Should We Tax Sugar and If So How?

• Author: Donald MacLaren,Peter Lloyd
• DOI: http://doi.org/10.1111/1467-8462.12299
• Published date: 01 March 2019
• Date: 01 March 2019

Should We Tax Sugar and If So How?

Peter Lloyd and Donald MacLaren*

Abstract

This article reviews empirical studies of

proposals to tax sugary products in Australia.

A corrective tax must be designed carefully if it

is to increase national welfare. There is an

underlying problem in designing such a tax

because consumers are heterogeneous. The

best choice of goods to be taxed is the group of

sugar-sweetened-beverages, the best tax base

is the sugar content and the best tax form is a

progressive specific tax with two or more

levels. We recommend initial rates that are

equal to those of the UK tax on SSBs.

The science is in: the case for a sugar tax is overwhelming.

[Lustig 2015]

This [a sugar tax] is one of those suggestions we always

thought was bonkers mad ...

[Barnaby Joyce as reported in Knott 2016]

1. Introduction

There are increasing calls in Australia for a tax

on sugar or sugary products, especially sugar-

sweetened-beverages (SSBs; or ‘soda taxes’as

they are known in some countries). A number

of health organisations (including the AMA,

Diabetes Australia and the Australian Dental

Association

1

) and numerous public health

experts have called for a tax on sugary drinks

and products. More than 20 countries have

introduced a tax on sugary drinks (for example,

Mexico, the United Kingdom, Ireland and

France) and, in the United States, more than

one half of the states and some cities (such as

Philadelphia and Berkeley) tax sugary drinks.

Norway has had a longstanding tax on sugary

products. Within Australia, the proposal of a

new tax on sugary products is controversial.

One political party, the Greens,has advocated a

20 per cent taxon SSBs. The present Common-

wealth Government and the Labor Party are

opposed to a tax. Some economistsquestion the

desirability of a new tax on sugary products on

the grounds it may not be cost effective.

Accompanying these calls for a new tax, has

been a number of empirical studies in Australia

of particular proposals for a tax on SSBs, all of

them by health scientists and health economists

or economists working for health research

centres/groups. The Australian publications we

review begin in 2014

2

and broadly follow

overseas studies, particularly those in the

* Lloyd and MacLaren: Department of Economics, Univer-

sity of Melbourne, Victoria 3010 Australia. Corresponding

author: MacLaren, email <d.maclaren@unimelb.edu.au>.

We thank Stephen Duckett, John Freebairn, Gary Sacks and

two referees for their very helpful comments.

The Australian Economic Review, vol. 52, no. 1, pp. 19–40 DOI: 10.1111/1467-8462.12299

°

C2018 The University of Melbourne, Melbourne Institute: Applied Economic & Social Research,

Faculty of Business and Economics

Published by John Wiley & Sons Australia, Ltd

United States, which were inspired by earlier

actions in individual states and cities of the

United States and by the experience of Mexico,

which was the first nation to introduce a tax on

soft drinks in 2013.

Collectively these studies provide consider-

able information about SSB consumption and the

possible effects of a tax on consumption of SSBs

and the health benefits of reduced consumption.

However, the taxes proposed are all different and

the models and data used also differ in important

ways. There is, moreover,anumberofaspectsof

the tax and its effects on market behaviour that

have received no or scant attention in Australia.

In this article we review the growing

Australian literature on the topic of a tax on

sugary products.In doing so, we accept as a fact

that excess consumption of sugar is a health

hazard that affects adverselythe health of some

consumers. Moreover, we do not attempt to

measure the costs of health treatment (or other

external costs). These are tasks for health

experts. Rather we seek to extract from this

literature what we have learnedabout designing

a tax on sugary products and to recommend

public health policies, including the possibility

of a tax, which are best designed to improve

national health and economic welfare. We do

not examine the difficult politicsof introducing

new taxes on sugary products.

Section 2 examines the rationale for a tax.

Section 3 considersthe set of goods to be taxed,

Section 4 the tax baseand Section 5 the tax rate,

including the problems of evaluating the costs

and benefits of a tax. These are the traditional

dimensions of analysis of a commodity tax.

(The choice of jurisdiction has not arisen but it

may ifthe Commonwealth continues to refuseto

introduce any tax on sugar or sugary products,

and then some individual statesdecide to do so.

The best choice is straightforward. Any tax

should be a tax levied by the Commonwealth,

not the states. The problem is nationwide and

calls for a uniform tax.)The conclusion contains

our recommendations for a UK style tax.

2. The Rationale for a Tax

Table 1 lists the empirical studies done in

Australia on proposals for a tax on SSBs or

sugary products. This table updates and

modifies a table in Duckett, Swerissen and

Wiltshire (2016, Table 4.1).

3

It also lists

important features of each study.

Our analysis begins with the choice of the

objective or the objective function that a

proposed tax is intended to achieve or maxi-

mise. This is a key feature of each proposal as it

indicates what the authors seek to achieve by

the introduction of a tax. The studies differ

considerably in terms of the choice of objective

or objective function, as shown in Table 1.

Some of these tax proposals have as their

objective simply the reduction in the consump-

tion of sugar or sugary products; for example,

Sharma et al. (2014). Some have a specific

health objective, such as optimising the net

monetary benefits of reduced disability-

adjusted life years in the case of Cobiac et al.

(2017), while Lal et al. (2017) weigh tax

proposals in terms of their cost effectiveness.

We accept that the consumption of sugar or

sugary products is on average, excessive from

the point of view of maintaining good health.

World Health Organisation (WHO) Guidelines

(2015) recommend that adults and children

reduce their daily intake of free sugars to less

than 10 per cent of their total energy intake,

with a further reduction to less than 5 per cent

providing additional health benefits. It is also

recommended that adults reduce their sugar

consumption to less than six teaspoons per day,

which is less than half their current consump-

tion in Australia. The Australian Bureau of

Statistics (ABS) (2016) reports aggregate

nationwide figures for the consumption of

added sugars and free sugars in Australia in

2011–2012. According to this survey, the

average Australian consumption of free sugars

was 60 g (15 level teaspoons) per day. The

survey found that 52 per cent of Australians

exceed the WHO recommendations. For

children and teenagers, the situation is much

worse; almost three quarters of 9–18 year-olds

exceeded the WHO recommendations.

Consumption of sugar at high levels

increases the risk of a number of diseases or

health complaints; the three which receive

most attention are Type 2 diabetes, obesity and

tooth decay. As one example of the state of the

20 The Australian Economic Review March 2019

°

C2018 The University of Melbourne, Melbourne Institute: Applied Economic & Social Research, Faculty of Business and

Economics