A tax on sugary drinks could help to reduce obesity and its costs

The obesity epidemic is not just a problem for the individual but also has a huge impact on society. It costs more to live and work in obese communities, and it results in lost tax revenue.

Our new Grattan Institute Report, A Sugary Drink Tax: Recovering the Community Costs of Obesity, estimates community or “third-party” costs to be about A$5.3 Billion in 2014/15.

We suggest that the government tax sugar-sweetened drinks to recover some of the costs incurred by third parties and reduce obesity. A tax on sugar-sweetened beverages would make producers and consumers pay a greater share of the costs associated with their consumption, including those costs that have so far been passed onto other taxpayers. The added benefit is that the revenue raised could be used to fund obesity prevention programs.

Our proposed tax will only apply to non-alcoholic water-based drinks with sugar added. Soft drinks, fruit juices, flavored water, energy drinks, and flavored waters are included.

A sugary drink tax would be helpful, even though it isn’t a panacea to obesity (which requires numerous policies as well as behavioral changes on an individual level and in the population at large).

Why concentrate on sugary beverages?

Contrary to other processed foods like chocolate, sugar-sweetened drinks are often high in sugar. The majority of Australians, particularly younger people, already consume far too much sugar.

Sugary drinks are often consumed in excess because liquid calories do not trigger the “fullness” signal. Soft drinks and sugar-sweetened beverages may cause hunger and can lead to a lifetime preference for sweet food and drink.

Based on US evidence, we estimate that about 10% of Australia’s obesity problem can be attributed to these drinks.

Many countries, including the United KingdomFranceSouth Africa, and some parts of the United States, have announced or implemented a tax on sugar-sweetened drinks. Taxes on sugar-sweetened beverages have been implemented or reported in many countries, including the United Kingdom (https://www.gov.uk/government/news/soft-drinks industry levy-12 things you should know), France (http://www.lemonde.fr/economie/article/2011/12/29/la taxe sur les boissons-sucrees will enter into force at 1er January 2016) and parts of the United States.

There is strong support for a tax on sugar-sweetened drinks in Australia if the money raised goes towards obesity prevention programs such as making healthier foods cheaper. The World Health Organisation, the Australian Medical Association, and advocates like the Obesity Policy Coalition support the introduction of a tax on sugar-sweetened drinks.

The tax will look like

We support taxing sugar in sugar-sweetened drinks rather than taxing them based on their price. This is because a sugar tax encourages manufacturers and consumers to purchase beverages that contain less sugar.

It is suggested that the tax be levied against manufacturers or importers who produce sugar-sweetened drinks. Evidence from overseas suggests that it will be passed directly on to consumers.

A tax of A$0.40 on 100 grams of sugar found in sugary drinks (about A$0.80 on a 2-litre soft drink) will generate about A$400 to $500 million annually. It will cut the consumption of sugary drinks by 15% or 10 liters on average per person. According to recent Australian modeling, a tax on sugar-sweetened beverages could reduce obesity by about 2%.

Author provided/The Conversation, CC BY-ND

Low-income earners consume more sugar-sweetened beverages than the rest of the population, so they will, on average, pay slightly more tax. But the tax burden per person is small – and consumers can also easily avoid the tax by switching to drinks such as water or artificially sweetened beverages.

Low-income people are more sensitive to price increases and, therefore, more likely than others to switch to healthier (non-taxed) beverages. The tax may not be as regressive as predicted. A tax on sugar-sweetened drinks may be regressive if measured in money. Still, the health benefits are greater for low-income individuals due to their higher rates of obesity and lower consumption.

The tax revenue could be used to fund obesity programs for people with low incomes, thus reducing its regressivity.

The sugar and beverage industries oppose any tax on sugar, but their fears are exaggerated. The major beverage companies own the majority of artificially sweetened beverages and waters that will not be taxed.

A tax on sugar-sweetened drinks will reduce the domestic demand for Australian Sugar by about 50,000 tonnes. This is just 1% of all sugar produced in Australia. While there might be some costs associated with the transition, this sugar can be sold abroad (as 80 percent of Australia’s production is already exported).

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