Sugar-coating the sugar tax

“Newfoundland and Labrador is looking at becoming the first province in Canada to implement a sugar tax on soft drinks, some sources suggest. Based on cases elsewhere around the world, a sugar tax is less about making people healthier and more about raising revenues.”

In its recent budget, the Newfoundland and Labrador government announced that it will introduce a new tax of 20 cents per litre on sugary drinks, starting April 1 2022. This would likely be a first in Canada. So far we know very little about how the tax would work, which products would be affected, and how revenues from the tax would be used by the government. However, when a government commits to taxing a food product, any product for that matter, it always needs to proceed with extreme caution.

Many countries have already taxed sugary beverages with some degree of success. Mexico has become a well-documented soda tax case in recent years since it has one of the greatest per capita consumption of soft drinks globally and high rates of obesity and diabetes. A recent report from Sánchez-Romero looked at the market three years after the tax was implemented. They noticed that the probability of becoming a medium or high consumer of soft drinks in Mexico had decreased because of the tax. Additionally during that same period, the probability of becoming a low consumer or non-consumer had also increased. Encouraging results.

The study which did receive a lot of media attention enticed many public health experts to support the concept of a sugar tax simply based on a belief that it will discourage consumption. The reality is a little more complicated than that.

We have seen cases where demand for soft drinks has gone up, even with a sugar tax. A recent study by Kurz and König on how both France and Hungary is coping with their soda tax was quite telling. For France, they found a minor decrease in sugar-sweetened beverages sales after a tax implementation while overall soft drink sales increased. For Hungary, there was only a short-term decrease in sugar-sweetened beverages sales which disappeared after 2 years, leading to an overall increase in sugar-sweetened beverages sales.

Many studies looking at the impact of a sin tax on sugar-sweetened beverages will often look at soft drinks in isolation. Studies have suggested that, once a sin tax is implemented in a country, consumers are tempted to buy other non-taxed food products to get their sugar fix. Sale diversions at retail are rarely considered. According to the Lancet, since the sugar tax was implemented in Mexico the obesity rate in the country has gone up not down. And Mexico is still the country with the highest carbonated soft drink consumption per capita in the world, more than seven years after the sugar tax was implemented in 2014.  

What some studies have also noted is that price elasticity for soft drinks barely matters. Prices will fluctuate all year round due to weather, promotions, and category management practices. A tax will not necessarily make these products more expensive to buy at retail. In fact, given how margins are so high for this category, in countries where a soda tax was implemented price is a non-decision-making factor for most consumers. The sugar tax is simply just absorbed by the supply chain. 

We should dread the moralistic state which for years has opted 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 should be taxed for one reason or another. But these products are not food. Hard to see how this can end well for both consumers and taxpayers. If sugar can be taxed, a revenue-hungry government could eventually opt to tax sodium or even fat. Some of the most natural food products have high sugar, sodium, and fat content. Some dairy products, meats, even natural juices, for example, could be part of some government’s hit-list someday.

Another dark side of sin taxes is how funds are spent in government. Funds generated from sin taxes are often ill-directed and will support the government’s problem of the day. Funds often end up in some bureaucratic black box and are often used for other means than what was originally planned. Many countries have promised to use revenues coming from sin taxes to spend on preventive medicine programs, awareness campaigns, or even in health care generally. It either rarely happens or the accountability is just not there.

Most public health experts will desperately want to believe in the effectiveness of a sin tax on food, but the evidence is still quite weak at best. Most studies which suggest a decrease in consumption of taxed products have flawed samples, and a scope of analysis which would exclude the influence of untaxed sugared alternatives. 

In the end, education may be the most powerful tool we have. Soft drink consumption per capita in Canada has in fact decreased in recent years, without a sugar tax. An increasing number of Canadians have moved away from sugar-sweetened drinks due to effective awareness campaigning. Empowering consumers with more information can only lead to altered behaviours and choices.

If Newfoundland and Labrador wants a sugar tax, it’s certainly not to get its people to lead healthier lifestyles. Based on what has happened elsewhere, the government should be honest and simply state that this is very much about paying its bills.