A tax on sugary drinks: a bitter or sweet solution to our obesity problem?

Sugar taxes are no stranger to the national political debate, yet the push for renewed discussion on introducing a sugary drinks tax was ignited by Sydney University Professor Stephen Colagiuri’s paper in the latest Medical Journal of Australia.

2017-05-03 Sugar Tax Featured Photo

Professor Colagiuri claims that a tax on sugary drinks would be ‘a key strategy to help individuals moderate their sugary beverage intake, in much the same way as current alcohol, tobacco and road safety measures’, and is ‘justified for preventing harmful behaviours’. With the rising toll of overweight and obesity in Australia, and their associated disease and economic burdens, his call is a timely reminder that Australia should investigate the merits of a tax on sugary beverages.

Data from the Australian Bureau of Statistics: National Health Survey shows that, in 2014-2015, 63% of Australian adults (>15 years old) were either overweight or obese, compared to 56% in 1995. For children aged 5-17, the figure is 26% for 2011-12, up from 21%.

Australia is among the leading markets for sugary beverages, consumed by 47% of children and 31% of adults.


A historical perspective on sugar taxes

Sugar taxes, in some form or another, have been around for a long time; most Scandinavian countries and some European countries have had more generalised taxes on sugar (not just sugary beverages) for decades.

Denmark recently repealed its soft drink tax (implemented back in the 1930s) along with its “fat tax” – a tax on butter, milk, cheese, oil and processed food – mostly due to its ineffectiveness given the ease of avoiding the tax by sourcing food/drink from neighbouring Sweden and Germany, which boast better prices.

Despite this, other developed countries are coming onboard with the idea: in 2014, Mexico pushed ahead with a flat 1 peso/L sales tax on sugar-sweetened beverages (SSBs); in 2016, the UK legislated a levy that has two taxable thresholds (>8g/100mL and >5g/100mL at 18p and 24p per L respectively). Most recently, South Africa introduced a huge 20% sales tax on soft drinks this March.

But for all these examples, what does the evidence say about an SSB tax? And why don’t we have one here in Australia?


How does a sugar tax work?

There are two possible ways to levy a tax on SSBs – a sales or excise tax.

A sales tax is directed towards the consumers by marking up the retail price, and the proceeds are collected by the retailer upon behalf of the Government, similar to GST. Both Mexico and South Africa have introduced this type of tax, and the Greens Party here in Australia advocate such an approach in their policy platform, calling for a 20% flat price increase on SSBs with >5g/100mL added sugar.

In contrast, an excise tax is directed towards producers, taxing them based on the amount of sugar added to the drinks, as seen in the UK iteration. While both options will see a price increase to the consumer, the latter option may also encourage manufacturers to reformulate their products to reduce their sugar content (and therefore their calorie load), rather than simply passing on the costs to consumers. In addition, an excise tax is logistically preferable, as it is easier to enforce and collect the tax from the small number of businesses that produce beverages than every retail outlet in Australia.

What is the current evidence in favour of a tax on SSBs?

The only comprehensive meta-analysis to evaluate the efficacy of a tax on SSBs was undertaken in 2013 and published in BMC Public Health. It analysed the impact that SSB taxes or price increases had on consumption rates and obesity levels in the USA, Mexico, Brazil and France, and unanimously demonstrated negative “own-price elasticity”, which means that higher prices are associated with a lower demand for SSBs. It concluded that taxing SSBs may reduce obesity in higher-income countries.


So why hasn’t it already been implemented?

The Government’s current stance seems resistant if not dismissive. Assistant Health Minister and physician David Gillepsie recently weighed in on the debate, labelling such measures as a ‘nanny state’ response to tackling obesity, adding that ‘cherry picking one source of calories over all others just doesn’t make sense’. He cites his prior experience in gastroenterology, where he would regularly tell his patients to lose weight via eating less food or doing more exercise (although the actual success of such advice is yet to be seen).

Nationals leader Barnaby Joyce was more strident, deriding such measures as ‘bonkers mad’, saying they would unjustifiably limit individual freedom and harm the local sugar industry.

However, one suspects such opposition is more entrenched in ideology than genuine concern. While Dr Gillepsie’s comments seem intuitive, the decision to target sugary drinks is not arbitrary, as most SSBs lack valuable nutrients and are excessively loaded with sugar. The British Journal of Nutrition recently revealed that 55% of Australians are consuming more added sugars than the WHO recommended intake, further proving the need to target sugar consumption.

In addition, sugar is notorious for its poor satiating properties in liquid form, and thus encourages greater consumption than its caloric equivalent in solid food form. Lastly, it has been shown that soft drink consumption at a young age can create a life-long preference for sweet food and drinks, leading to a cycle of behaviour that is difficult to break.


What about the other arguments against?

Many libertarians and conservative politicians (such as Ministers Gillepsie and Joyce) are opposed to any measures designed to deter individuals from adopting unhealthy behaviours, arguing that the individual should be free to make their own (bad) choices.

The notion that implementing any taxes on regularly consumed products such as sugar is impinging on individuals’ freedom is a commonly held yet misleading objection, as it is the motivation and not the ability to exercise one’s freedom of choice that is affected. Such criticisms would have no doubt been levied against a tax on tobacco or alcohol, both of which have proven successful in reducing consumption of these unhealthy products.

Joyce’s concerns over the impact on sugar growers, primarily the sugar cane producers in Queensland, while well-meaning, are exaggerated. Though the sugar cane industry is understandably opposed to any taxes on sugar, any impacts on domestic production are expected to be minimal. Queensland produces 95% of all Australian sugar; 80% of all Australian sugar is exported, with the remaining 20% distributed across all forms of sugar-containing products, not just SSBs.

Likewise, industry concerns over the impact on producers and wholesale retailers are also overblown. Any tax on SSBs does not cover artificially-sweetened beverages, most of which are also sold by the same companies producing SSBs, and therefore the financial implications of any tax on SSBs should not severely affect such companies, as consumers are free to switch to the artificially-sweetened counterparts if they feel that the price hikes are unreasonable.


Who will the sugar tax hit the hardest?

A genuine concern arising with a tax on SSBs is its regressive nature, disproportionally affecting those of lower incomes. However, the biggest concern with a tax on SSBs may in fact prove to be an asset: obesity rates are highest amongst the poor, and this demographic is the most affected by diseases associated with unhealthy diets and are most sensitive to changes in market prices.

It is therefore expected that the effect of a tax on SSBs would have the greatest impact and benefit on this demographic. Indeed, some of the generated revenue could be directed towards addressing the issues affecting those from lower socioeconomic backgrounds, compensating for the added burden of the tax.

The revenue can also be used to recoup the financial burden of obesity. Prominent policy think-tank the Grattan Institute recently reported that ‘a tax of 40c per 100g of added sugar on SSBs – which is equivalent to 80c per 2L bottle of Coke – will raise about $400-500 million a year in extra government revenue.’

Compared to the community costs of obesity, which were estimated at $5.3 billion in the same report, the revenue generated is impressive, and could be invested (for example) in obesity prevention programs or public health campaigns on childhood nutrition, setting up a positive feedback loop that could curtail the rising prevalence and burden of obesity. What a sweet thought that would be.

The views and opinions expressed in this article are those of the author and do not necessarily represent those of the Doctus Project.