Sugar Tax Leaves A Bitter Taste

Written by:
24 November 2016
Sugar Tax Leaves A Bitter Taste - Featured image

The Grattan Institute’s report demanding a new sugar tax on soft drinks is a blatant insult to the Australian people.

Grattan, founded by the Rudd government, prides itself on “evidence-based” policy. Its latest work, which follows Greens policy, smacks of anything but.

Sugar taxes do not work. Research has found they fail to reduce obesity and have a regressive impact on the poor. They change the behaviour of very few and reduce consumption of unhealthy food so little that they have almost no impact on obesity.

A study published in Contemporary Economic Policy, which analysed American states that had introduced soft drink taxes, found they had practically no impact on body mass index (BMI) and obesity. These findings were confirmed by Denmark’s “fat tax”, which proved economically damaging but did not change the habits of 80 per cent of Danes. The tax led to a tiny 0.4 per cent reduction in fat consumption in seven months, while food prices increased by 14 per cent. It was repealed after 15 months.

Mexico’s sugar tax has reduced soft drink consumption by just 5 per cent. Emilio Gutierrez, a professor at Mexico’s ITAM University, described it as “useless”.

Soft drinks are a relatively small part of our energy intake and can be easily substituted. Other unhealthy products, such as flavoured milk, will be immune from a fizzy drink tax, thus having no effect on the consumption of other unhealthy drinks.

A study in the Journal of Public Economics in 2010 found that statebased soft drink taxation in the US between 1989 and 2006 had been offset by consumption of other highcalorie drinks. A Cornell University study in 2012 found it even increased purchases of beer – perhaps not the intended consequence! The tax would also affect the poor far more than the wealthy. Those on lower incomes tend to consume more sugary products and are less able to pay for alternatives.

Grattan’s report is also chasing a declining problem. According to the ABS, the percentage of Australians who consume sweetened beverages has declined from 49 per cent in 1995 to 42 per cent in 2011-12. Australians may be getting more obese, but soft drinks are not the primary cause.

Ironically, the measure could also be quite costly. The UK’s Office of Budget Responsibility has predicted an increase in inflation due to their upcoming sugar tax, pushing up the cost of servicing index-linked government bonds by 1 billion in 2018-19.

Not only is taxing people for their consumption choices illiberal, asserting an excessive role for government in personal dietary choices, it also lacks evidential justification. Obesity is a complex issue. Taxation has proven to fail as a solution.

This article was originally published in The Daily Telegraph

Support the IPA

If you liked what you read, consider supporting the IPA. We are entirely funded by individual supporters like you. You can become an IPA member and/or make a tax-deductible donation.