Could a sugary drinks tax improve Australian diets?

The UK tax on soft drink and Jamie Oliver’s call to action

 Today Britain announced that from 2017 it would levy a tax on soft drinks containing more than five grams of sugar per 100 millilitres, as part of efforts to contain rising levels of childhood obesity. The announcement prompted Jamie Oliver to post a video on Facebook encouraging other governments to follow suit, and telling Australia and other countries to “pull your finger out” on soft drink taxes.

Should Australia introduce a sugary drinks tax? Would a tax be an effective obesity prevention measure? Or would it just be a slow and costly way of raising the ire of the food industry?

 Australians drink a lot of soft drink

Around one third of Australians drink about a can of soft drink a day, making Australia one of the top ten soft-drink consuming countries in the world. Soft drink consumption among young people is particularly concerning, with around 47% of children (aged between two and 16 years) consuming sugar-sweetened beverages (SSBs) every day.

Why is soft drink bad for our health?

A large number of studies show that soft drink consumption increases the risk of obesity, diabetes, heart disease and dental caries, and soft drink consumption has been linked to approximately 184,000 deaths per year globally.

Soft drink has a large of amount of added sugar (when it’s not artificially sweetened), making it a key source of added sugar in our diets. Drinking soft drink displaces the consumption of healthier beverages, and we tend not to compensate for the calories we drink by reducing our food intake. Drinks that are high in sugar have been shown to reduce appetite control, which also contributes to weight gain.

Around 60% of Australian adults and 25% of children are either obese or overweight and obesity has overtaken smoking as the leading cause of preventable death and illness. Reducing soft drink consumption could be one way of reducing the burden of obesity and chronic disease, and its impact on Australia’s health care system.

Soft drink taxes are gaining momentum

Public health experts recommend soft drink taxes as one component of a comprehensive obesity prevention strategy, and a number of countries have taken this recommendation on board.

In September 2013 the Mexican congress passed an excise tax on SSBs of one peso per litre – a price increase of approximately 10%. Mexico also introduced an ad valorem tax of 8% on a defined list of non-essential energy-dense foods.

The US city of Berkeley passed a one cent per ounce excise tax on SSBs in November 2014, becoming the first US city to levy a targeted health-related tax on soft drink.

Since January 2015 Chile has levied an 18% ad valorem tax on drinks with a sugar content of more than 6.25 g of sugar per 100 mL, including energy drinks and sweetened waters. Sugary drinks with less than 6.25 g of sugar per 100 mL are taxed at 10%.

These are just a few examples of jurisdictions with soft drink taxes; others include France, Mauritus, and Barbados. Countries are also experimenting with taxes on other unhealthy food products, or on specific nutrients such as fat or salt, often in tandem with taxes on sugary beverages.

Are soft drink taxes effective?

Soft drink taxes are a relatively new initiative, meaning that there’s not much ‘real world’ evidence of their impact. However, modelling studies suggest that tax increases are effective in reducing consumption of SSBs, and a recent evaluation of Mexico’s soft drink tax provides more concrete evidence of the effectiveness of taxes in shifting consumption patterns. The study found that the average volume of taxed beverages purchased monthly was 6% lower after the tax was implemented, with reductions accelerating over time, and reaching a 12% decline by December 2014.

The effects of soft drink taxes on diet-related health are less certain, but there is some evidence for this relationship too. One review of the evidence found a statistically significant association between “substantial” food taxes and weight outcomes, particularly in relation to children, adolescents, low socioeconomic status populations, and those at risk for overweight.

Other studies are more equivocal, but keep in mind that this a recurring problem in public health – the difficulty of showing that one initiative in isolation will lead to significant weight reductions. Experts agreed that a number of complementary measures will be required if we are to see meaningful reductions in obesity and overweight.

What are some of the criticisms of soft drink taxes?

 One of the main concerns about soft drink taxes is that they are regressive. In theory, SSB taxes have a larger impact on lower socioeconomic groups, given that such groups pay a higher proportion of their income towards soft drink purchases. However, the evaluation of Mexico’s soft drink tax found that reductions in soft drink purchasing were greatest among low SES households (averaging 9.1%), suggesting that low SES groups were the most price elastic and thus benefited the most from the tax.

Governments can also take steps to offset the regressive nature of soft drink taxes, for example by targeting subsidies for healthy foods and beverages to low-income households, which could be paid for using the revenue generated by soft drink taxes. Alternatively, tax revenue could be used to address disparities in health or socioeconomic status more broadly.

The effectiveness of an excise tax in reducing SSB consumption hinges on the extent to which the tax is passed on to consumers in the form of higher retail prices. Distributors or retailers may “under shift” the tax by absorbing its cost, thus lowering their profit margins, but sustaining sales. Lower than expected price increases may undermine the tax’s public health benefit. However, evaluations of SSB taxes in Berkeley and Mexico find that manufacturers and distributors have mostly passed on the costs of the taxes to consumers, suggesting that these taxes will have the desired effect.

What’s the situation in Australia?

Australia’s GST exempts many foods that are a core component of a healthy diet, such as fresh fruits and vegetables. Sugary drinks are subject to the GST, meaning that there is a kind of differential tax on soft drinks. However, the GST is not intended for this purpose and operates differently to a specific, health-related soft drink tax.

In 2008 the National Preventative Health Taskforce recommended that the government commission a review of economic policies and taxation systems, and use economic incentives to decrease the production and consumption of unhealthy foods and beverages. It cautiously recommended a soft drink tax, given the uncertain impact of these taxes on consumer health.

In its response to the Taskforce, the then federal Labor Government stated that it had already commissioned an independent review of the Australian taxation system, i.e., the Henry Tax Review in 2010. This review did not recommend health-specific taxes on foods and beverages (despite recommending tax hikes for tobacco and alcohol) and the Government said that it would not consider another review. Instead, the Government pointed to voluntary food reformulation efforts taking place through the Food and Health Dialogue.

Should Australia introduce a soft drink tax?

 Jamie Oliver’s right. The Australian government does take a “weak, pathetic” approach to obesity prevention, and we could do better.

The evidence shows that an SSB tax could have a real impact on Australian’s soft drink consumption habits, as does the effectiveness of tobacco taxes and other food taxes such as Denmark’s tax on saturated fat. Soft drink has no nutritional value, making it one of the more uncomplicated food products to tax.

As well as shifting consumption patterns, soft drink taxes could prompt companies to reformulate drinks to reduce their sugar content, or to introduce new, healthier products. Taxes could also generate significant revenue for health promotion activities, preferably targeted at the most vulnerable populations.

The health outcomes of SSB taxes need further research, but this should not stop the Government from “pulling its finger out” as suggested by Jamie Oliver, and introducing a tax on soft drink, as many other countries are doing. An SSB tax would send a clear message that the government is committed to protecting the health of Australians, even if it means taking on the powerful multinational companies that dominate the beverage industry.