South Africa

Analysis: Sugar tax – sweet deal or sour consequences?

By Marelise Van Der Merwe 24 August 2016

Government officials have hit back at claims that a sugar tax will cost South Africa tens of thousands of jobs and a hefty GDP nosedive. But on closer inspection, both critics and supporters of the tax may be missing one key point. By MARELISE VAN DER MERWE.

Sugar tax 101

Sugar tax, or excise taxation on sugar-sweetened beverages (SSB), entails a tax that is calculated per gram of sugar added to a beverage. Minister Pravin Gordhan confirmed earlier in 2016 that South Africa would be subject to such a tax as soon as April 2017; some 20% on SSBs overall. Individual levies would be charged depending on the sugar content – 2.29c per gram of added sugar.

This tax, which is gaining traction worldwide, is based on skyrocketing sugar intake. One US study notes that sugary beverage consumption has increased by 500% in 50 years and that for adults, sugary drinks make up an average of 7% of their calorie intake; often proportionally more for children.

Last week, local critics including BevSA and individual manufacturers, alleged that the introduction of a sugar tax in South Africa would cost up to R14-billion reduction in GDP; anything from 6,000 to 60,000 jobs; and the livelihoods of thousands of small business owners. Coca-Cola warned that it would need to shut down operations in South Africa due to loss of revenue.

This week, the Department of Health (DOH) hit back, arguing that the country was overburdened with noncommunicable diseases and oral health problems which were costing the economy an untenable amount in healthcare and absenteeism.

Excessive sugar consumption was a concern worldwide, it said. The department’s cluster manager for noncommunicable diseases, Professor Melvyn Freeman, also argued that there was “good reason” – based on the results of both local and international sin taxes – to believe that a sugar tax would be successful.

There’s no doubt that South Africa has to tackle obesity; the question is how. The country is the fattest in the region and battling an increasingly heavy burden of noncommunicable diseases, many of which can be sparked or exacerbated by obesity.

But that raises the next question…

Does excise tax work?

You can only fully understand whether the tax will work depending on a) how you have defined what “working” means and b) what your goal is.

If your goal is simply to decrease SSB consumption, you’re bang on the money. A 2010 study by Andreyeva, Long and Brownell argues that sugar tax is more successful than tobacco tax in reducing consumption of the taxed product.

But if your goal is to combat obesity, the process may be a little more complicated. And in terms of being successful – that also depends who you’re targeting.

The data is fairly consistent: across the board, excise tax usually decreases overall consumption of whatever’s being taxed. When people feel the sting in their pocket, it takes the consequences of consumption from a distant possibility to an immediate reality.

But it gets a little more complicated when you break down the data. First and foremost: a reduction in sugar consumption does not always equal a reduction in obesity. While the SA DOH has argued that introducing a sugar tax may decrease energy intake by around 36 kJ per day, international studies suggest that substitution is a significant obstacle. If consumers can’t drink SSBs, they often simply replace these with other high-calorie drinks like juice or milk. In addition, there are numerous factors contributing to obesity, meaning that structurally, there has to be something of a perfect storm for a country to have obesity statistics as significant as South Africa has.

South Africa has worrying rates of obesity, and the government has argued that drinking one to two SSBs per day could increase adults and children’s likelihood of being overweight by 27% and 55% respectively, as well as being a risk factor in Type II diabetes.

However, in terms of overall health and fitness, there are numerous obstacles to overcoming obesity. Obesity is rising steadily in townships, as are noncommunicable diseases like diabetes and heart disease, but for many who are the most affected by obesity, the price of gyms is unattainable and simply jogging around the block is not an option – high crime rates make safety a concern. The high price of fruit and vegetables is also a factor.

US researcher Robbin S. Johnson writes of America’s also-significant obesity epidemic, “The National Institute of Health (NIH) also catalogues the many factors that contribute to overweight and obesity; they include: spending too much time sitting down watching screens; a physical environment that promotes vehicle use rather than walking; competition for the dining-out dollar that leads to larger portion size; lack of access to healthy foods or individualised portions; advertising messages promoting processed, calorie-dense foods; genetic factors; hormonal or other metabolic causes; use of medicines that contribute to weight gain; emotional needs that encourage overeating; quitting smoking; sleeping too little or too much; and ageing.”

Many of these apply to South Africa, and are part of larger systemic problems. They are not insurmountable obstacles. But a sugar tax cannot be applied in isolation – best practice in the case of tobacco, argues Johnson, includes a far-reaching health education campaign, ongoing lifestyle support for citizens, and, most important, ploughing the increased revenue back into the healthcare system and/or subsidising healthy foods.

The DA’s Wilmot James has already said the party will not support the sugar tax unless government commits to pouring revenue into medical research; Johnson’s argument suggests this would be a start, but not all that’s needed.

Further, numerous studies of excise taxes – including sugar, alcohol and tobacco – show that there’s a frequent pattern of consumers eventually adjusting to the increased prices. That’s why in Mexico, theconversation.com reported, a substantial initial drop in SSB consumption levelled out again a few years later. In the case of tobacco, supporting excise taxes with educational advertising, health warnings etc contributes to users staying off their substance of choice long-term.

Another important factor in the success of a sugar tax lies in who exactly it works on. Studies on both sugar and alcohol excise taxes indicate that these are a little different to tobacco in that there’s no safe amount of cigarettes to smoke. Both alcohol and sugar, however, are not dangerous in moderation. So taxes should be aimed at excessive users – except it’s not usually the excessive users that respond best to an excise tax.

Robbins argues that it’s obstructive to classify “good foods” and “bad foods”, although naturally some foods are more conducive to weight gain. A longitudinal study published in the New England Journal of Medicine found that on the basis of increased daily servings of particular items, a four-year weight change was most strongly associated with potato chips. Next in line were SSBs, unprocessed red meats, and processed meats. Bad news for Banters and carb-addicts alike: meat and potato intake, it seems, both need to be watched closely.

Nonetheless, argues Robbins, “[b]ehaviour, not food, should be the fulcrum of obesity prevention”. And tackling only sugary beverages is only the beginning of that.

About the economy

Critics of excise tax normally fall into at least one of the following camps: those that argue against a “nanny state”, and those who argue that excise tax spells economic doom.

For the purposes of this analysis, the question of whether excise taxes are morally sound is moot. But on whether a sugar tax will damage the economy, the answer is a more frustrating “it depends”.

The South African government has argued that it could save as much as R10-billion in the next two decades on the treatment of obesity, cancer, Type II diabetes, and heart disease. First and foremost, though, there is still a dearth of research that shows whether reduced sugar consumption affects public health costs or absenteeism. It frequently reduces consumption of SSBs, but whether this leads to less obesity is another question entirely.

A few papers have indicated that sugar tax does not, in fact, have a notable impact on obesity levels, in contrast to the widespread success of tobacco excise tax, where consumers that quit eradicate all tobacco intake. But the success of anti-smoking campaigns is also usually supported by education and other elements. In terms of reducing the economic burden of healthcare on the economy, introducing a sugar tax is just not enough.

This doesn’t mean there’s zero economic impact. Many scholars both in the pro- and anti-camps acknowledge that a sugar excise tax will hit poor people harder, partly because in terms of sugar consumption statistics, lower-income groups end up paying the lion’s share of the taxes, and partly because they are most affected by loss of disposable income.

Worryingly, the South African government has admitted it has not actually projected the possible losses to the economy resulting from a sugar tax. The decision – taken by Treasury – was largely based on research by the World Health Organisation (WHO) as well as Priceless, at Wits University.

That said, Choice also notes that typically, both the predicted benefits and predicted losses to economies introducing excise taxes are usually grossly overstated by those wishing to drive either point home. In reality, excise taxes across the board normally do result in loss of revenue to some, but also, naturally, increase revenue for Treasury (and sometimes substitute products). In most arguments that are either pro-sugar tax or against it, the key factor of what’s done with the money is typically ignored. Does government pour the increased revenue into better healthcare or job creation? And have those businesses worrying about lost sales taken into account the possibility of adapting the product, or marketing lower-sugar products that will be taxed less heavily? The BBC has reported that at least one soft-drink manufacturer has announced its intention to reduce sugar content significantly by 2020 – others, facing a sugar tax, may follow suit.

The Washington Post has also pointed out that many naysayers to excise tax conducted surveys or studies on job loss without drilling down to the myriad possible causes. One study that linked losses during a particular year to the introduction of excise tax was exposed when the Post pointed out that it had suffered the exact same percentage of losses the previous year.

Warner et al are cited in Choice: “Research has demonstrated that higher tobacco taxes generally have no net impact on jobs as tobacco use falls (e.g. Warner, et al., 1996). Job losses in tobacco-dependent sectors of the economy are offset by job gains in other sectors, as money no longer spent on tobacco products is spent on other goods and services, and as the government spends new tobacco tax revenues, typically on more labour-intensive activities.”

So will sugar tax have an impact on the economy? Undoubtedly. But – ignoring the averages – it’s also clear that some will be hit harder than others. Whether negative consequences will be adequately offset by positive ones, or whether any overall impact will be sustained, is too early to say.

The long and the short

So, will a sugar tax reduce obesity? Not on its own, but used alongside excise tax best practices (which are widely documented) it may be a contributing factor. Will it have the devastating impact on the economy that has been predicted? If one follows international trends, it’s unlikely. But will there be zero impact? No.

The best way to make a sugar tax work is to apply it properly, and to ensure the state uses its increased revenue wisely. Whether it will do that, however, remains to be seen. DM

Photo by Moyan Brenn via Flickr.

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