In its recent budget, the Government of Newfoundland and Labrador announced that it would introduce a tax of 20 cents per liter on sugary drinks, effective April 1, 2022. This is a first in Canada .
So far, we know little about how the tax works, what products would be affected, and how the tax revenues would be used by the government.
However, when a government commits to taxing a food product – or any product for that matter – it must proceed with extreme caution.
Many countries have taxed sugary drinks, with some success. Mexico has become a well-documented soda tax case in recent years. Its per capita consumption of soft drinks is among the highest in the world, and its rates of obesity and diabetes are high.
A recent report from Mexican supermarkets Sánchez Romero looked at the market three years after the tax was implemented. He noticed that the likelihood of becoming an average to high consumer of non-alcoholic beverages in Mexico had decreased due to the tax. And the likelihood of becoming a weak consumer or a non-consumer had increased. These are encouraging results.
The study, which received a lot of media attention, led many public health experts to support the concept of a sugar tax simply on the belief that it would discourage consumption.
The reality is a little more complicated.
We have seen cases where the demand for soft drinks has increased even with a tax on sugar. A recent study on how France and Hungary manage their soda taxes was revealing. France saw a slight decline in sales of sugary drinks after the tax was implemented, but overall sales of soft drinks increased. In Hungary, a decline in sales of sugary drinks lasted only two years, followed by an overall increase in sales of sugary drinks.
Studies of the impact of taxes on sugary drinks often look at non-alcoholic drinks in isolation. But analysts have suggested that once a sin tax is implemented in a country, consumers are tempted to buy other untaxed food items to get their fix of sugar. Retail hijackings are rarely considered.
According to the Lancet, since the introduction of the sugar tax in Mexico, the obesity rate in the country has increased rather than decreased. And Mexico still has the highest per capita soft drink consumption in the world, more than seven years after the sugar tax was implemented in 2014.
Studies have also noted that the price elasticity of non-alcoholic beverages does not matter. Prices fluctuate throughout the year due to weather, promotions and category management practices. A tax will not necessarily make these products more expensive at retail.
Given the large margins in this category, price is not a factor for most consumers in countries with a tax on soda. The sugar tax is simply absorbed by the supply chain.
We should fear the moralizing state that uses sin taxes to punish consumption. We have seen it with alcohol, cannabis and cigarettes. We have come to accept that these products should be taxed for one reason or another. But these products are not food.
It is difficult to see how this can turn out well for consumers or taxpayers. If sugar can be taxed, a revenue-hungry government could also tax sodium and even fat. Some of the more natural food products are high in sugar, sodium and fat. Some dairy products, meats and even natural juices, for example, could be part of a government hit list.
Another dark side of sin taxes is the way funds are spent. The funds generated by the sin taxes are often misdirected, supporting the problem of a government of the day. The funds end up in a bureaucratic black box and are often used for other means than those originally intended. Many countries have pledged to use the revenue from sin taxes for preventive medicine programs, awareness campaigns, or general health care. It rarely happens or the responsibility just isn’t there.
Most public health experts will desperately want to believe in the effectiveness of a sin tax on food, but the evidence is weak at best. Most studies suggesting a decrease in the consumption of taxed products have defective samples.
Education is perhaps the most powerful tool we have. Per capita soft drink consumption in Canada has declined in recent years – without the sugar tax. A growing number of Canadians have given up on sugary drinks thanks to effective awareness campaigns.
Giving consumers more information can only lead to changes in behavior and choices.
If Newfoundland and Labrador is calling for a sugar tax, it is certainly not to encourage its people to adopt a healthier lifestyle. Given what has happened elsewhere, the government should be honest and say that it is about paying its bills.
Dr. Sylvain Charlebois is Senior Director of the Agri-Food Analysis Laboratory and Professor of Food Distribution and Policy at Dalhousie University.
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