Friday 21 October 2016

Sugary-drink tax is not a bad idea, providing it is done the right way

Published 08/10/2013 | 05:00

The latest 'Growing Up in Ireland' survey has revealed that one in four nine-year-olds in Ireland is overweight
The latest 'Growing Up in Ireland' survey has revealed that one in four nine-year-olds in Ireland is overweight

Should we tax the bejesus out of sugary soft drinks to get skinnier kids? The Government needs to think about new taxes to balance its books. One idea that now appears to have been discarded before the Budget is a tax on sugary soft drinks. The basic idea of such a tax is to raise prices on these products, reducing the amount consumed, in much the same way as cigarettes are taxed now.

  • Go To

Beyond simply raising tax, from society's point of view our children are getting fatter, and overweight and obese citizens represent a public health problem. The latest 'Growing Up in Ireland' survey shows us our children are getting fatter, with one-in-four nine-year-olds overweight. Children from poorer families are much more likely to be obese than children from richer families.

So is a sugary, soft-drink tax a good idea? Should the State intervene in a private decision to consume something? The philosopher John Stuart Mill wrote in 1859 that: "The only purpose for which power can be rightfully exercised over any member of a civilised community, against his will, is to prevent harm to others. His own good, either physical or moral, is not a sufficient warrant."

Mill's 'harm principle' has been at the heart of taxation policy for 150 years; it shows us that a private citizen choosing to do something harmful to themselves isn't enough to justify the state intervening. Cigarettes don't just harm the smoker, they harm everyone around them, so the principle of harm tells us the Government should intervene. But cheeseburgers?

Denmark recently repealed an unpopular 'fat tax' on saturated fats due to its unintended consequences, like hammering the price of high-end cheese and causing massive cross-border shopping. Implementing these taxes isn't easy, and the public rarely sees the benefits of taxes like these. There is something of the 'nanny state' in wanting to police our choices. That said, clearly the 'harm principle' applies in the case of children should the negative health effects caused by obesity need to be treated in the public health system in the future.

The link between soft-drink consumption and obesity is well established. In 'The Lancet' in 2001, David Ludwig and colleagues found a positive link between sugary drinks and children's weight.

In a 75-country study this year, Sanjay Basu for the 'American Journal of Public Health' found a 1pc rise in soft-drink consumption was associated with an additional 4.8 overweight adults per 100 in the population.

Education programmes only do so much; Janet James and colleagues found school-based education programmes produced a modest drop in overweight children. Without a price change, education programmes don't work at all. Three things are clear from the research. First, consuming these drinks leads to increased observations of childhood obesity.

Second, above a low threshold, each additional sugary drink will tend to affect a child's weight; meaning if you have one can of a soft drink a month, it won't harm you overly, but once a day probably will.

Third, soft drinks are what economists call 'elastic'; if you hike the price by 10pc, people want to buy 12pc less of them, so a tax will have some effect if applied.

Large taxes on sugary drinks have the potential to help reduce children's waistlines, especially for middle-income households. These taxes would also generate substantial revenue, which could be used to fund obesity prevention programmes or for other causes, such as balancing the State's books. It all seems like a slam-dunk, doesn't it?

Taxing the drinks will help our children avoid obesity. Well, not quite. Why just soft drinks? It seems a little random to pick on one category of food over, say, fruit juice, or crisps, which are also not the best for you. Why tax at all? Regulation can also be used. Why not ban the drinks entirely, or fine parents with obese children, or regulate the maximum amount of sugar per drink, or ban fructose use? The list goes on. With enough well-meaning interventionists any combination of measures can be put together at lower cost than introducing a new tax.

The design of the tax matters, too. Taxing drinks above a certain volume, say by a cent per teaspoon of sugar, might lead to bundling, where packages just under the threshold are sold and people drink two or three of them. So the tax should start from zero and work up. Then you've to worry about where to levy the tax.

Directly on the manufacturers would make a lot of sense as it would be easier to collect, and the consumer would simply see a sharp rise in the price of the drinks, but in principle the tax could be an excise, sales, or a value-added tax. The rate of tax applied is obviously crucial. Research shows the tax should be introduced in a small fashion and then increased fairly rapidly over time to have an effect on obesity.

If the Government gets the implementation of the tax wrong, household budgets will suffer, jobs will be lost; and without education and other anti-obesity programmes, we may still have fat children at the end of the process.

A soft-drink tax makes sense, but if it was to be revisited, the devil would be in its implementation.

Stephen Kinsella is Senior Lecturer in Economics at the University of Limerick

Irish Independent

Read More