ESSA

ESSA

Finger lickin’ good: will Australia get a taste for a sugar tax?


Olivia Robins

By

April 14th, 2014


Olivia Robins examines the viability of a sugar tax in our society today.


 

I’m in McDonald’s, eating my favourite chicken McNuggets with fries and a large coke. Delicious. Nothing gets better than this.

Apart from that Cadbury Boost bar I had earlier today. Or the meal at the Pancake Parlour a few nights ago. Or the gigantic Toblerone I gobbled up the other day. Oops. So as I sit in this poor excuse for a restaurant, I look at my meal properly. I glance at the other patrons. All of us –whatever our background, our age, our size or our shape – are eating food which we should think is disgusting. But we don’t; we love it.

Maybe this is why over 60% of Australians are overweight or obese. In light of this, Diabetes Australia, the Cancer Council and the National Heart Foundation have all called for a sugar tax on soft drinks. In the same vein, the World Health Organisation has halved their recommended daily sugar consumption to 5 tsp per day.

Much to my and my fellow patrons’ dismay, sugar has created many negative externalities. It was calculated that in 2005, the total direct cost due to overweight and obese side effects was $21 billion, and that indirect costs can soar as high as $35.6 billion per year. And we have become fatter since then. These externalities must be tackled. For many free-market economists, I’m sure the answer is a good-old fashioned Pigovian tax.

Pigovian taxes increase the prices of the food to the point where the externality is negated due to lower demand. More concretely, the price of sugar-filled products should be raised high enough to force us to eat healthily. Thus, overweight and obese problems would be extremely minimal. We could live our days looking like supermodels.

But, there is a problem. As utopian as this may sound, we would need an extremely tough tax. Some research suggests that sugar and fat are more addictive than cocaine and heroin. The demand curve for sugar, therefore, must be extremely inelastic. An increase in price would result in a very small decrease in demand (if you’re addicted, you will buy it, regardless of price). To significantly change behaviour with a tax alone, the excise would have to be tremendously high. But, how do we change this inelasticity?  I will discuss this later on, but first: should we even have a sugar tax?

Some may argue against the regressive effects of a sugar tax. But obesity is a regressive disease. Those who have the highest socio-demographic disadvantage have a 7.9% higher chance of being obese, as compared to those with lowest disadvantage.

Don’t forget, tobacco excises are regressive as well. But they have been effective: in 2001, 22.4% of Australians smoked daily. By 2011-12, this number had fallen by over 6% to  16.1%. Yet the tax has also been coupled with rigorous ad campaigns since the 1970s. A combination of social and economic factors have contributed to a change of thinking. If success can be found in an industry that is notoriously addictive, can’t we battle junk food?

Well, maybe. In October 2011, Denmark introduced a fat tax. It taxed foods like butter, milk cheese, pizza, meat, oil and other processed foods. Change the price, change the behaviour, right? Well, it did change behaviour, but not as intended. Instead of eating healthily, 48% of the Danish crossed the border to buy cheaper junk food. Many smaller businesses were struggling. Prices across the board rose dramatically. The scope was too large as the tax was too blunt. It was simply not well targeted. For instance, when applied to meat, the tax was based on the carcass, not the cut. Sirloin steak saw similar increases to the fattiest cuts. The tax became very unpopular. By November 2012, it was abolished.

So, we have learnt two things from the Danish. Firstly, we cannot have a sugar tax as blunt as their fat tax. It would result in major increases in costs of living, if small businesses were to pass on costs to consumers unwilling to shoulder the burden. So,many small businesses may shut down. Perhaps we should begin by taxing one or two types of goods. Diabetes Australia has called for taxing sugary drinks. Nearly 50% of children drink them daily. As much as I like a can of ice-cold Coca-Cola, I liked it considerably less upon realising I was drinking 6 tsp of sugar. At a party, I could drink three or four of these. Yikes.

Secondly, the Danish have taught us taxing addiction may not work in isolation. The problem runs deep within us: sugar is ingrained in our social customs. When I go to the cinema, I don’t want a salad, I want popcorn, chocolate and soft drinks. When I ask my friends around for afternoon tea, I don’t give them brussel sprouts, I give them cakes. Sugary foods are so often associated with socialising. We consume so much sugar, it has become normal to us. We must change our thinking, but it is difficult when the social pressures are so strong.

How can we change, then? Education campaigns have begun, yet there is far to go. Of course, information campaigns may not solve everything and people have different receptiveness to information. And they may take a long time. But think back to tobacco. Mass media campaigns for smoking began in the 1970s, when around 36% of Australians were smokers. We have come a long way since then.

Remember that inelastic demand curve? The government must take social action, and include business in that action. Bombard us with campaigns and educate us to our wits end until sugar isn’t ‘cool’ anymore. Make us understand the true risks. Give us healthy alternatives . Free us from the sugary grasp. That is how to reduce inelasticity. We cannot just amend spending habits, we need to change preferences. They run a lot deeper.

My preference, obviously, is the occasional trip to McDonald’s. Coupled with the not-so-occasional chocolate indulgence. I suppose my sugar intake could be reduced. I study my half eaten meal, disgusted. I pick up my tray and throw it in the bin triumphantly. I smile to myself: I am free, I have won! But, as I walk out of the ‘restaurant’, my stomach starts to rumble.  I begin to doubt myself. Maybe I shouldn’t have thrown it out? Perhaps I could just go across the road and get a chocolate. Just one. A small one.

Yes, one more chocolate won’t be so bad. So, I walk over to 7-Eleven, greedily licking McDonald’s salt off my fingers.

The views expressed within this article are those of the author and do not represent the views of the ESSA Committee or the Society's sponsors. Use of any content from this article should clearly attribute the work to the author and not to ESSA or its sponsors.

  • Christine Li

    Great read Olivia. Brings up again the failures of the market to price negative externalities. Or in other words, the failures of producers to include public health spending on obesity into their costs of production, and the failures of consumers to include cost of harm to their own health in their willingness to pay for certain foods.

    I think it would be difficult to think of a sugar tax working similarly to what happened with tobacco. The reason this is so difficult to compare is, as you pointed out, because the scope of a ‘sugar tax’ is too broad. Tobacco is a definable good, targeted at a consumer group. Sugar is not, and I suspect it would be nigh impossible to enforce. Different tax rates for varying levels of sugar content? Not to mention there are sugary foods that are healthy too. The result would be something of a blanket tax akin to an extra GST. Limiting the tax to something like soft drinks (as the US tried to bring up) would be wiser. Given a more narrowly targeted good, consumers should be able to substitute away from junk food towards healthier alternatives. These need to be at least as cheap as the sugary foods were before the tax for them to not be made worse off.

    One way we could use tobacco as a precedent, is looking at big tobacco’s backlash to government policy to predict the response of big sugar companies (I may just call them that..). The Australian Government has fought tooth and nail increasing cigarette taxes over the years, and faces an international lawsuit from multicorp Phillip Morris over plain packaging. When governments slap heavy excise taxes on certain goods, they are sending a message to that industry: ‘We’re not going to put you out of business, but if you pass the tax burden onto consumers in the form of higher prices instead of significantly altering the good, then your customers will’. It will be interesting to watch for indications of the big sugar companies towards either action. Coca-Cola seems to have put some effort into rebranding itself as an obesity warrior but this has been superficial at best and a PR stunt at worst; nevertheless it shows they are at least more savvy about public interest groups than the tobacco companies were.

    http://www.coca-colacompany.com/coming-together/

    http://swampland.time.com/2013/01/15/coca-cola-launches-anti-obesity-ad/

    • Joey Moloney

      Agree Chris. I remember a discussion on Gruen about Coca-Cola’s attempts at rebranding itself and the consensus was it was a disaster. Coke has always been a big, dominant, arrogant company – totally sure of itself and its product. That campaign made it look the opposite – insecure and unsure of itself.
      A broad sugar tax would be dumb for the reasons you have outlined. Another consequence would be companies would move toward artificial sweeteners as a substitute, which no one seems to know exactly what they do to ones body.

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