Denmark’s top economic advisers warn that lowering VAT on food would be costly and ineffective. They suggest using other tools to support low-income households and promote green goals instead of changing the country’s uniform tax rate.
Experts Reject Lower VAT on Groceries
A new report from Denmark’s Economic Council says the idea of lowering value-added tax (VAT) on food, fruit, and vegetables may sound appealing, but it makes little sense from a national economy perspective. The council’s environmental division concludes that differentiated VAT would be expensive to run and would not solve the issues it aims to fix.
The proposal has gained political momentum as Danish consumers face high food prices. Several unions and opposition parties have urged the government to cut VAT on groceries. However, the experts argue that such a move would come with significant administrative costs and would not provide real economic benefits to households in need.
According to the council’s analysis, lower VAT rates on select products are not an efficient way to reduce inequality or encourage sustainable behavior. Instead, they recommend adjusting income taxes or transfer payments to directly help those struggling most.
Three Reasons Against Differentiated VAT
The report highlights three key reasons why lowering VAT on food is not a good fiscal instrument.
First, if the goal is to promote the green transition, a direct tax on greenhouse gas emissions would be far more effective.
Second, if the goal is to help lower-income groups, it would be cheaper and more efficient to provide targeted financial support through tax deductions or welfare payments.
Third, using VAT as a public health tool to promote healthy eating simply costs too much compared to other measures.
The Danish VAT rate of 25 percent is among the highest in Europe and provides around ten percent of Denmark’s total GDP in public revenue. Changing that structure would have widespread consequences for state finances and businesses alike. The Economic Council stresses that adjusting this system would only shift money around between companies and the state without creating new value for society.
Costs Outweigh Benefits
From an administrative standpoint, differentiated VAT would also create complexity for businesses required to track multiple rates. Policymakers in Denmark have long favored a unified VAT to keep the system simple and transparent. The Economic Council’s analysis backs up that approach, finding that the costs of implementing various tax rates far exceed the potential gains.
It is not the first time Danish economists have sounded the alarm. Several leading academics, including former top advisers to the council, have previously argued that switching to multiple VAT levels would be a “really bad idea.” Their reasoning is consistent: whether the goal is social fairness, healthier diets, or lower emissions, differentiated VAT is not the best tool.
Suggested Alternatives
Instead of adjusting VAT, experts recommend three alternative strategies that would better meet political and social goals.
One option would be to raise the personal tax allowance or reduce the bottom tax rate to give households more disposable income.
Another would be to provide direct or temporary financial support to low-income families through the welfare system.
Finally, subsidizing the production of healthy food could make nutritious products cheaper without changing the VAT rate.
For instance, targeted subsidies could encourage local farmers to produce more sustainable goods, supporting domestic agriculture and food security. Stronger export performance, like the one seen during the recent economic rebound, could also provide the state with additional fiscal room to implement such measures, as described in Denmark’s economy rebounds with strong export growth.
Growing Political Pressure
Despite the council’s recommendations, political pressure continues to grow. Food inflation in Denmark remains high, and public frustration has pushed the government to explore differentiated VAT as a possible fix. Last year, the government launched a study to evaluate whether such a policy could be introduced under EU rules. Nevertheless, experts remain skeptical that the benefits would justify the high administrative costs.
Interestingly, several other European countries do use reduced VAT on basic goods, but the Danish economists argue that their systems reflect different priorities and economic models. Denmark’s uniform model, they say, remains among the simplest and most efficient.
In the end, the new report makes it clear: while cutting VAT might seem like an easy win, it would be an expensive move for the state, deliver limited relief for households, and complicate tax administration. The economists call it a policy that looks good on paper but fails in practice.
Sources and References
The Danish Dream: Denmarks Economy Rebounds with Strong Export Growth
The Danish Dream: Banking in Denmark for Foreigners Updated 2025
DR: Økonomiske vismænd fraråder differentieret moms
