Quit sugar, raise revenue

Dr Stephen Duckett, Grattan Institute Health Program director writes: Re. “Getting a sugar rush from controlling the poor” (Friday). Bernard Keane railed against our sugary drinks proposal as nanny statist. One could infer from his tirade that we were part of the ukase-issuing, presumably elitist or at least middle class bureaucrats who wanted to regulate and determine every choice of every red-blooded working class hero. We aren’t. We acknowledged that people have the right to make their own decisions, with one caveat: that they should bear the full costs of those decisions. In contrast, the nanny state approach is to argue that some people make the “wrong” decisions, that nanny knows best and they should be nudged away from those decisions. Our approach, in contrast, was to address the caveat – in making their consumption decisions, people incur costs for themselves, which is fine, but obese people incur extra costs which they don’t bear, the general taxpayer does.

We estimated that obesity currently costs the taxpayer over $5 billion each year, of which about 10% was due to consumption of sugary drinks. We designed a taxing regime which would generate about $500 million a year, roughly the cost of the sugary drink consumption. All this does is make consumers of those drinks pay the costs they incur, costs which they currently don’t bear. The mere fact that the tax means some people will change their behaviour because they don’t think the benefit they get is now worth the full cost does not make it a nanny state intervention. It is simply an effect of how markets work, the very personal agency that Keane lauds. We explicitly highlighted this meeting the full cost argument in the title of our report which was subtitled ‘recovering the community costs of obesity’.

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Although Keane is right that obesity prevalence is not growing as fast as it once was, prevalence is currently very high and the costs are still there, at over $5 billion a year.

Keane also raises the incidence of the tax. We looked at that in our report. A sugary drinks tax would be slightly regressive but the effect is tiny. Even in households in the lowest fifth of the population in terms of income, total spending on all beverages is less than 0.75% of household income. For the highest earning households, spending is just under 0.5% of income. This is not a make or break issue for people on low incomes. Importantly, the tax is avoidable if people change their consumption patterns. Further, the overall regressivity can only be assessed when one considers how any tax revenue is spent.

John Frahm writes: I have to agree with Bernard. A sugar tax is just a bridge too far. However, I’m curious as to whether you would agree that such a tax would be an efficient way of pricing the externalities of consumption?

Excessive taxes on cigarettes have also created a thriving black market. It’s a gift that just keeps on giving to organised crime gangs and the federal government is foregoing millions and millions of dollars of revenue. I could (if I smoked) walk down the road right now and buy a packet of Chinese cigarettes for $10 cash, with not a single cent ever reaching the government. A skewed tax system has also made more damaging, higher alcohol beverages – wine, port, etc. – cheaper than lower ones such as beer.

I’ll concede a tax is a simple measure for addressing a number of public health issues, but with regards to obesity there is so much more to be done to address our plummeting physical activity levels. I wouldn’t mind seeing a system in which people are paid, say, 10c per km walked – but perhaps the technology isn’t quite there yet.

As a final note, was salt and fat not demonised the same way previously, which led us to increased levels of sugar to make food taste just as good? What will pop up next to satisfy our cravings?


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Peter Fray
Peter Fray
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