More calls for an Australian sugar tax

By Leith van Onselen

The Grattan Institute has released a new report entitled A sugary drinks tax Recovering the community costs of obesity backing an excise tax of 40 cents per 100 grams of sugar on all non-alcoholic, water-based drinks that contain added sugar, estimating that it could raise $520 million a year and help to fight obesity.

Below is the overview of the report, along with some key charts:

Australians are getting fatter. More than one in four adults are classified as obese, up from one in ten in the early 1980s. About 7 per cent of children are now obese.

Obesity is predominantly caused by people eating too much unhealthy processed food, often at considerable cost to their health and quality of life. It can be argued that people ought to be free to make those choices and bear the consequences. But the damage is done not just to consumers, and market failures can contribute to the overconsumption of unhealthy foods. The problem confronted in this report is that excessive consumption of unhealthy foods, including sugar-sweetened beverages (SSBs), not only causes long-term problems for consumers but also imposes enormous costs on the broader community.

In addition to personal costs, obese people, on average, receive more healthcare than other people, with taxpayers funding most of the costs of those services. Obese people also have lower rates of employment, receive more social services payments, and contribute less income tax than people in the normal weight range. Together, this foregone tax and additional health and welfare expenses mean that taxpayers are about $5.3 billion worse off each year.

This report calls for a tax on sugar-sweetened beverages. We recommend an excise tax of 40 cents per 100 grams of sugar on nonalcoholic, water-based beverages that contain added sugar. This will increase the price of a two-litre bottle of soft drink by about 80 cents. This tax would raise about $500 million a year, generate a drop of about 15 per cent in consumption of SSBs and likely result in a small decrease in obesity rates, as people switch to water and other drinks not subject to the tax.

We recognise that a tax on sugary drinks is not a ‘silver bullet’ solution to the obesity epidemic – that requires numerous interventions at an individual and population-wide level. But it will address these third-party costs of obesity by reducing sugar intake from SSBs.

Many countries have already introduced such a tax, including the United Kingdom, France and parts of the US.

Not all obesity is caused by SSBs – in fact we estimate about 10 per cent of Australia’s obesity problem is due to these drinks. But it is important to reduce the consumption of SSBs because of their contribution to obesity – most contain little or no nutritional benefit, they contribute to additional energy intake, they are consumed heavily by children and teenagers, and Australia’s added-sugar intake is already high. Consumers could easily avoid the tax by switching to other drinks, such as water or artificially-sweetened beverages. The Australian sugar industry will face some transition costs as more sugar will need to be exported, as about 80 per cent is already.

The revenue raised by the new tax could go to promoting healthier eating, preventing obesity, reducing the budget deficit or a variety of other purposes. Most importantly, a tax on SSBs would help to ensure that the producers and consumers of those drinks start paying closer to the full costs of this consumption – including costs that until now have been passed on to other taxpayers.

Key findings and recommendations

The prevalence of obesity has increased significantly over the past few decades. In 2014/15, 28 per cent of adult Australians were obese.

• Obesity imposes significant personal and community/third-party costs. Third-party costs, primarily borne by governments, include higher healthcare spending, higher welfare spending and lower tax revenue due to lower employment rates. We estimate that the thirdparty costs of adult obesity in 2014/15 were about $5.3 billion.

• Many factors are contributing to the rising prevalence of obesity in Australia. But the primary cause is excessive consumption of unhealthy processed food. This is, in part, driven by ‘market failures’, including consumers having a limited understanding of processed foods and behavioural factors that can limit selfcontrol, and people not bearing the full costs of over-consumption of unhealthy foods.

• We propose that the Commonwealth Government use tax measures to reduce the third-party costs created by the excess consumption of energy-dense, nutritionally poor foods that contribute to obesity.

• An excise tax on the sugar contained within SSBs is the best, and simplest, tax option to recoup some of the third-party costs generated by obesity and reduce consumption of SSBs. However, an SSB tax by itself will not solve Australia’s obesity problem.

• SSBs that should be subject to a tax are non-alcoholic, waterbased drinks with added sugar. This includes soft drinks, flavoured mineral waters, energy drinks, cordials and fruit juices with added sugar.

• The SSB tax should be levied at a rate of about 40 cents per 100 grams of sugar contained within SSBs. This will increase the price of a two-litre bottle of soft drink by about 80 cents. The secondbest alternative is a tiered excise tax based on the volume of liquid per SSB.

• An SSB excise tax as described will generate around $500 million in annual revenue to recoup the third-party costs of obesity, reduce consumption of SSBs by about 15 per cent by increasing the retail price and lead to a slight reduction, about 2 per cent, in the prevalence of obesity.

• About 80 per cent of Australia’s sugar production is exported. An additional 1 per cent of Australia’s annual sugar production will need to be exported due to the suggested SSB tax, and this may mean transition assistance is required for the millers and refineries affected.

• The revenue from an SSB tax could be spent on obesity prevention programs and interventions, healthcare, or used to reduce the Commonwealth Government’s budget deficit.

The Greens are already on the front foot, today calling for a parliamentary inquiry into the rise of obesity, especially in children, and whether a sugar tax on soft drinks is one way to combat the problem:

“We have a major health crisis on our hands with one-in-four Australian kids overweight or obese,” leader Richard Di Natale said on Wednesday.

If the government doesn’t act, the Greens will introduce a private bill for a sugar tax.

Regular readers will know that I support a tax on sugary drinks but, like the Grattan Institute, recognise that it is by no means a panacea.

In my opinion, there also needs to be a complete overhaul of Australia’s dietary guidelines, which too often ignores the prevalence of sugar.

Consider the Government’s Health Star Rating system and the National Heart Foundation Tick program, which are both fundamentally flawed.

For example, how is it that reconstituted apple juice, which contains a whopping 26.8 grams of free sugars per serve, receives a 5-star health rating?

Similarly, how does a highly processed box of cereal, like the one shown below, receive a healthy 4-star rating and the Heart Foundation Tick despite containing 23.5% sugar?

How does a processed sugary chocolate-flavoured “Up and Go” milkshake, which contains 19.3 grams of sugar per serve, receive a healthy 4.5 star health rating?

And how does Milo receive a healthy 4.5 star health rating when it is made up of nearly half sugar?

Is there any wonder why sugar consumption is sky-high, and diabesity is a growing epidemic in Australia, when our nutritional science establishment largely ignores sugar’s infestation within our food?

To the National Heart Foundation’s credit, they are in the process of phasing-out their Tick Program. But clearly the Health Star Rating system also needs fundamental reform.

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