Denmark's Prime Minister Mette Frederiksen has signaled a preference for a broad reduction in the value-added tax on all food items, setting the stage for a significant political and economic debate in Copenhagen. The proposed cut from 25% to 20% on foodstuffs, a key promise from her New Year's address, is now part of the government's broader economic 2035-plan, which prioritizes funding for a major defense buildup over extensive tax cuts in the coming years.
"I am most inclined towards a general reduction," Frederiksen stated when asked about her preference between a broad VAT cut or a more targeted reduction on specific items like fruits and vegetables. Her position aligns her Socialdemokratiet party with the opposition Venstre, creating an unusual alliance that could isolate her government coalition partner, the Moderates, who advocate for a targeted approach.
The Political Calculus of a Food VAT Cut
The Prime Minister's announcement in Nyborg reveals the delicate balancing act within Denmark's coalition government. While acknowledging there are "good arguments for both models," her clear tilt toward a universal cut suggests a political strategy focused on delivering visible, widespread relief to consumers. This move places the Moderates, along with parties like the Social Liberals (Radikale Venstre), in a difficult position. They must now decide whether to support the government's proposal or push for their more narrowly focused policy, potentially fracturing the coalition's unity on a high-profile cost-of-living measure.
This internal disagreement highlights a fundamental economic policy divide. Proponents of a targeted cut argue it can steer consumer behavior toward healthier options, addressing public health goals alongside economic relief. Advocates for the broad reduction, like Frederiksen, counter that it provides simpler, immediate assistance to all households during a period of sustained inflationary pressure. The debate also touches on administrative complexity, with a universal cut being far easier for retailers and tax authorities to implement than a system with multiple VAT rates for different food categories.
Economic Priorities and the 'Little Plan'
Frederiksen was candid about the fiscal constraints shaping this policy. She described the government's economic 2035-plan as "not a gigantic economic plan" and admitted that a larger package could have been crafted. The plan's primary objective, she emphasized, is to ensure Denmark can afford a "massive defense buildup," a reflection of the changed security landscape in Europe. Consequently, the budget framework leaves little room for numerous other tax reductions in the near future.
This context is crucial for understanding the scale of the proposed VAT cut. It is not part of a sweeping fiscal expansion but a targeted intervention within a constrained budget. Economists will be watching closely to see how the government plans to offset the estimated revenue loss, which could run into billions of kroner annually. Will it be funded through spending cuts elsewhere, other tax increases, or accepted as a deficit increase? The Prime Minister's comments suggest the former, indicating tough prioritization choices lie ahead for other public spending areas.
The 'Makrel Check' and Immediate Relief
Simultaneously, the government has begun distributing a one-time food cost relief check to a large segment of the population. Frederiksen declined to specify the exact amounts or eligibility criteria, but she indicated it would likely not reach the 8,000 kroner per person previously suggested by the Socialist People's Party (SF). This immediate measure, dubbed the "makrel check" by critics in reference to the Prime Minister's noted fondness for the canned fish, is a separate, short-term tool compared to the permanent structural change of a VAT reduction.
The check has drawn sharp criticism, notably from Conservative leader Mona Juul. She has pointed to the scandal-plagued distribution of a previous heating cost check as a cautionary tale, warning of potential administrative chaos and unfairness. The derisive "makrel check" label underscores the political risk of such direct payments, which can be framed by opponents as poorly targeted or gimmicky. The government likely views it as necessary bridge support while the longer-term VAT legislation is developed and passed through parliament.
Business and Consumer Impact in Copenhagen
For Danish businesses, particularly in the retail and grocery sectors centered in Copenhagen and across the Øresund region, a broad VAT cut presents a logistical simplicity compared to a multi-tiered system. A flat reduction on all food would require a single, system-wide adjustment at checkout systems and accounting software. However, it also means the benefit is spread across all food items, potentially diluting the impact on specific staple goods that lower-income households rely on most heavily.
Consumer advocates are already analyzing who would benefit most. A universal 5-percentage-point cut provides greater absolute savings to those with higher grocery bills, typically higher-income families. A targeted cut on basics like fruits, vegetables, and grains could concentrate relief on essential spending. The Prime Minister's preference suggests the government is prioritizing perception and simplicity—a clear message that "the cost of your food shop is going down"—over a more nuanced, behavior-oriented policy.
The Road to a Parliamentary Majority
The path forward is fraught with parliamentary challenges. With Frederiksen's Socialdemokratiet and the opposition Venstre seemingly aligned on a broad cut, they command a significant bloc of votes. However, securing a stable majority may require winning over or bypassing the Moderates within her own government. This could force difficult negotiations and potentially see the proposal amended during legislative scrutiny.
Alternative proposals, such as a compromise that introduces a moderate broad cut with an additional, deeper reduction on healthy foods, could emerge. The coming weeks will see intense debate in the Folketing, with finance spokespeople from every party weighing the economic efficiency, social equity, and health implications of each model. The outcome will set a key precedent for how this government approaches cost-of-living crises and its willingness to spend political capital against its coalition partners' wishes.
A Defining Moment for the Coalition
Ultimately, this VAT debate is about more than grocery bills; it is a test of the coalition's cohesion and Frederiksen's leadership. By siding with the opposition on the policy's shape, she risks alienating the Moderates, whose support is crucial for her parliamentary base. Her ability to navigate this conflict, perhaps through side agreements on other policy areas, will be closely watched by political observers in Copenhagen.
The "little plan" she referenced is shaping up to have outsized political consequences. It balances defense, taxation, and household economics in a single package. Whether the chosen model is the most economically efficient or socially targeted is almost secondary to the political reality: it is the model the Prime Minister believes she can pass. As Danes begin to receive their "makrel checks," the longer-term question remains: will their weekly grocery shopping see a permanent, albeit modest, reprieve, and at what cost to the government's internal unity? The coming political arm-wrestling will determine not just the price of milk, but the stability of Denmark's governing coalition.