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Sugary drinks tax – the great debate

Obesity is a global epidemic, leading to serious diseases, premature death and increased health costs (1). New Zealand and Australia currently rank in the top five most obese nations in the OECD and show little sign of improving, with obesity continuing to climb in both countries, increasing across all age groups and both genders in the last decade (2,3).

The adoption of fiscal measures for obesity prevention has received a large amount of attention globally and is being implemented in a number of countries (4). While there are a number of examples of food taxes worldwide, a tax on sugar sweetened beverages (SSB) in particular is receiving growing support, with several recent developments.

At the beginning of the year, research into the effectiveness of the Mexico Sugar tax was published, being the most robust evidence to date, with its findings suggesting a SSB tax is associated with a reduction of taxed beverages purchases, and increase in untaxed beverages purchases (5). Following this research, the WHO Commission on Ending Childhood Obesity recommended a tax on SSB in their report with the Commission believing there was now sufficient rationale to warrant the recommendation. Since then, the UK announced it will be implementing a 20% SSB tax coming into effect in 2018, and many other countries are openly talking about implementing a SSB tax.

Many public health professionals in Australia and New Zealand believe our countries should be following the UK’s footsteps, however both countries’ governments have ruled out an SSB tax at this stage.

This article lists the key arguments raised by those who are for and against the introduction of a SSB tax in Australia and New Zealand.

How does a SSB tax work?
In very basic supply and demand terms, an increased price will result in a decrease in the quantity sold, and vice versa. The underlying rationale of taxing products for public health reasons is that consumption of some products (such as tobacco, alcohol and SSB) is associated with “negative externalities” that can result in costs to society that neither the producer nor the individual consumer covers (6). A government may want to discourage the consumption of products which have a negative impact on health. A tax would work by increasing the price for consumers, and theoretically reduce demand and shift population level consumption.

Key features of a SSB tax
Not all SSB taxes are created equal. It is important to understand the various design features of a tax to understand or predict its effectiveness in a specific population. While you can read a more in-depth review here, in a nutshell SSB taxes can vary on their inclusion criteria (either focusing on specific drink categories or volume of added sugar), their tax mechanism (specific excise, ad-valorem excise, value-added tax or sales tax), the level of tax (can typically range between 4-20% of the purchase price) and the use of revenue gathered (such as funding other public health initiatives).

Introducing a SSB tax – The pros

  1. SSB are easy to target: SSB are the low hanging fruit, linked to weight gain, dental caries, and other adverse health effects (7). They are nutrient poor and have healthier alternatives to choose from such as water, milk or low calorie fizzy drinks. 
  2. Evidence from other areas: Taxes on alcohol and tobacco have been widely used for decades reducing consumption, suggesting a similar model could also be an effective strategy for SSB (8, 9). 
  3. May address health inequalities: Lower socioeconomic groups have a higher price sensitivity, suggesting they would be more responsive to a tax and more likely to reduce their consumption as a result, particularly if untaxed healthier substitutes are available (10). With poorer diet-related health outcomes, this group may benefit more greatly from improvements in diets resulting from a food tax, and the health gains associated may contribute to reducing health inequalities (11). 
  4. The most simple tax to administer: Taxes such as excise duties tax that focus on specific food categories are more simple to administer than other food taxes, and make it possible to target the most problematic foods. Additionally, having to only collect money from a small number of beverage firms makes it a very efficient tax (10). 
  5. Important component of a comprehensive government strategy: A SSB tax is one tool in the toolbox, but could send a strong public health message to reduce consumption. The Ending Childhood Obesity Commission suggest such a tax could complement policies to restrict sales of calorie-dense foods in schools and to restrict junk food advertising to children across all media. The tax could generate revenue for other public health initiatives, improving public support and reducing health inequalities if health promotion strategies are highly targeted. Additionally, many believe the evidence for SSB tax is on par with other initiatives that governments have already put in place and argue that there will be little harm done in introducing one.


Introducing a SSB tax – The cons

  1. Level of tax is too low to effect consumption: Tobacco tax is often used as the poster child for such disincentives to consumption. However tobacco taxes tend to be significantly higher than any current or proposed food or beverage taxes. For example, while the UK tax rate for tobacco is 348%, most discussions and proposed SSB taxes fall in the 10-20% range and recent evidence shows this would have little effect on consumption within this range. One study found that a 10% tax would reduce average personal daily intake by 7.5ml (less than a sip), while another showed a 20% tax would reduce consumption by 4 calories (13,14). In addition, SSB only contribute between 4-8% of total energy intake in Australia and New Zealand (15,16). With these two factors combined, it is unlikely effects of this size will reverse global obesity. 
  2. Unintended consequences: Food purchasing behaviours are more elastic and willing to accept small changes in price initially. If the taxes became high enough to reduce consumption, consumers may look for cheaper substitutes within the category, search for new foods and beverages that are not taxed (such as fruit juices, sweetened tea or chocolate with the same sugar content as the taxed SSB), or alternatively they may sacrifice another category to accommodate the price changes in SSB (10). 
  3. Lack of price signal: For taxes and subsidies to have an impact on consumption, they must increase prices at the point of purchase. Using an excise tax rather than a sales tax means beverage companies have full freedom on how they apply the tax, allowing them to spread the cost across their range of products, including healthy alternatives like zero sugar versions and bottled water (10). This means there is no price signal to consumers to differenciate between sugar and non-sugar drinks. If the tax is not noticeable to consumers, once the initial campaign and associated media coverage die down, it is probable sales would return to pre-tax volumes, which was seen in Mexico (17).
  4. Could worsen health inequalities: Taxes are regressive, having the most impact on poorer sections of the population where significantly higher proportions of income are spent on food. Therefore health inequalities could be exacerbated by a tax rather than reduced, particularly if the tax is an excise tax spread across the product range that includes both healthy and unhealthy products. This was seen as one of the downfalls of the Danish fat tax (18).
  5. Evidence to date shows little success: The Mexico SSB tax research is seen as the most robust research to date, and although boasts a reduction in purchases of taxed beverages and an increase in untaxed beverages, has a number of limitations. Causality cannot be determined as the study was focussed on purchase rather than behaviour. The study relies on self-reported data from respondents rather than actual sales (and what consumers say and actually do is often very different). Although a decline in sales was seen in the short term, revenue gathered from the tax also continues to grow, clearly showing the tax is not working to reduce consumption of SSB. The slight drop in consumption only equates to around 36ml fall per head, and may be due to drop in consumption seen globally, as consumers have shifted their preference from full-sugar to low calorie or zero-sugar drinks, and in some cases away from the carbonated drinks as a category. This trend is seen in countries that don’t have a tax, including NZ and Australia. Read more here.

NEXT: Pros and cons of a sugar tax

References:

  1. Sturm, R. The effects of obesity, smoking and drinking on medical problems and costs. (2002). Health Affairs, 21(2), 245-253.
  2. Statistics New Zealand. (2015). NZ Social Indicators: Obesity. Retrieved from http://www.stats.govt.nz/browse_for_stats/snapshots-of-nz/nz-social-indicators/Home/Health/obesity.aspx
  3. Australian Bureau of Statistics. (2001-2013). Profiles of Health, Australia: Overweight and Obesity. Retrieved from http://www.abs.gov.au/ausstats/abs@.nsf/Lookup/by%20Subject/4338.0~2011-13~Main%20Features~Overweight%20and%20obesity~10007
  4. Hawkes C, Smith TG, Jewell J, Wardle J, Hammond RA, Friel S, et al. Smart food policies for obesity prevention. (2015). Lancet, 385, 2410–21.
  5. Colchero M Arantxa, Popkin Barry M, Rivera Juan A, Ng Shu Wen. Beverage purchases from stores in Mexico under the excise tax on sugar sweetened beverages: observational study. (2016). BMJ, 352, h6704. 
  6. World Cancer Research Fund. (2016). Use economic tools. Retrieved from http://www.wcrf.org/int/policy/nourishing-framework/use-economic-tools
  7. Beaglehole, R. Sugar sweetened beverages, obesity, diabetes and oral health: a preventable crisis. (2014). Pacific Health Dialog, 20(1), 39-42. 
  8. Wagenaar AC, Salois MJ, Komro KA. Effects of beverage alcohol price and tax levels on drinking: a meta-analysis of 1003 estimates from 112 studies. (2009). Addiction, 104:179-90.
  9. Chaloupka FJ, Yurekli A, Fong. Tobacco taxes as a tobacco control strategy.(2012). Tobacco Control, 21, 172-80. doi:10.1136/tobaccocontrol-2011-050417
  10. World Health Organisation. (2015). Using price policies to promote healthier diets. Retrieved from http://www.euro.who.int/__data/assets/pdf_file/0008/273662/Using-price-policies-to-promote-healthier-diets.pdf
  11. Eyles H, Mhurchu N, Nghiem N, Blakely T. Food pricing strategies, population diets, and non-communicable disease: a systematic review of simulation studies. (2012). Plos Med 9(12), e1001353.
  12. Thow AM, Downs S, Jan S. A systematic review of the effectiveness of food taxes and subsidies to improve diets: Understanding the recent evidence. (2014). Nutr Rev, 72(9), 551–65.
  13. Ng S, Ni Mhurchu N, Jebb S, Popkin B. Patterns and trends of beverage consumption among children and adults of Great Britian, 1986-2009. (2012). Br J Nutr, 108, 536-51. 
  14. Winkler J. Why soft drinks taxes will not work. (2012). Br J Nutr, 108, 395-6. 
  15. Ministry of Health. (2011). A focus on nutrition: key finding from the 2008/09 NZ Adult Nutrition Survey. Retrieved from http://www.health.govt.nz/system/files/documents/publications/a-focus-on-nutrition-ch3_0.pdf
  16. Australian Bureau of Statistics. (2015). Australian health Survey: Nutrition First Results – Foods and Nutrients, 2011-12. Retrieved from http://www.abs.gov.au/ausstats/abs@.nsf/Lookup/by%20Subject/4364.0.55.007~2011-12~Main%20Features~Consumption%20of%20Sweetened%20Beverages~710
  17. Food Navigator Asia. (2016). Mexican soda tax analysis: the figures just don’t back the hype. Retrieved from http://www.foodnavigator-asia.com/Policy/Mexican-soda-tax-analysis-The-figures-just-don-t-back-the-hype
  18. Vallgarda S, Holm L, Jensen JD. The Danish Tax on saturated fat: why did it not survive. (2015). European Journal of Clinical Nutrition, 69, 223-226. doi:10.1038/ejcn.2014.224


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