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  • nickjhughes

To tax or not to tax?

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Important news has emerged from Mexico in recent weeks where a pioneering soda tax has been in force for almost a year. The preliminary results are in and the indications are that the measure is having a significant impact on people’s consumption habits.

The soda tax adds one peso per litre – or around 10% - to the price of non-dairy and non-alcoholic sugar-sweetened beverages. The results show an approximate 10% decline in purchases of taxed beverages in the first quarter of 2014 compared to the first quarter of 2013 along with a 7% increase in purchases of untaxed beverages such as diet sodas, 100% juices and milk. Most encouragingly of all from a health perspective there has been a 13% increase in water consumption during the same timeframe.

The debate over whether taxation is an effective means of shifting consumption habits is emotive and fiercely contested. Opponents claim such taxes show the nanny state at its worst and are punitive to those people who consume responsibly. Proponents would counter that fiscal stimuli are effective drivers of behaviour change and that the proceeds of such a tax could subsidise intervention strategies targeted at the most at-risk consumers.

My view falls somewhere in between the two stools but it strikes me that the key issue with a soda or sugar tax is that the cost to the consumer cannot simply be calculated by the increase in price of the product. The public purse is already hit twice whenever someone purchases a sugar-based product – firstly through the subsidies given to sugar producers and secondly through the vast cost to the NHS of treating obesity-related diseases such as diabetes. Add to that the value of intangibles such as the improved quality of life of someone living without diabetes or heart disease and the case for taxation looks a lot stronger. If a tax was successful in reducing sugar consumption the population as a whole stands to benefit.

The scourge of obesity has hit Mexico harder than most countries. Around 70% of adults and 30% of children in Mexico are obese or overweight and Mexicans have the highest incidence of diabetes among the 34 member states of the OECD. The soda tax is among a raft of measures introduced by the government to try to curb obesity including restrictions on advertising of high calorie foods and stricter labelling rules.

While the Mexico experiment will not give us all the answers it is an important contribution to the evidence base. And if the soda tax plays its part in reversing the tide of obesity the pressure on the rest of the world to follow suit will only increase.

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