If sinning there will be, the wages ought to come to the Treasury
The past couple of weeks have been a veritable virtual feast of budget previews, predictions and presentations. But only one made me to want to put up my virtual hand to pledge, absolutely, that I hadn’t had a drink in ages. A sugary soft drink, that is. And listening to the experts at the Healthy Living Alliance/Rural Health Project pre-budget briefing, I couldn’t help wondering, again, why SA banned cigarettes but not sugar, which seems even more likely to land people infected with the coronavirus in hospital, or, tragically, the morgue. Wits University public health professor Karen Hoffman puts the annual direct cost to the South African health system of diabetes and hypertension at R13.2bn, with projections that could rise to R35bn by 2035. And evidence is that the vast majority of the people hospitalised with Covid, of all ages, had these conditions.
Health taxes in total make up just 3.5% of total government revenue, but they are important and the policy issues are interesting, especially after SA’s prohibition era of the past year. Going into the budget, an intriguing issue is going to be whether the finance minister takes the opportunity to hike taxes on alcohol and tobacco by more than usual. There have long been voices arguing for the tax incidence on these goods to be hiked to much higher levels, to drive up retail prices and so curb smoking and heavy drinking. But the concern has always been that too high prices would simply drive the trade underground, creating incentives for smugglers and illicit manufacturers to thrive and so rob the Treasury of the revenue and SA of the health benefits.
That, of course, is exactly what’s happened over the past year of bans, with the illicit economy gaining significant market share. The evidence is that, in the end, fewer than 10% of smokers actually quit.
And they were willing to pay multiples of what they usually pay for a pack to get their fix during the hard lockdown. Drinkers paid well above the odds in the illicit market too. All of which prompted some to argue that if people are willing to pay so much more for beer and cigarettes, why not hike the tax and get the extra revenue — especially after the fiscus lost billions in revenue on these over the past year because of the bans.
University of Cape Town researcher Corné van Walbeek estimates revenue on these taxes will probably be 30% below last February’s budget targets. The dilemma as always is whether that would further entrench an illicit sector that has already got its claws deep into the market.
From a health point of view, rather than a fiscal one, the ideal would be to collect ever less tax revenue from “sin taxes” because people would give up or reduce their consumption. And if the health tax is appropriately designed, it will incentivise the right behaviour not only by consumers but by the industry. That’s clearly the case for the sugary beverages tax — the so-called Health Promotion Levy (HPL) — introduced in 2018 after a long and heated debate. Nor is the controversy likely to disappear, especially with the government and the industry having negotiated a Sugar Master Plan aimed at saving and expanding the local industry. As always, the government is not at one on policy objectives.
As it turns out, the HPL has been impressively effective in changing the behaviour of consumers and manufacturers. It is levied on the sugar content of soft drinks — so the industry has responded by reformulating products to reduce the sugar content and by reducing can sizes and sugar content, while users, even the heaviest of them, have cut their consumption as prices have risen. The HPL is not levied on fruit juices, which contain even more sugar than the likes of Coca-Cola, so the pressure is on from the health lobby to include them too.
We will see what the budget will bring. Meanwhile, I can promise we haven’t had even a Diet Coke in the house in the past decade. Wine, of course, is another story …
The sugary drinks tax has been impressively effective