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Coffee House

Why do-gooding ‘sin taxes’ always stink of politics

24 November 2012

2:30 PM

24 November 2012

2:30 PM

Nutella may have been created by Italians, but it is the French who really love it. The hazelnut spread is a fantastically popular accompaniment for everything from bread for breakfast to crêpes for a delicious dessert. Yet the French Senate, in its infinite wisdom, decided that Nutella should be taxed. The proposal was voted through the Senate, before being stopped by a very unlikely coalition of Communists and conservatives. The plan to impose a ‘sin tax’ on Nutella in France was obviously ludicrous; but it was also full of politics.

Sin taxes and green taxes may look like an efficient intervention on an economist’s blackboard; but they never live up to the wide-eyed optimism of enthusiastic technocrats. They always end in an ugly political stitch-up. The logic behind all of these taxes is that markets don’t work efficiently. The thinking is that some people simply can’t be trusted to make decisions; they eat, drink, smoke or drive too much, so you, the legislator, need to set them straight. The reality of this intention is always ugly: politicians cannot understand and measure what is in the best interests of every citizen, or the costs we impose on each other, let alone predict how a new tax will change things.

Senator Yves Daudigny, who proposed the Nutella Tax, claimed that he was looking out for people’s health by taxing the palm oil in the spread. He may have been genuinely concerned; but his proposal was full of raw politics, too.

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Nutella’s popularity is a valuable asset for the Italian company that manufactures it, Ferrero; and, as this article in the French press illustrates, the French supermarket chain Casino wants a piece of the action. Casino market their new spread by describing how it contains the same thirteen per cent hazelnuts and seven per cent cocoa as Nutella; but Nutella includes palm oil, whereas their product does not. The new tax would have either forced up Ferrero’s costs directly (by adding €300 to the existing tax of €100 for every tonne of palm, coconut and palm kernel oil they use, forcing them to change more expensive or unsuitable ingredients) or put the state’s imprimatur on claims that their products are unsafe. Never mind that the French have eaten Nutella happily for decades, the proposal would have made it easier for Casino to win market share.

This is hardly the first time that the tax system might have been used to chase grubby political or commercial advantage. Britain is thought to have become a beer-drinking nation because of high taxes on French wine and spirits in the early eighteenth century. Recently the European Commission has seized on everything from a carbon tax to a financial transactions tax as a means to get what it really wants: an EU tax which can end its dependence on sceptical national governments.

None of that makes sense in the dry world of optimal tax theory. But economists who think they are advocating a more enlightened tax policy are often simply supplying arguments for one side of a grinding political war between competing economic interests. That is why sensible people hold their nose when they approach any tax. Taxes stink whether they are taxes on your income, your drive to work, your house or your Nutella. Taxes will always be with us: governments need our money. But don’t trust any politician who tries to tell you that a tax is good for you. Don’t listen to anyone who says that the foul smell emanating from their latest proposed levy is really some sweet fragrance. They are out to rip you off.

Matthew Sinclair is the Director of the Taxpayers’ Alliance.

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