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Sin taxes- the arguments for and against

The Australian Medical Association has released a blueprint to make Australia the healthiest country in the world. They propose a sugar tax as an important component, and the only specific dietary recommendation they make. There have also been calls for a sugar tax in New Zealand. Sugar taxes are an example of a ‘sin tax’. 

What is a sin tax?

Investopedia defines a sin tax as a tax levied on goods and services due to their ability, or perception, to be harmful or costly to society, such as tobacco, alcohol and gambling. Sin taxes are usually added to products that are considered morally hazardous. Sin taxes seek to deter people from engaging in socially harmful activities and behaviours. Critics of sin taxes include the political view that sin taxes represent government over-reach; the so called ‘nanny state’ argument. Sin taxes also provide revenue to governments. In the case of smoking, alcohol and gambling, government revenue from taxation is significant.

What are the benefits?

Supporters of sin taxes say they benefit society because they help compensate for the unfair burden to society the hazardous behaviour causes. For example, the health and social costs of (excess) alcohol, tobacco and problem gambling. Of course, this relies on governments spending the tax on fixing the problems these taxed behaviours caused, and this is not always the case. 

In a survey, 77% Australians would support a sugar tax if the revenue was used to fund obesity prevention. (Miller et al 2019)

What are the disadvantages?

Sin taxes are also regressive taxes, which means they disproportionally affect the lower socio-economic strata of society. This is because people in low socio-economic groups are more likely to engage in hazardous behaviours, and therefore pay a higher proportion of their income on taxed products and services. 

Sin taxes are also psychologically “punishers”, which are regarded as less effective (and slower) than rewards in achieving behaviour modification.

Is sugar a sin?

While sugar taxes are increasingly cited as an example of a sin tax, the scale of hazard posed by sugary drinks is dwarfed by the impact of alcohol and tobacco as is shown in data from the Australian Institute of Health & Welfare: 

  • The estimated social costs of tobacco use in 2015-16 in Australia was $136.9 billion
  • The social costs of alcohol misuse in Australia in 2010 was estimated to be $14.35 billion
  • Obesity costs the Australian economy $8.6 billion in 2011-12. However, these costs cannot be attributed solely to sugar sweetened drinks. Obesity is multifactorial and energy overconsumption is complex. 

Australian modelling by Veerman et al (2016) suggests over a period of 25 years a sugar tax might reduce the prevalence of obesity by 2%, which they estimate would result in health care savings of $609 million (or $24.36 million per year).

Sugar tax effect

The sugar tax proposed by the AMA and others is a tax on sugar sweetened beverages of $0.40 per 100g sugar in one serve of the product, or an increase of around 20% in the price. In countries that have introduced a tax on sugary drinks there has been a reduction in sugary drink consumption. For example, one study in Mexico found over a period of four years with the tax there was an increased proportion of people who did not consume soft drinks and a decreasing proportion of high and medium consumers. In the UK it has led to reformulation of drinks with less sugar, to generate a lower tax rate. 

Sugar tax uncertainties

What is less evident is whether sugar taxes reduce obesity or any other health measure, as predicted in theoretical models. Obesity rates in developing economies remain stubbornly high, including in countries that have a sugar tax such as Mexico.  Mexico introduced a sugar tax in 2014 to curb their intake of soft drinks which was one of the highest in the world, and to reduce their very high obesity rate (73% population overweight or obese). Their obesity rates continue to rise.  There is no evidence yet that obesity rates are improving in the U.K since they introduced a sugar tax in 2018.  

In Australia obesity increased over the same time sugar intake decreased- a phenomenon known as the Australian paradox. 

Taxing sugary drinks does not necessarily lead to an overall reduction in sugar consumption, because it is contained in a wide variety of foods. In Australia, Soft drinks and sports drinks constituted 19% of free sugars in the diet. Similarly, reduction in sugary drinks may not lead to a reduction in overall energy intake. In Australia soft drinks and flavoured mineral waters contributed 1.9% of total energy in 2011-12.  Substitution can limit the effects of a sugar tax. For example, taxed drinks can be replaced with other foods high in fat (the so-called sugar-fat seesaw), or alcoholic drinks, for example.

Sugar reduction without tax

Revenue from a sugar tax depends on the level of consumption and as consumption of sugary drinks has been going down in Australia and New Zealand, sugar tax revenue represents a shrinking resource. In Australia, there was a 27% decline in volume sales of SSBs between 1997-2018, and volume sales of non-SSBs now exceed SSBs and have since 2015. Demand for SSB is decreasing, probably because of healthy eating advice to reduce consumption.

If a sugar tax is introduced, it is unlikely to have much impact on its own. For public health benefit there needs to be a broader, comprehensive policy approach to shift dietary choices in a healthier direction.

References

Investopedia. Sin Tax. https://www.investopedia.com/terms/s/sin_tax.asp 
Australian Institute of Health & Welfare. Alcohol, tobacco and other drugs in Australia (2021). https://www.aihw.gov.au/reports/alcohol/alcohol-tobacco-other-drugs-australia/contents/impacts/economic-impacts 
Australian Institute of Health & Welfare. A picture of overweight and obesity in Australia (2017). https://www.aihw.gov.au/reports/overweight-obesity/a-picture-of-overweight-and-obesity-in-australia/notes 
Obesity Evidence Hub. Case for a tax on sugar-sweetened beverages (SSBs) in Australia. https://www.obesityevidencehub.org.au/collections/prevention/the-case-for-a-tax-on-sweetened-sugary-drinks
Miller CL, Dono J, Wakefield MA et al. Are Australians ready for warning labels, marketing bans and sugary drink taxes? Two cross-sectional surveys measuring support for policy responses to sugar-sweetened beverages. BMJ Open, 2019; 9(6):e027962. https://pubmed.ncbi.nlm.nih.gov/31248926/
Sanchez-Romero L M, Canto-Osorio F, Gonzalez-Morales R  et al. Association between tax on sugar sweetened beverages and soft drink consumption in adults in Mexico: open cohort longitudinal analysis of Health Workers Cohort Study BMJ 2020; 369 :m1311 doi:10.1136/bmj.m1311
Scott HK, Jain A, Cogburn M. Behavior Modification. 2021 Nov 21. In: StatPearls [Internet]. Treasure Island (FL): StatPearls Publishing; 2022 Jan–. PMID: 29083709.
Global obesity observatory. Mexico. https://data.worldobesity.org/country/mexico-139/
Health survey for England 2019. https://digital.nhs.uk/data-and-information/publications/statistical/health-survey-for-england/2019 
Barclay, Alan W, and Jennie Brand-Miller. The Australian paradox: a substantial decline in sugars intake over the same timeframe that overweight and obesity have increased. Nutrients vol. 3,4 (2011): 491-504. doi:10.3390/nu3040491 
Australian Health Survey: consumption of added sugars, 2011-12. https://www.abs.gov.au/ausstats/abs@.nsf/lookup/4364.0.55.011main+features12011-12 
Australian Health Survey: Nutrition First Results-foods and nutrients. https://www.abs.gov.au/statistics/health/health-conditions-and-risks/australian-health-survey-nutrition-first-results-foods-and-nutrients/latest-release  
Fletcher J, Frisvold D, Tefft N. Substitution patterns can limit the effects of sugar-sweetened beverage taxes on obesity. Prev Chronic Dis. 2013;10:E18. doi:10.5888/pcd10.120195
Sadler MJ, McNulty H, Gibson S. Sugar-fat seesaw: a systematic review of the evidence. Crit Rev Food Sci Nutr. 2015;55(3):338-56. doi: 10.1080/10408398.2011.654013.
Shrapnel WS, Butcher BE. Sales of Sugar-Sweetened Beverages in Australia: A Trend Analysis from 1997 to 2018. Nutrients. 2020; 12(4):1016. https://doi.org/10.3390/nu12041016 

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