Fixing a taxing problem
Cameron Bagrie proposes taking a different tack on the sugar debate.
Should we have a sugar tax? Yes. Too much sugar in diets puts it in the ‘‘sin’’ camp and that requires higher prices via a tax to curb demand and cover the negative impact on society.
The evidence is not overly compelling that a sugar tax will work, though common sense and the economics say that if prices rise, demand will wane.
It’s probably easier and would make more sense to withdraw the ability to loss-lead – a tactic used by retailers to lure customers by selling goods such as fizzy drinks below price – on unhealthy and high sugar items as a first step.
We should all agree that some form of action is needed.
Two-thirds of New Zealand adults are overweight or obese. We are the third-fattest country behind the US and Mexico. One in three children are overweight or obese.
One in three children presenting at Starship children’s hospital are considered malnourished (poor diet). We have some of the poorest child dental health statistics in the developed world.
There are a host of reasons why. Too much sugar is one of them.
High sugar products damage the individual. They also impose what economists call a ‘‘negative externality’’ on society. An externality is the cost or benefit that affects a party who did not choose to incur that cost or benefit.
Society wears the cost of the healthcare and learning disorders in children that high sugar intake can bring.
We tax cigarettes and alcohol as ‘‘sin’’ products.
Environmental regulation is based on the notion of internalising negative externalities. Making the producer and consumer of bad stuff wear more of the cost.
Tertiary education is heavily subsidised because it provides positive externalities to society beyond the benefit education brings to the individual.
There are positive and negative externalities everywhere.
If we can agree that too much sugar is ‘‘bad’’, and there doesn’t seem much debate there, the economics is clear-cut; bring in some sort of pricing mechanism (tax) to drive different behaviour.
Unfortunately this is where things get hazy.
The detractors say some sort of sugar tax won’t make a difference. That goes against the laws of economics. If you raise the price of something, people will demand less.
But do we have actual evidence that it will make a real difference to obesity, tooth decay and diabetes? The answer is no.
It’s because the causes of such diseases and problems are many, and the interventions need to be equally broad.
The New Zealand Institute of Economic Research looked at the evidence surrounding a sugar tax and concluded that the evidence was not compelling.
Mexico, a sugar tax focal point, is seeing consumption fall in response to a sugar tax but it’s still early days.
You are not going to solve the problem through a sugar tax intervention alone. It needs to be part of a package. You need exercise, education and moderation.
A win by the All Blacks can’t be traced to a training or scrummaging session, team-talk, or goal-kicking practice. They do it all anyway. The same applies with a sugar tax. It needs to be part of a package.
Detractors say a sugar tax will hurt the poor.
Low-income people will pay disproportionately more of the tax. People on higher incomes will pay disproportionately less.
It’s a weak argument. It would be crazy to subsidise high-sugar products as a way of making lower socioeconomic groups better off.
A sugar tax is about recognising there are costs to the individual and society associated with highsugar products. There are other mechanisms to deal with income disparity.
Manufacturers are also likely to substitute one form of sugar for another. The cost of implementation and prospective money raised might be too small anyway.
So there are practical problems. Maybe we can put a sugar tax to the side, for now. We can get the ball rolling another way.
Just remove the ability to losslead on high-sugar and unhealthy products. Supermarkets can’t loss-lead on cigarettes and alcohol. The same should apply to high-sugar products including fruit juices, breakfast cereals, biscuits and cakes.
A host of groups will complain but the Nike slogan applies: Just do it.
Cameron Bagrie is an independent economist.