Nations hit the fiscal sweet spot with sugar taxes

By on 25/09/2017
Michele Cecchini, Lead Economist (Public Health) in the OECD Health Division (Image courtesy of OECD).

Rising obesity threatens to hit wellbeing, productivity and public finances – but Gavin O’Toole finds that more countries are embracing tax measures that can drive down sugar consumption

A growing number of countries are taxing unhealthy foods in a bid to bring down spiralling obesity rates, which are expected to drive up public spending and drag down productivity over the coming years unless the decline in public health can be reversed.

Organisation for Economic Co-operation and Development data show that obesity levels have grown over the past five years across its member countries, where more than half of adults and nearly one in six children are now overweight or obese. The OECD warned in 2010 about the consequences of the obesity epidemic, but data published by the Paris-based organisation this year suggests that there has been only limited success tackling the problem; it projects that the problem will increase until at least 2030.

England is one of three countries, alongside the US and Mexico, where obesity has been growing fastest; the government’s Public Health England says the cost of treating diabetes is £10bn (US$13.5bn, €11.3bn) a year – nearly 9% of the National Health Service budget.

Economic impacts

Sugar, a contributing factor to global obesity (Image courtesy: cowbridgeguide.co.uk).

As well as creating a burden on public services, obesity can hold back growth and labour productivity. Michele Cecchini, lead economist for public health in the OECD Health Division, points out that “people that are overweight or obese are less likely to be employed. But if they are employed they are more likely to have issues associated with absences – so not as productive as someone who is in a good physical condition. This is a problem at a country level because clearly the productivity of the labour force and labour force participation are lower, but it also has implications for the economy of households.”

The OECD is now investigating the economic impact of obesity, says Cecchini, and is likely to publish its findings next year. Obesity and the sicknesses it causes account for 3-4% of government spending on healthcare within the OECD; and the condition has a disproportionate impact on lower income groups, with European research indicating that obese people are less likely to be employed, less productive, and earn less.

Shrinking sugar

But early evidence from those nations which have introduced sugar taxes suggests that they could provide an important tool to help tackle the trend towards obesity. When Mexico introduced a 1 peso (4p) per litre tax in 2013, sales of soft drinks fell by 5.5% in the first year and 9.7% in the second.

In 2016 the World Health Organisation urged all countries to tax sweetened drinks, and Euromonitor International says that 19 countries have so far introduced such “sin taxes” in the spirit of this guidance. Some 11 OECD nations now tax unhealthy foods of various kinds; in the UK, taxes will be levied on soft drinks in April 2018. And by the end of 2016, eight jurisdictions within the US had adopted “soda taxes”, covering more than 8 million people.

Taxes on sugar content are attractive to governments because they’re relatively easy to monitor, with many countries targeting sweetened drinks. And if their revenues are hypothecated for spending on public health projects, says Cecchini, they can win widespread public acceptance. In the UK, the projected annual £1bn revenues will be spent on school sports.

Obesity is not a new phenomenon, but it used to be confined largely to the very wealthy; nowadays, in the western world it is more common in low-income groups (Image courtesy: Wellcome Library, London. Wellcome Images).

Getting the right recipe

According to Cecchini, Mexico’s experience shows the importance of carefully planning and policy design. “There are technical issues that need to be overcome, meaning that the tax needs to be extremely well designed and planned – something that other countries can learn from Mexico,” he says. “But the Mexican case and others have also shown that we can do the maths quite well, in the sense that the effect of this taxation on consumption reflected what was forecast before implementation.”

It is, for example, important to guard against the risk that taxing one kind of product pushes people into eating other equally unhealthy foods. And systems can become complex if extended beyond drinks into other consumables – though some countries have done so, with Hungary taxing sweetened foods such as jams and condiments.

Sugar taxes can raise questions about equality, because they can have a greater proportional impact upon lower-income groups. But their proponents suggest that this only creates additional benefits, as these groups tend to be at greater risk of diseases caused by excess sugar consumption – and thus gain most from behaviour change.

The sugar barons

Governments must also be ready to navigate a difficult political landscape. In Mexico, campaigners have urged the government to double the drinks levy. But sugar taxes face fierce resistance from food and drinks manufacturers, which have considerable political muscle: Vicente Fox, Mexico’s president 2000–06, used to run Coca-Cola Mexico.

On some occasions, sugar taxes have failed. In Indonesia a sugar tax was scrapped in 2004 after the government decided it had crippled drinks manufacturers, and in Colombia the drinks industry lobbied successfully to ban a television broadcast warning about sugar consumption. Denmark taxed saturated-fat content between 2011–13; but the tax was abolished after just 15 months, following evidence that it had stoked inflation, encouraged cross-border shopping and caused job losses – while having a negligible impact on consumption.

In the final analysis, Cecchini says, no single policy can by itself address the scale of the obesity crisis. “The OECD argues that countries should put in place a comprehensive package of interventions to tackle obesity,” he says. “Our analysis shows that fiscal policies can be one of the pillars of this package, and countries should think about including these – but even the highest levels of taxation wouldn’t, on their own, be able to solve this problem.”

About Gavin O’Toole

Gavin O’Toole is a freelance writer and editor in London. He has written for leading newspapers, magazines, wire services and business schools about financial markets, business and regulation around the world. He has a particular interest in international relations, and a specialism in Latin American affairs. He has conducted research on this region’s political economy and has also published a number of books about its politics and natural environment. His latest title, Environmental Security in Latin America, will be published by Routledge in September 2017.

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