Five Problems with the Taxpayers’ Union Report on Soft Drink Tax

Geoff SimmonsHealth

Yesterday the Taxpayers’ Union released a report that claims that a sugar or a soft drink tax (they aren’t quite sure which straw man they are hitting here) won’t work. The report is a grab bag of carefully selected statistics, many of them contradictory. Let’s look at the top five problems with the analysis:

1/ These taxes don’t change behaviour, they just raise money!

That is the good thing about taxes, they either do one or the other.

The report claims that taxes don’t work because they don’t change behaviour, and provides data that carbonated drink sales haven’t dropped in Mexico since the tax came in. This is hardly a smoking gun – it doesn’t account for consumers switching between sugary and other carbonated drinks such as zero calorie ones! There are plenty of other studies that show junk food taxes would have an effect on behaviour. The best, most well studied example we have is smoking, where a tax has undoubtedly been the leading factor in reduced consumption. Why would junk food be any different?

As we have discussed in previous blogs, there are two major claims why junk food taxes don’t work – firstly because they are set way too low, and secondly because they push people to buy other junk food. The first is easy to solve, the second is just a matter of designing the tax right. While we might start with soft drinks, ultimately all junk food will need to be included.

The report also criticizes the Denmark experiment, which is again selective. Junk food taxes are working in many parts of the world, the report dwells on the one place it fell over. Why did it fall over? Well it was a pretty dumb tax to start with – based on saturated fat. There are plenty of good foods that contain saturated fat, as any Kiwi farmer will tell you. The other problem in Denmark was porous borders – people can do their shopping in Germany. We don’t have that problem.

And ultimately, if taxes don’t change behaviour, then they will certainly raise money, and that will help contribute to the costs of the coming tsunami of type 2 diabetes. Think of it as user pays.

2/ Sugar/soft drinks are only a small part of the problem

The report points out that non-alcoholic beverages only make up 5% of our calorie intake, and soft drinks only 1.6%. How can they possibly be causing the obesity epidemic?

For starters nobody ever said that sugary drinks are the sole cause of the obesity epidemic. The fact is that they are the most pernicious example of highly processed fake food – stuff that is so full of calories and devoid of micro-nutrients that it really shouldn’t be classed as food.

Context is also important here. Not all the food that we eat is the problem. It is just the amount that we overeat that causes us problems. That is only around 10% of our diet – so actually sugary drinks are between 16%-50% of the problem.

Finally, those numbers are an estimate from a survey (see below), so the 1.6% figure is a conservative estimate of the true scale of the sugary drink problem. For example, that figure is unlikely to include flavoured milks, or juices, or any drink that uses fruit sugars as a base.

3/ Surveys are useless, except when we use them

The report descends into the ironic when it criticizes a survey from Mexico about reported soft drink consumption.

Two pages prior to that the report cites survey data that claims that between 1997 and 2009 sugar consumption dropped in New Zealand – therefore sugar consumption cannot be contributing to our bulging waistlines. .Not that this is a survey result – our sugar import figures rose during the same period (and admittedly those figures are also rough). The report goes on to quote another survey that showed that sugar intake was lower among obese children.

There certainly can be problems with the results from survey data. For example, we know that when people know they have a weight problem, and know certain foods are bad, reporting changes. This is the exact problem the report points out with the Mexican survey. It will take time to know for sure what the impact of the Mexican tax will be on soft drink consumption, just as it will take time to know what is really happening to sugar eating habits in New Zealand. In the mean time the Taxpayers’ Union should at least be consistent in its analysis.

4/ Food taxes hurt the poor

Any new tax which increases prices will initially have a regressive impact – in other words it will have a bigger impact on the poor more simply because they spend a greater portion of their income on food. However, there are many reasons to think that the knock on impacts will more than outweigh this effect.

We know that poorer households are more likely to adjust their consumption in response to price changes than other households. They will simply switch their soft drink consumption to milk, or maybe even water. Therefore poorer households will pay less of the tax, and will also get a disproportionate amount of the health benefits from changing their behaviour. Given that obesity and related health problems is more prevalent in poorer households, this means that the health impacts of the tax will be decidedly progressive – which is the whole idea!

Finally, how much the poor are affected by this change depends totally on how the money raised by the tax is spent. If the income is spent on a policy that helps the poor – such as a subsidised fruit and veges or cooking classes in poor communities – then the overall impact will be even more progressive.

5/ Let them eat cake, and die of type 2 diabetes

Finally, this play by the Taxpayers Union is ultimately short sighted. Without action, diabetes and obesity will have a huge impact on our health system and our economic growth. A report by Morgan Stanley (hardly a left wing think tank) suggested that poor diet could eventually knock one quarter off our growth rate – reducing it from 2.5% to 1.9%. Over time, that difference adds up to some serious money.

As a taxpayer, that is what I am really worried about.


Five Problems with the Taxpayers’ Union Report on Soft Drink Tax was last modified: December 15th, 2015 by Geoff Simmons
About the Author

Geoff Simmons

Facebook Twitter

Geoff Simmons is an economist working for the Morgan Foundation. Geoff has an Honours degree from Auckland University and over ten years experience working for NZ Treasury and as a manager in the UK civil service. Geoff has co-authored three books alongside Gareth.