France's top constitutional body on Wednesday approved a new tax on sugary drinks that aims to fight obesity while giving a boost to state coffers.

"/> France's top constitutional body on Wednesday approved a new tax on sugary drinks that aims to fight obesity while giving a boost to state coffers.

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France approves tax on fizzy drinks

France's top constitutional body on Wednesday approved a new tax on sugary drinks that aims to fight obesity while giving a boost to state coffers.

Published: 29 December 2011 07:53 CET

France approves tax on fizzy drinks

nicoleec

The Constitutional Council approved the new soda tax, announced in August as part of the government’s fight against obesity and within the framework of a broader austerity programme, after it was passed in parliament last week.

The tax, which works out to one euro cent per can of drink, is expected to bring in €120 million ($156 million) in state revenues.

The tax has been slammed by beverage firms including Coca-Cola, which in September threatened to suspend a planned €17 million investment at a plant in the south of France. The company later changed its mind and confirmed the investment would go ahead.

The Constitutional Court on Wednesday also approved an increase in the reduced Value Added Tax (VAT) on some goods and services from 5.5 percent to 7.0 percent.

Introduced in 2009 as part of economic stimulus measures, the reduced rate saw VAT lowered from 19.6 percent for some businesses, including restaurants and hotels.

The French government has sought to reassure investors and maintain its triple-A credit rating with a series of austerity measures, including the announcement last month of €65 billion in savings by 2016, on top of the €12 billion deficit-cutting package announced in August.

The government has said it needs to make €100 billion in savings to balance the budget by 2016.

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How is Denmark's economy handling inflation and rate rises?

The council, led by four university economics professors commonly referred to as “the wise men” or vismænd in Denmark, gave a much rosier picture of Denmark’s economy in its spring report, published on Tuesday, than it did in its autumn report last year.

“We, like many others, are surprised by how employment continues to rise despite inflation and higher interest rates,” the chair or ‘chief wise man’, Carl-Johan Dalgaard, said in a press release.

“A significant drop in energy prices and a very positive development in exports mean that things have gone better than feared, and as it looks now, the slowdown will therefore be more subdued than we estimated in the autumn.”

In the English summary of its report, the council noted that in the autumn, market expectations were that energy prices would remain at a high level, with “a real concern for energy supply shortages in the winter of 2022/23”.

That the slowdown has been more subdued, it continued was largely due to a significant drop in energy prices compared to the levels seen in late summer 2022, and compared to the market expectations for 2023.

The council now expects Denmark’s GDP growth to slow to 1 percent in 2023 rather than for the economy to shrink by 0.2 percent, as it predicted in the autumn.

In 2024, it expects the growth rate to remain the same as in 2003, with another year of 1 percent GDP growth. In its autumn report it expected weaker growth of 0.6 percent in 2024.

What is the outlook for employment?

In the autumn, the expert group estimated that employment in Denmark would decrease by 100,000 people towards the end of the 2023, with employment in 2024 about 1 percent below the estimated structural level.

Now, instead, it expects employment will fall by just 50,000 people by 2025.

What does the expert group’s outlook mean for interest rates and government spending?

Denmark’s finance minister Nikolai Wammen came in for some gentle criticism, with the experts judging that “the 2023 Finance Act, which was adopted in May, should have been tighter”. The current government’s fiscal policy, it concludes “has not contributed to countering domestic inflationary pressures”.

The experts expect inflation to stay above 2 percent in 2023 and 2024 and not to fall below 2 percent until 2025.

If the government decides to follow the council’s advice, the budget in 2024 will have to be at least as tight, if not tighter than that of 2023.

“Fiscal policy in 2024 should not contribute to increasing demand pressure, rather the opposite,” they write.

The council also questioned the evidence justifying abolishing the Great Prayer Day holiday, which Denmark’s government has claimed will permanently increase the labour supply by 8,500 full time workers.

“The council assumes that the abolition of Great Prayer Day will have a short-term positive effect on the labour supply, while there is no evidence of a long-term effect.”

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