Should the hike in value-added tax come with a health warning?

Perhaps a paediatrician is not best placed to explain the effects of a hike in value-added tax and its impact on food, writes Mathijs Bouman.

Who do you see if you have a question about your child’s illness? The paediatrician, of course. And who do you ask about the effect of price on household spending? That same paediatrician, naturally.

Why? Because paediatricians know all about supply and demand: if something goes up in price people will buy less of it. That is why paediatrician Koen Joosten of the Erasmus Medical Centre got so worked up about the increase in VAT on food from 6% to 9% the other day. Standing in front of a vegetable stall positively bursting with health-giving but now more expensive foods he stated: ‘This will discourage people from eating fruit and vegetables.’

Joosten has my sympathy, he really does. He has been telling us for years we need to eat more healthily. He’s fighting the good fight and I promise to have an extra helping of broccoli tonight.

But his fear that a higher VAT rate will chase people away from the fruit & veg stall is unfounded. Where would they go? To the cheese stall next door? VAT on cheese is also higher. To the sweet shop on the other side of the road? No, because sweets are up as well.

All foods will become more expensive, including unhealthy ones. An example. At a big Dutch supermarket you will pay around 20 cents for an Elstar apple. The higher VAT rate means this will go up by 0.56 cents. Do people now discard the apple and feed their children crisps instead? No. A big bag of 15 little bags of crisps costs €3.09, which comes to around 20 cents for each bag as well. Every little bag will become over half a cent dearer. So there is absolutely no reason to trade the apple for a bag of crisps.

In theory you could trade the apple for a product with an unchanged VAT rate of 21%, say a bottle of gin, for example, or a coffee maker or a new car. But it is unlikely that the price of fruit and veg is going to have an effect on the consumption of these products. In economists’ speak: cross elasticity of demand is practically zero.

We also spend more money on unhealthy foods than on fruit and veg. According to statistics office CBS the average household spends 1.1 % of its budget on fresh produce. Sweets, ice cream, sugary drinks and juice take up 1.3%. So if there were an effect – which I strongly doubt – it would be that we would also eat and drink less unhealthy stuff. Would that be healthy? Ask a doctor.

This column appeared earlier in the Financieele Dagblad