emissions reduction target for the agricultural sector.
The proposed tax, set at €201 per ton of CO2eq, would lead to significant price increases for high-emission products, such as beef (up 51%) and cheese (up 49%). As a result, demand for these items would drop dramatically—beef consumption, for instance, was projected to fall by over 50%. The revenue generated from the tax, estimated at €8.2 billion annually, could be reinvested into measures to support sustainable agriculture or distributed as a per-capita “climate dividend” to offset the regressive effects of the tax on lower-income households.
The study also highlighted potential challenges, including the tax’s regressive nature, as lower-income households tend to spend a higher proportion of their income on food. However, the authors proposed a redistribution mechanism to address these concerns: a lump-sum transfer funded by the tax revenue. This approach could not only neutralize the tax’s impact on vulnerable groups but also create a slightly progressive income effect, enhancing public acceptance.
Germany’s proposed CO2eq tax illustrates the potential for diverse fiscal tools to work in tandem. While VAT reforms target healthier consumption patterns and provide economic incentives for fruits and vegetables, carbon taxes directly tackle the environmental costs of high-emission foods. Together, these measures could form a comprehensive framework for transforming European food systems.
Examples of Food Taxation in Action
The study’s findings resonate with real-world examples of fiscal policies targeting food consumption. These examples illustrate how governments are already using taxes and subsidies to influence dietary behaviors and environmental outcomes.
Last year, Denmark introduced a climate tax on agricultural emissions, primarily targeting livestock farming. The policy was designed to reduce the carbon footprint of meat production, aligning closely with the study’s recommendations for higher VAT rates on meat and dairy. While early data on its impact is still emerging, policymakers have reported increased awareness among producers and consumers regarding the environmental costs of meat.
In 2019, Germany proposed raising taxes on meat products to mitigate their environmental and health impacts. Though not implemented, the debate revealed growing public recognition of meat’s hidden costs. Advocacy groups suggested reinvesting the tax revenue into subsidies for plant-based foods, which mirrors the study’s proposal to offset the regressive effects of higher VAT rates.
In another example, Hungary’s Public Health Product Tax, introduced in 2011, targeted foods and beverages high in sugar, salt, and caffeine. The policy led to significant reductions in the consumption of unhealthy products and demonstrated how fiscal measures can improve public health outcomes. Its success lends credibility to the idea that targeted taxes can reshape consumption patterns effectively.
Balancing Benefits and Equity
While the potential benefits of VAT reform are significant, equity concerns must be addressed. Critics often argue that higher taxes on staples like meat could disproportionately affect low-income households. To mitigate these effects, the study’s authors propose using increased tax revenues to subsidize healthy foods or provide direct financial support for vulnerable populations. Such measures could offset regressive impacts and enhance public acceptance.
The study also emphasizes the need for complementary policies, such as public education campaigns and stricter environmental regulations, to maximize the impact of fiscal measures.
A Global Opportunity
Although the study focuses on Europe, its implications are far-reaching. High-income nations with similar dietary patterns and environmental challenges, such as the United States and Australia, could adopt comparable measures. By integrating fiscal policies into their food systems, governments worldwide could create incentives for healthier and more sustainable consumption.
A Path Forward for Europe
As the European Union pushes forward with its Green Deal and Farm to Fork strategy, the findings of this study provide a roadmap for action. Reforming VAT rates to prioritize health and sustainability could transform food systems across the continent. By reducing VAT on fruits and vegetables and raising it on meat and dairy, Europe has an opportunity to address public health crises, mitigate climate change, and generate economic benefits.
The examples from Denmark, Germany, and Hungary demonstrate that change is not only possible but already underway in various forms. By learning from these experiences and implementing evidence-based reforms, Europe could set a global standard for sustainable and health-focused fiscal policy.
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