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Pros and cons of a sugar tax

02 / 06 / 16

What is a sugar tax?

A sugar tax is a tax on sugary drinks, also called a Sugar Sweetened Beverage Tax (SSBT). Public health advocates say an SSBT in Australia and New Zealand could help reduce consumption of SSBs and thereby reduce obesity and other associated diseases. The United Kingdom has recently joined France, Hungary, Chile and Mexico in introducing a SSBT. Both the Australia and New Zealand governments have ruled out a SSBT at this stage.

How many SSBs do we drink?

A recent secondary analysis of the 2011-12 Australian Health Survey conducted by the CSIRO [i] shows that across the population, SSBs contributed 3.2% total energy intake. Our intake has declined since 1995, both in the number of people drinking them and the amount they drink. Among discretionary foods, soft drinks ranked number seven after confectionary, sweet biscuits, alcohol, pizzas, burgers and tacos, pastries and fried potatoes. Teenagers consume a higher proportion (6%) of total energy as SSB and boys (aged 14-18 years) drink the most; and people in socially disadvantaged groups are more likely to drink SSBs[ii].

What disease burden do SSBs cause?

An analysis of the contribution of poor diet to the burden of disease in Australia (2011) by the Australian Institute of Health and Welfare[iii] calculated the percent of DALYs (Disability Adjusted Life Years) attributable to a range of dietary components. A diet high in sweetened beverages ranked number eight at 0.3 percent.

Dietary risk factors and their percent of DALYs

Diet low in fruit   2.0

Diet low in vegetables   1.4

Diet high in processed meat  1.4

Diet low in nuts and seeds  1.4

Diet low in wholegrains  1.1

Diet low in fibre  1.0

Diet low in omega-3 fatty acids  0.3

Diet high in sweetened beverages  0.3

The pros of a SSBT

The WHO has identified food taxes as a tool to improve population diets[iv]. Taxing unhealthy foods and drinks to reduce consumption for public health reasons is an example of a government fiscal measure and can be effective because price is a key determinant of food choice[v]. Sugar sweetened beverages are a common target for food taxes because they provide energy with little or no associated nutrients[vi].

Modelling by Australian researchers[vii] estimate a 20% rise in the price of soft drinks and flavoured mineral waters would result in an average reduction of 141 g/day to 124 g/day of SSB consumption in men and from 76 to 67 g/day for women, representing a 12.6% decrease. Average energy intake would go down by 16 kJ/day (men), and 9 kJ/day (women). When these modest decreases were extrapolated over 25 years (assuming no other dietary changes), the authors predicted small declines in the prevalence of obesity of about 0.7% in men and 0.3% in women. They estimate this could to save 1,600 lives, prevent 4,400 heart attacks and 1,100 strokes and save the health-care system up to A$609 million. Even taking into account declines in consumption, they estimate the revenue collected from the tax would be more than A$400m annually which could be “put towards health promotion activities, or used to subsidise healthy foods”. Of course modelling is always based on assumptions and these may not play out in the reality of implementation. For example, kilojoules may be compensated in other foods and drinks.


KEY TERMS

Tax: a compulsory contribution to state revenue, levied by the government added to the cost of some goods, services, and transactions.

Fiscal measure: in economics and political science, fiscal policy is the use of government revenue collection (mainly taxes) and expenditure (spending) to influence the economy.

Demand elasticity: is a measure of how much the quantity demanded will change if another factor changes. One example is the price elasticity of demand; this measures how the quantity demanded changes with price.   

Cross elasticity of demand: or cross-price elasticity of demand measures the responsiveness of the quantity demanded for a good to a change in the price of another good. For example, when a product becomes more expensive, consumers may switch to cheaper substitutes. Australian research[viii] suggests cross price elasticity exists between SSBs and ‘diet’ soft drinks; a cost increase in SSBs as a result of a tax is predicted to result in switching to diet drinks which would be become cheaper.

Subsidy: a subsidy is a form of financial aid or support extended to an economic sector (or institution, business, or individual) generally with the aim of promoting economic and social policy. For example, a subsidy applied to fruits and vegetables would reduce the price to shoppers, increase demand and consumption, and improve health outcomes.

The cons of a SSBT

  • Taxing SSBs may not provide the health improvement hoped for in Australia and New Zealand because intake of SSBs is relatively low and declining2. The Australian modelling above is based on 2011 data and consumption of SSBs has declined since then.
  • The evidence suggests that food taxes don’t always create the intended result of reducing consumption and when they do the effect is small[ix].
  • The potential to improve health is greatest when combined with incentives for choosing healthier foods and this has not always occurred within government regulation frameworks. Governments do not like directing tax to specific purposes but prefer to add it to general revenue.
  • An analysis of US studies that linked soda taxes to weight outcomes showed minimal impacts on weight (however they were based on sales taxes that were relatively low)[x].
  • A SSBT is what is known as a ‘regressive tax’ because it disproportionally affects poor people. The poor already pay a higher proportion of their income on food and paying more for SSBs may mean they spend even less on nutritious foods.
  • Denmark has dismantled their ‘fat tax’ due to a lack of health improvement and unintended adverse consequences such as increased food costs, high administrative burden and tax evasion.
  • In a US analysis, the price elasticity of demand for soft drinks was considered high; an increase in price should reduce consumption, however assessments of differences in responsiveness to food prices according to age, education, culture, or ethnicity are not known [xi].
  • An increase in food taxes are not always fully reflected in retail prices as companies may absorb part of the cost increase
  • Overall, food taxes are seen as punishing bad eating behaviour rather than rewarding good choices and are politically unpopular.
  • The evidence on the economic impact of food taxes is limited and this makes government policy makers wary[xii].

Are there any other ideas?

Consuming too many SSBs is a behavioural problem and a behavioural approach would suggest rewarding healthier choices because reward is more effective than punishment [xiii]: when it comes to health decisions, the ‘carrot’ is better than the ‘stick’ [xiv]. In behavioural economics, ‘nudging’ people toward healthier choices by making them more accessible or appealing is considered less paternalistic but still powerful for creating behaviour change [xv].  In a BMJ article2 JT Winkler from London Metropolitan University, UK, suggests making sugar-free drinks cheaper by reducing the margins companies put on them. Sugar-free drinks cost much less to make but are sold at the same price making them more profitable. Removing this “health premium” would make sugar-free drinks cheaper and shift demand in a healthier direction.

Subsidising healthier foods is another example of rewarding healthier choices. In a US systematic review of fiscal measures for improving public health, cheaper fruit and vegetable prices were found to be associated with lower body weight outcomes among both low-income children and adults, suggesting that subsidies that reduce prices of fresh produce may be effective in reducing obesity7. Modelling of a 20% subsidy on fruits and vegetables in New Zealand estimated this could result in 560 DPP (Deaths Prevented or Postponed) per year based on 1.9% reduction of all-cause mortality[xvi].

NEXT: A new way to keep your portion sizes in check

References:

[i] Hendrie, G.A., Baird, D., Syrette, J., Barnes, M., Riley, M (2015) Consumption of fruit juice in the Australian population: A secondary analysis of the Australian National Nutrition and Physical Activity Survey 2011-12. CSIRO, Australia.
[ii] Australian Bureau of Statistics 4364.0.55.007. Australian Health Survey: Nutrition First Results - Foods and Nutrients, 2011-12. Consumption of sweetened beverages. Available at URL http://www.abs.gov.au/ausstats/abs@.nsf/Lookup/4364.0.55.007main+features7102011-12  
[iii] AIHW 2016. Australian Burden of Disease Study: impact and causes of illness and death in Australia 2011. Australian Burden of Disease Study series no. 3. Cat. no. BOD 4. Canberra: AIHW.  Available at URL http://www.aihw.gov.au/publication-detail/?id=60129555173
[iv] WHO Regional Office for Europe. Using price policies to promote healthier diets. Copenhagen: WHO Regional Office for Europe, 2015.
[v] Sirpa Sarlio-Lähteenkorva, Jack Winkler. Could a sugar tax help combat obesity? BMJ 2015;351:h4047. Available at URL http://www.bmj.com/content/351/bmj.h4047
[vi] Malik VS, Popkin BM, Bray GA, Despres JP, Hu FB. Sugar-sweetened beverages, obesity, type 2 diabetes mellitus, and cardiovascular disease risk. Circulation. 2010;121(11):1356–64. http://circ.ahajournals.org/content/121/11/1356.short
[vii] Veerman JL, Sacks G, Antonopoulos N, Martin J (2016) The Impact of a Tax on Sugar-Sweetened Beverages on Health and Health Care Costs: A Modelling Study. PLoS ONE 11(4): e0151460. doi:10.1371/journal.pone.0151460Available at URL http://journals.plos.org/plosone/article?id=10.1371/journal.pone.0151460#pone.0151460.ref004
[viii] Sharma A, Hauck K, Hollingsworth B, Siciliani L. The effects of taxing sugar-sweetened beverages across different income groups. Health economics. 2014;23(9):1159–84. Available at URL http://onlinelibrary.wiley.com/doi/10.1002/hec.3070/abstract?userIsAuthenticated=false&deniedAccessCustomisedMessage=
[ix] Powell, LM and Chaloupka, F.J. Food prices and obesity: evidence and policy implications for taxes and subsidies Milbank Q 2009; 87: pages 229-257 Available at URL http://www.ncbi.nlm.nih.gov/pubmed/19298422
[x] Powell LM, Chriqui JF, Khan T, Wada R, Chaloupka FJ. Assessing the potential effectiveness of food and beverage taxes and subsidies for improving public health: a systematic review of prices, demand and body weight outcomes. Obes Rev. 2013 Feb;14(2):110-28 Available at URL http://www.ncbi.nlm.nih.gov/pubmed/23174017
[xi] Andreyeva T, Long MW, Brownell KD. The Impact of Food Prices on Consumption: A Systematic Review of Research on the Price Elasticity of Demand for Food. American Journal of Public Health. 2010;100(2):216-222. doi:10.2105/AJPH.2008.151415.
[xii] Crammond B, Van C, Allender S, Peeters A, Lawrence M, Sacks G, et al. The possibility of regulating for obesity prevention—understanding regulation in the Commonwealth Government. Obesity reviews: an official journal of the International Association for the Study of Obesity. 2013;14(3):213–21. doi: 10.1111/obr.12004 pmid:23171416.
[xiii] P4P4P: an agenda for research on pay-for-performance for patients.
Volpp KG, Pauly MV, Loewenstein G, Bangsberg D. Health Aff (Millwood). 2009 Jan-Feb; 28(1):206-14. Available at URL http://www.ncbi.nlm.nih.gov/pubmed/19124872/
[xiv] D. Tannenbaum, C. J. Valasek, E. D. Knowles, P. H. Ditto. Incentivizing Wellness in the Workplace: Sticks (Not Carrots) Send Stigmatizing Signals. Psychological Science, 2013; Available at URL http://pss.sagepub.com/content/24/8/1512
[xv] Downs JS, Loewenstein G, Wisdom J. Strategies for Promoting Healthier Food Choices. American Economic Review Papers & Proceedings. 2009;99(2):159–64. Available at URL
http://www-personal.umich.edu/~prestos/Downloads/DC/pdfs/Downs_Sept22_Downsetal2009.pdf
[xvi] Ni Mhurchu C, Eyles H, Genc M, Scarborough P, Rayner M, Mizdrak A, Nnoaham K, Blakely T. Effects of Health-Related Food Taxes and Subsidies on Mortality from Diet-Related Disease in New Zealand: An Econometric-Epidemiologic Modelling Study. PLoS One. 2015 Jul 8;10(7):e0128477 Available from URL http://www.ncbi.nlm.nih.gov/pubmed/26154289?report=abstract
 

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