SUGAR SWEETENED BEVERAGE TAX FOR AUSTRALIA_Emily Lancsar

July 2018

By Professor Emily Lancsar (Head, Department of Health Services Research & Policy, The Australian National University).

Australia and the international community are facing what is often referred to as an ‘obesity epidemic’. More than one in four Australian adults are obese. Sixty four percent of adults and 27 percent of children aged 5-17 years are classified as overweight or obese [1]. The World Health Organisation has called for governments around the world to use fiscal policy as a mechanism to address obesity. The National Economic Panellists’ views were sought on such a policy response. In particular, panellists were asked to consider the following propositions:

"The best economic policy instrument available to policy makers seeking to address obesity and related health issues in Australia is the introduction of a tax on sugar sweetened beverages (SSBs)”

“The health and non-health benefits from a tax on SSBs are likely to outweigh the possible costs felt elsewhere in the economy."

The first proposition in particular divided the panel. Of the 21 participating panellists, 12 (57 percent) disagreed or strongly disagreed, 1 (just under 5%) was uncertain and 8 (38 percent) agreed.  There was little difference when weighted by panellist level of confidence. A related poll put to the US economic panel had a similar polarising effect (http://www.igmchicago.org/surveys/obesity-and-soft-drinks). Two panellists who disagreed (Cobb-Clark) and were uncertain (Carmignani) thought an SSB tax would be a sensible policy option but not the “best”.

Several of those in favour of an SSB tax (Booth, Webster, Makin) highlighted the considerable health burden of obesity, linked to diabetes and heart disease which reduce individuals’ quality of life.  Beth Webster argued “We clearly have a health problem on our hands and few policies to date have reduced the problem”.

Hugh Sibly noted that the first proposition “assumes government should be involved in people's private dietary choices” and that that assumption requires justification. Hugh Sibly and other panellists provided such justification for government intervention based on market failure. This was most commonly linked explicitly or implicitly to negative externalities associated with the social cost of obesity (Page, Booth, Kingston, Makin, Sibly) which “impose huge burdens on taxpayers via the public health system” which, for Geoffrey Kingston leads to a “Pigou-type case for taxing sweetened products”.

Of those who supported a SSB tax, Lionel Page endorsed using taxation as a mechanism to change behaviour, both to address the negative externalities placed on the health system and to reduce individuals’ present bias in consumption.  More generally, Tony Makin and Alison Booth drew an analogy to taxing other health reducing products such as tobacco and alcohol. Alison Booth further noted the introduction of SSB taxes internationally (see Figure) and cited evidence of the success of the SSB tax in Mexico (Carmignani and Webster also noted evidence of effectiveness of SSB taxes and price changes respectively).

[1]

Created by Miranda Blake from information sourced from Backholer K, Blake MR, Vandevijvere S. Have we reached a tipping point for sugar-sweetened beverage taxes? Pub Health Nutr. 2016; 19 (17): 3057-3061; and Backholer K, Blake M, Vandevijvere S. Sugar-sweetened beverage taxation: An update on the year that was 2017. Pub Health Nutr. 2017 Dec; 20(18):3219-3224; World Cancer Research Fund International. NOURISHING database London, UK: WCRF International 2018.

Those who disagreed with the proposition did so for a range of reasons.  The most common being a view that there are superior alternatives to taxing SSBs (we return to this below).  Other reasons included: a loss of consumer welfare for moderate consumers noted by John Freebairn who called for heterogeneity to be recognised in the tax design; a belief that taxes haven’t previously worked (Gangadharan) and the likelihood of substitution to other products (Sibly, Gangadharan, Frijters, McTaggart), the topic of US poll noted above. On the latter, Paul Frijters warned “People will get their sugar hits via other means” while Lata Gangadharan cautioned against the potential perverse effect of “reallocation of resources towards goods and services that are worse in terms of the negative externalities they cause (for example, alcoholic beverages)”.

An interesting array of policy alternatives were suggested ranging from some currently enacted in Australia and elsewhere, to more novel suggestions. For example, education and provision of product information (Freebairn), government advertising (Gangadharan), subsidisation of healthier alternatives (Gangadharan, Quiggin) and promotion of sport and exercise, especially for young people (Quiggin, Frijters).  While not in favour of a SSB tax, Paul Frijters saw such a tax as a “conversation starter” for a sea-change, moving to a healthier culture.

Gigi Foster believes obesity to be “mainly the result of psychological/mental problems” and so recommended government interventions aimed at improving “the psychological/mental health of those at risk for obesity” and “self-positive programs” etc. in day care programs and schools, amongst other policies.  She also suggested a “fat tax” i.e., “have all ATO offices install scales, and every taxpayer who falls under a certain threshold BMI (like 30) qualifies for assessment at a lower marginal tax rate, or gets a tax credit”, although acknowledged that this “wouldn't be particularly politically palatable”.

Paul Frijters advocated for the allowance of “health insurance contributions to depend on BMI so as to give people real incentives to manage their own weight”. This would run counter to the current community rating principles that underpin the Australian private health insurance market and the principles of the Australian universal health insurance system, Medicare, so would require changes to legislation.

An alternative policy intervention advocated by Alison Booth, John Freebairn and Hugh Sibly is a tax on sugar (rather than just SSBs) to incentivise producers to change their product mix (Booth and Freebairn) and was seen as more efficient than just taxing SSBs (Sibly). Tony Makin also suggested that “compared to other countries, Australia’s tax system relies excessively on taxing income rather than expenditure, and taxing sugar would help redress the imbalance albeit in a small way.”  As Alison Booth noted, an argument for “taxing only sugary drinks is that they are easy to tax”.  Indeed, taxing SSBs has been described elsewhere as ‘low-hanging fruit’ since they are easily categorized to tax and have little to no nutrition value [e.g. 2] (in contrast to milk, which Paul Frijters suggests has more energy, but also conveys nutritional value). In broadening to a sugar tax, Alison Booth stated, “I do not see why it is any more difficult to tax confectionary than it is to tax sugary drinks”.

Ten panellists (48 percent) agreed or strongly agreed with the second proposition regarding the benefits of a tax on SSBs outweighing potential costs felt elsewhere in the economy, 4 (19 percent) disagreed or strongly disagreed while 7 (33 percent) were uncertain.

Dough McTaggart and Gigi Foster emphasised the potentially regressive nature of an SSB tax. Given the negative association between social gradient and obesity, this is also the group who potentially has the most to gain in terms of improved health from such a tax. Fabrizio Carmignani provides such a counter argument: “given the weight of SSB in the consumption basket of individuals, the adverse effect on poorer individuals should be small and most likely recovered through improved health outcomes”.

Only Fabrizio Carmignani raised potential macroeconomic tradeoffs but did not see these as problematic: “Producers also claim that the tax would result in a loss of jobs due to reduced demand. … one could argue that if the expenditure is reallocated from SSBs to other products, then increased demand for these other products should also lead to increased labour demand, so that the net effect of the tax on total employment should be in the end negligible.”

Fabrizio Carmignani wisely argued that a tax on SSBs is “not a silver bullet” but should be part of wider package of policy options, a point echoed by a number of panellists. Development of such a package might sensibly draw on some of the policy options and insights suggested by this panel.

1. Australian Bureau of Statistics. National Health Survey: First Results, 2014-15, Cat no.4364.0.55.001. ABS: Canberra 2015.
2. Gulland A, Sugar should make up less than 5% of total energy consumption, says WHO, BMJ 2015, 350: h1261

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