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22 July 2017 13:00 (South Africa)
Opinionista Ivo Vegter

Nanny Gordhan’s sugar tax-grab

  • Ivo Vegter
    Ivo Vegter

    Ivo Vegter is a columnist and the author of Extreme Environment, a book on environmental exaggeration and how it harms emerging economies. He writes on this and many other matters, from the perspective of individual liberty and free markets. He is seldom wrong.

The nannies in government are falling over themselves trying to regulate what South Africans may or may not eat. Pravin Gordhan, who is in charge of tax collection, is the latest to wage a war against a major food ingredient. This time the victim is sugar.

The National Treasury has proposed a sugar tax amounting to about 20% on sugar-sweetened drinks, including soft drinks, fruit drinks other than 100% fruit juice, sport and energy drinks, vitamin water, iced tea and lemonade. Natural sugars in unsweetened products will be excluded. The tax will be levied from 1 April 2017 at a rate of 2.29 cents per gram of sugar, and products that do not label their sugar content will be presumed to contain 50g/330ml, compared to Coca-Cola’s 35g per serving.

The ostensible aim is to reduce obesity in the general population by 10% by 2020, by implementing the World Health Organisation’s “Global Action Plan” to reduce the intake of free sugars.

In its statement, Treasury claims: “Fiscal interventions such as taxes are increasingly recognised as effective complementary tools to help tackle the problem of negative externalities associated with pollution, smoking, excessive alcohol consumption and also the obesity epidemic at a population level.”

Taxes certainly can be used to distort the market, and thereby give effect to policy. Assuming sufficient price elasticity, higher prices tend to reduce consumption, and vice versa. But if they want to use tax as a policy instrument, a sincere government would make it revenue-neutral. Just as with the proposed carbon tax, there are no offsetting tax cuts, nor are there plans to ring-fence the sugar tax to spend it on public health campaigns related to obesity, heart disease, cardiovascular disease, or diabetes. It’s just another tax-grab, designed to fill National Revenue Fund coffers.

Unlike Aaron Motsoaledi, the Health Minister who is a committed nanny with a record of ignoring available science, Treasury Minister Gordhan’s job description is to broaden the tax base and increase tax revenue. A sugar tax, like a carbon tax, fits the bill nicely. In the words of Ronald Reagan: “Government's view of the economy could be summed up in a few short phrases: If it moves, tax it. If it keeps moving, regulate it. And if it stops moving, subsidise it.”

The Treasury discussion paper on sugar tax characterises South Africa as “the most obese country in sub-Saharan Africa”. What it fails to note is that sub-Saharan Africa is the only region in the world in which obesity is not very common. It is also the poorest region in the world. That we’re heavier than the rest of sub-Saharan Africa is actually an indication that we’re healthier.

According to Treasury, obesity rates in South Africa are 42% among women and 13% among men, giving an average of about 27.5%. Unfortunately, its source for these statistics is not available for public scrutiny, unless you’re willing to cough up $35.95 (R535) for access. They differ greatly from the only publicly available country ranking I could find, which has the numbers as 8.8% among men and 27.4% among women, for an average of 18.1%. That would put South Africa 57th in the world, well below countries such as the US (33.9%), Mexico (29.4%), and Egypt (46.6%).

The reason to cite Mexico is that it is in the vanguard of sugar taxation, having implemented a 10% tax on sugar-sweetened drinks in January 2014. There is no clear evidence that it worked, however. Simple sales statistics show that soft drink sales have increased since the tax was introduced. Per-capita consumption showed a slight increase, at 162 litres per year in 2014 and 161 litres in 2015, compared to 160 litres per year in the 2007 to 2013 period. The Mexican government has argued that it is “erroneous” to conclude an increase in sales, because of other confounding factors, such as climate, tough economic conditions, and new marketing initiatives. But if less disposable income, a marginally hotter summer and a few adverts are enough to wipe out all the gains from the tax, perhaps the effort isn’t worth it.

Even if you assume that confounding factors hide the decline in sugary beverage consumption, there is no evidence of any impact on health outcomes. Perhaps only healthy people are drinking less soda. If evidence of a positive impact on health does eventually emerge, we’re talking about making a small change in daily sugar intake, which itself is a small percentage of overall calorie intake, to marginally affect health outcomes, in only a minority of people. Taxing all sweetened drinks is a very high price to pay for such a small potential benefit.

It bears remembering that the reason there’s so much sugar in processed foods in the first place is not because government failed to intervene, but because government did intervene. Back in 1977, the US issued guidelines that recommended low-fat diets, based on what has become known as the lipid hypothesis by Ancel Keys, the leading scientist studying the role of cholesterol in heart disease.

People duly replaced butter with margarine, bought low-fat milk, used vegetable oil instead of lard, and preferred lean cuts of meat. The rule was that total calories from fat should not exceed 30% in your diet, and saturated fats from red meat and dairy products should not exceed 10%. You could get up to 60% of your calories from carbohydrates, according to the American Heart Association.

Yet despite doing as they were told, people inexplicably began to get obese, and the increase in obesity rates started almost exactly in 1977.

Fat imparts a lot of flavour to foods. To compensate for lower fat content manufacturers began using other additives, including sugar, to make food more palatable. Even at the time, there were dissenters who placed the blame for obesity, coronary heart disease and cardio-vascular disease on carbohydrates, and sugar in particular. But the mainstream of science and regulatory agencies enforced a “scientific consensus” that fats were the culprit.

Thirty-six years after the US dietary guidelines were first published, we were told that saturated fats were not the problem, after all. As it turns out, Keys’s study cherry-picked population groups that agreed with his hypothesis, and excluded countries where higher fat consumption was correlated with lower incidence of cardio-vascular diseases. Eating fat in moderation was not a problem, and America’s low-fat dietary guidelines of 1977 appear to have increased the incidence of heart disease, diabetes and high blood pressure. The government, though well-intended, hurt people instead of helping them.

Of course, the dissenters now claim vindication, and can be seen touting high-fat, low-carb diets. But going from one extreme to the other is equally unjustified. Diet studies are notoriously unreliable. They largely rely on honest self-reporting by study subjects, and there are a host of confounding factors. Much nutrition research relies on weak correlations with anecdotal support, rather than strong evidence of causality. And because everyone is different, statistical averages may not mean much at the individual level.

A case in point is the research by Dr Robert Lustig, the leading proponent of the view that sugar is “toxic”. He even penned an editorial in the influential Guardian, in which he boldly claims: “The science is in: the case for a sugar tax is overwhelming”, and “Our new study proves the harm to child health, so cutting public consumption makes political sense”.

But his study is full of glaring flaws. He studied only 43 children, all of whom were already obese and over-consuming sugar. The study lasted a grand total of 10 days. There was no control group. Although the idea was to give the kids calorie-equivalent foods to replace sugar so that they maintained their weight, their food intake was not strictly monitored and 33 of the 43 subjects did, in fact, lose weight. Lustig then measured a host of “surrogate metabolic parameters”, and found a few that correlated with lower sugar intake. These are elementary research mistakes, which border on the fraudulent. His study proves exactly nothing.

The more likely reality is that, like with fats, and as we saw with salt, sugar consumed in moderation will do you little harm. As long as you don’t eat too much, eat a variety of foods including fresh fruit and vegetables, and eat nothing in excess, the average person should be perfectly fine. Of course, if you suffer from a condition, you may need to adjust your diet from the “everything in moderation” baseline, but the government can hardly go around prescribing diets suitable for every individual.

Even when their advice is valid – and excessive sugar consumption certainly does cause weight gain – government interference with people’s choices and one-size-fits-all policies for everyone are not. If only one in four people are obese in South Africa, and sugar might contribute to this, why should everyone else pay a tax on sugar?

To use public health as an excuse to raise taxes is simply outrageous. There are plenty of foods and ingredients that are unhealthy if consumed in excessive quantities. Even if the government’s plan to tax them with the intention of reducing average consumption of these foodstuffs works, it would punish those who already follow a moderate, healthy diet, without providing them with any advantage.

A tax on widespread ingredients also disproportionately affects the poor, who spend a large part of their pay packet on inexpensive food. The rich wouldn’t care, and they’d still let their office or domestic staff take just as much sugar in their coffee as they want. They do so, because it is rude to patronise another person by imposing your health dictats upon them. It seems our nanny state has no such qualms.

Of course, sugar taxes are welcomed by the “wellness” industry, which is riddled with quacks and snake-oil salesmen. They were all on the low-fat bandwagon before jumping on the low-carb bandwagon hurtling in the opposite direction, and either way, regulations can help their business.

They’re only too eager to make a buck off the ignorance of the poor. “It’s an exciting time for the [soft drink] category”, gushes one industry magazine. It hopes that companies will spend more money on R&D to reduce sugar content without adding artificial sweeteners, and everyone will get richer.

If Gordhan and the nannies in government get their way with this latest tax-grab, I guess we’ll just have to make our own lemonade and put some extra sugar in our tea. DM

  • Ivo Vegter
    Ivo Vegter

    Ivo Vegter is a columnist and the author of Extreme Environment, a book on environmental exaggeration and how it harms emerging economies. He writes on this and many other matters, from the perspective of individual liberty and free markets. He is seldom wrong.

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