Denmark's government plans to halve VAT on food and entirely abolish it on fruits and vegetables, despite a projected annual cost of DKK 17.4 billion ($2.3 billion). This figure significantly exceeds the original DKK 6 billion ($961 million) budget set in the January 2026 political framework, raising concerns among opposition parties and economists about its feasibility and design. The reform is set to be implemented during the current parliamentary term.
The proposed VAT cut faces three main criticisms. Firstly, critics highlight the administrative complexity of moving from Denmark's current uniform 25% VAT system to a differentiated one. Businesses would need to classify products under varying tax rates, and the Danish Tax Agency would require new systems to manage these distinctions. The Confederation of Danish Industry (Dansk Industri, DI) estimates the additional annual administrative costs for companies could range from DKK 1.1 billion to DKK 3.8 billion ($147 million to $508 million).
Secondly, there's skepticism about whether consumers will fully benefit from the tax reduction. Economists warn that a significant portion of the savings might be absorbed by producers, wholesalers, or retailers through increased profit margins, particularly in markets with limited competition. Prime Minister Mette Frederiksen has stated the government will work with the retail sector to ensure lower prices for consumers, not just higher supermarket profits. The effectiveness of the reform hinges on how businesses adjust their pricing.
Finally, the financing of the reform is contentious. The government proposes temporarily freezing tax deductions and monetary thresholds in nominal terms for two years, rather than allowing them to rise with wages. This would effectively lead to higher income tax for Danes. Opposition parties, including Dansk Folkeparti, Venstre, and Det Konservative Folkeparti, have criticized this mechanism, calling it a hidden tax. While the government claims the additional revenue from this freeze will be returned to households, the exact timeline for its implementation and the introduction of new VAT rates remains unclear. Denmark's fiscal watchdog has also cautioned against the plan, citing its administrative burden and lack of targeted impact, suggesting alternative instruments like excise duties on CO2-intensive goods for environmental or health goals.
