Guest column: The sugar tax, a slippery slope to help governments pay their bills

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In its recent budget, the Government of Newfoundland and Labrador announced that it would introduce a new tax of 20 cents per liter on sugary drinks, effective April 1, 2022.

It would probably be a first in Canada.

So far, we know very 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 – any product for that matter – it must always proceed with extreme caution.

Many countries have already taxed sugary drinks with some success.

Mexico has become a well-documented soda tax case in recent years, as it has one of the highest per capita soft drink consumptions in the world and high rates of obesity and diabetes.

A recent report by Sánchez-Romero looked at the market three years after the tax was implemented. They noticed that the likelihood of becoming an average to high consumer of soft drinks in Mexico had decreased because of the tax. Moreover, during this same period, the likelihood of becoming a weak consumer or a non-consumer had also increased.

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Encouraging results.

The study, which received a lot of media attention, prompted 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 than that.

We have seen cases where the demand for soft drinks has increased, even with a tax on sugar. A recent study by Kurz and König on how France and Hungary deal with their soda tax was quite revealing.

For France, they saw a slight drop in sales of sugary drinks after the implementation of a tax, while overall sales of soft drinks increased. For Hungary, there was only a short-term decline in sales of sugary drinks which disappeared after two years, leading to an overall increase in sales of sugary drinks.

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Many studies examining the impact of a sin tax on sugary drinks will often examine non-alcoholic drinks in isolation.

Studies 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 sugar tax was implemented in Mexico, the obesity rate in the country has increased, not decreased.

And Mexico remains the country with the highest per capita soft drink consumption in the world, more than seven years after the introduction of the sugar tax in 2014.

What some studies have also noted is that the price elasticity of soft drinks does not matter.

Prices fluctuate year round due to weather, promotions and category management practices. A tax will not necessarily make these products more expensive to purchase at retail.

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We should fear the moralizing state which for years has chosen to use a sin tax to punish consumption. We have seen it with alcohol, cannabis and cigarettes. We have come to accept that these products are taxed for one reason or another.

But these products are not food. It’s hard to see how this can end well for consumers and taxpayers.

If sugar can be taxed, a revenue-hungry government could possibly choose to tax sodium or even fat. Some of the more natural food products are high in sugar, sodium and fat. Certain dairy products, meats, even natural juices, for example, could be part of the list of results of some governments.

Another dark side of sin taxes is the way funds are spent in government. The funds generated by the sin taxes are often misdirected and will support the government’s current problem. Funds often end up in a bureaucratic black box and are often used for other means than originally intended.

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Many countries have pledged to use the revenue from sin taxes to fund preventive medicine programs, awareness campaigns, or even general health care. It rarely happens or the responsibility just isn’t there.

Ultimately, education may be the most powerful tool we have. Per capita soft drink consumption in Canada has actually declined over the past few 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 wants a sugar tax, it is certainly not to get its people to adopt a healthier lifestyle.

Given what has happened elsewhere, the government should be honest and just say it is about paying its bills.

Sylvain Charlebois is professor and principal director of the agri-food analysis laboratory at Dalhousie University.

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