Is a tax on sweetened beverages a sustainable policy?
Evidence shows that the environments in which people develop their dietary behaviour and make their food choices are a significant influence on what they purchase and, in turn, what they eat.
This evidence indicates that food prices influence, to a certain degree, what and how much food people buy.
Thus price policies that address affordability and purchasing incentives for different foods are seen as a key policy tool.
Given the well-established role of price as a driver of food choice, interest in taxes and subsidies to improve diets and prevent NCDs remains high.
Taxation specialists recognize that the tax system plays a role in supporting other policy objectives, and many economists and government policymakers continue to explore the opportunities that price policies can offer for public health, including health gains and health care cost savings.
Price is the cornerstone of traditional economic thinking. The most basic theoretical models of supply and demand stipulate that in a simplified, perfectly competitive world dealing with standard products, an increase in price will result in a decrease in the quantity of the product sold, and vice versa.
The underlying rationale of taxing products for public health reasons (such as alcohol, tobacco and certain food products) is that consumption of some products is associated with “negative externalities” that can result in costs to society that neither the producer nor consumer covers.
In such cases a government may want to correct for the tendency of the market to encourage the consumption of products with a documented negative impact on health.
A tax would work by changing the price for consumers, thereby reducing demand and shifting population level consumption.
The increased illness and disability associated with excessive consumption of such products is likely to result in increased health and social care costs in addition to lost economic productivity.
As such, the costs to society of consuming these products (external costs) may be significant but not reflected in either the private costs of producing the product or the price that the consumer pays.
This is an example of a “market failure”, which is an economic justification for government intervention.
In such cases, governments may decide to increase the price of the product through taxation to reduce demand.
A corrective subsidy works in a similar manner to taxes, but the other way around. Here a drop in price at point of purchase should increase demand.
A good example is fruit and vegetables. The low consumption of fruit and vegetables is a significant risk factor for global mortality.
Their increased consumption has been shown to be protective against gastrointestinal cancer, ischaemic heart disease and stroke.
Diets that are largely plant-based help the consumer to achieve and maintain a healthy weight, thus yielding significant benefits to society.
Without government intervention, however, the prices of fruit and vegetables at point of purchase are likely to exceed the socially optimal price, and the quantity sold will be below the level needed for the maximum benefit to society.
It seems reasonable to infer, therefore, that diets and diet-related health and well-being might be improved by changing the relative price of non-core foods high in energy, saturated fat, trans fatty acids, sugar or salt and/or by improving the affordability of core foods such as fruit and vegetables and whole grain products.