Re­searchers are at odds with one an­other over the im­pact of the pro­posed tar­iff

CityPress - - Business - DEWALD VAN RENS­BURG dewald.vrens­burg@city­

Asec­ond study backed by the Bev­er­age As­so­ci­a­tion of SA (Bevsa) has found that the pro­posed tax on sugar-sweet­ened bev­er­ages is a cat­a­stroph­i­cally bad idea.

This week, Stel­len­bosch-based con­sul­tancy Econex re­leased its re­search for Bevsa on the tax to co­in­cide with a meet­ing be­tween the in­dus­try, its ex­perts and Trea­sury.

The Econex study backs up an ear­lier in­dus­try sugar tax re­search study, con­ducted by global ad­vi­sory firm Ox­ford Eco­nomics.

It pre­dicts job losses amount­ing to 30 000 and a loss to GDP of R3 bil­lion, or about 0.1%.

How­ever, a critic of th­ese two stud­ies says that the soft drink in­dus­try’s con­sul­tants are fix­at­ing on an “in­ap­pro­pri­ate” study – co-au­thored Aviva Tu­gend­haft, the deputy direc­tor of Price­less SA, a unit of the Univer­sity of the Wit­wa­ter­srand’s School of Pub­lic Health – to dis­credit the pro­posed sugar tax.

This study, rather than the ac­tual Trea­sury pro­posal, has been the main fo­cus of in­dus­try-com­mis­sioned at­tacks.

The re­sult is a “sig­nif­i­cant over­state­ment of the eco­nomic im­pact”, said Tu­gend­haft.

It also means a wil­ful un­der­state­ment of po­ten­tial health ben­e­fits, she told City Press.

Like Ox­ford Eco­nomics, Econex based its find­ings mainly on one lo­cal study by Tu­gend­haft and sev­eral co-authors, in­clud­ing her Wits Univer­sity re­search col­league, Mercy Manyema.

The soft drink in­dus­try has fin­gered the so-called Manyema pa­per as be­ing the ma­jor jus­ti­fi­ca­tion for the sugar tax pro­posal.

The Manyema study math­e­mat­i­cally mod­elled the hy­po­thet­i­cal ef­fect on obe­sity of a flat 20% tax on sug­ary drinks, and was cited twice by Trea­sury in its tax pro­posal.

“Trea­sury’s pro­posal makes men­tion of many other stud­ies, but it ap­pears in­dus­try in­sid­ers are keen to at­tack the work in an ef­fort to un­der­mine the pol­icy,” Tu­gend­haft said.

Both in­dus­try stud­ies used the elas­tic­i­ties from the Manyema study as the ba­sis for es­ti­mat­ing eco­nomic dam­age re­sult­ing from the sugar tax.

In eco­nomics, an elas­tic­ity is the re­la­tion­ship be­tween a price change and a re­sult­ing change in de­mand.

Ac­cord­ing to Tu­gend­haft, the elas­tic­i­ties in their pa­per, which the in­dus­try has em­pha­sised, are in­ap­pro­pri­ate for eco­nomic mod­el­ling.

“They are re­stricted to lim­ited cat­e­gories of soft drinks, and there­fore do not ac­count for broader sub­sti­tu­tion and shift­ing of ex­pen­di­ture to other sec­tors,” she said.

The ef­fect of this is to over­state eco­nomic dam­age, be­cause you are not re­ally mea­sur­ing what peo­ple buy in­stead of sug­ary drinks.

Ni­cola Theron, manag­ing direc­tor of Econex, ad­mit­ted that th­ese crit­i­cisms were valid, but added that “within the time frame, this was the best we could do”.

“Our work was mostly aimed at il­lus­trat­ing the fact that much more re­search needs to be done be­fore im­ple­ment­ing the tax,” she told City Press.

“There may very well be smaller neg­a­tive im­pacts – de­pend­ing on a num­ber of re­fine­ments, as­sump­tions or sce­nar­ios – but the work must be done. Trea­sury is busy with its own so­cioe­co­nomic im­pact study, and it would be good to see what it comes up with.”


Apart from un­cer­tain eco­nomic pre­dic­tions, the in­dus­try re­search has tried to demon­strate that the tax is un­likely to achieve its ac­tual aim: to re­duce sugar con­sump­tion.

“The un­cer­tain health im­pact should be the fo­cus here,” said Theron.

On this mat­ter, the Manyema pa­per has also be­come the centre of at­ten­tion. It pre­dicted a drop in obe­sity as the re­sult of a hy­po­thet­i­cal 20% sugar tax.

Econex re­did the mod­el­ling ex­er­cise and found that the drop in obe­sity was sta­tis­ti­cally in­signif­i­cant.

That means the ef­fect mea­sured was smaller than the mar­gin of er­ror, mak­ing the real out­come as likely to be zero as any­thing else.

The tax that Trea­sury pro­poses is, how­ever, not a flat 20% tax at all.

“Our pa­per as­sumed a sim­ple 20% tax rate, while Trea­sury will im­ple­ment a levy of R0.0229 per gram [of sugar],” said Tu­gend­haft.

The ef­fect is to put a far higher tax rate than 20% on drinks with higher sugar con­tent, es­pe­cially cheaper brands in big bot­tles – which, as City Press pre­vi­ously re­ported, would face taxes of 50% or more.

Ac­cord­ing to Tu­gend­haft, the Trea­sury pro­posal will prob­a­bly have a big­ger ef­fect on sugar con­sump­tion than a sim­ple flat tax – by, among other things, in­cen­tivis­ing a re­for­mu­la­tion by cooldrink mak­ers.

“There is ob­vi­ously a range of things in­dus­try can do,” said Theron.

“We did not want to com­pli­cate the anal­y­sis by in­cor­po­rat­ing re­sponses such as re­for­mu­la­tion.”

Tu­gend­haft also crit­i­cised the will­ing­ness by soft drink in­dus­try re­searchers to point out short­com­ings in her and her col­leagues’ work only in so far as it served the anti-tax cam­paign.

“There are def­i­nite lim­i­ta­tions to the Manyema study,” she said, cit­ing as an ex­am­ple that it looked only at obe­sity and did not in­clude di­a­betes and other sug­ar­related con­di­tions.

“Tellingly, th­ese lim­i­ta­tions, how­ever, have not been em­pha­sised by the in­dus­try con­sul­tants,” she added.

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