In its recent budget, the Newfoundland and Labrador government announced it will introduce a tax of 20 cents per litre on sugary drinks, starting on April 1, 2022. This 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 – or any product for that matter – it needs to proceed with extreme caution.
Many countries have taxed sugary beverages, with some degree of 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 it has high rates of obesity and diabetes.
A recent report from Mexico’s Sánchez Romero Supermarkets looked at the market three years after the tax was implemented. It noticed that the probability of becoming a medium or high consumer of soft drinks in Mexico had decreased because of the tax. And the probability of becoming a low consumer or non-consumer had increased. Those are encouraging results.
The study, which received a lot of media attention, led many public health experts to support the sugar tax concept simply based on a belief that it will discourage consumption.
The reality is a little more complicated.
We’ve seen cases where demand for soft drinks has gone up even with a sugar tax. A recent study on how France and Hungary are coping with their soda taxes was quite telling. France found a minor decrease in sugar-sweetened beverage sales after tax implementation but overall soft drink sales increased. In Hungary, a decrease in sugar-sweetened beverage sales lasted just two years, followed by an overall increase in sugar-sweetened beverage sales.
Studies into the impact of taxes on sugar-sweetened beverages often look at soft drinks in isolation. But analysts 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 rather than down. And Mexico still has the highest carbonated soft drink consumption per capita in the world, more than seven years after the sugar tax was implemented in 2014.
Studies have also noted that price elasticity for soft drinks barely matters. Prices will fluctuate all year round due to weather, promotions and category management practices. A tax won’t necessarily make these products more expensive at retail.
Given how high margins are in this category, price isn’t a factor for most consumers in countries with a soda tax. The sugar tax is simply just absorbed by the supply chain.
We should dread the moralistic state that uses sin taxes to punish consumption. We’ve seen it with alcohol, cannabis and cigarettes. We’ve come to accept that these products should be taxed for one reason or another. But these products aren’t food.
It’s hard to see how this can end well for consumers or taxpayers. If sugar can be taxed, a revenue-hungry government could also tax sodium and even fat. Some of the most natural food products have high sugar, sodium and fat content. 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 how the funds are spent. Funds generated from sin taxes are often ill-directed, supporting a government’s problem of the day. Funds end up in some bureaucratic black box and are often used for other means than originally planned. Many countries have promised to use revenues from sin taxes on preventive medicine programs, awareness campaigns or 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 weak at best. Most studies suggesting a decrease in consumption of taxed products have flawed samples.
Education may be the most powerful tool we have. Soft drink consumption per capita in Canada has 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 pursues 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 state that this is very much about paying its bills.
Dr. Sylvain Charlebois is senior director of the agri-food analytics lab and a professor in food distribution and policy at Dalhousie University.