Fat taxes   1 comment

“Unhealthy diets are now a greater threat to global health than tobacco” – said UN Investigator Professor Olivier de Schutter to the World Health Organisation annual summit on 19 May.

http://www.reuters.com/article/2014/05/19/us-health-food-idUSKBN0DZ15H20140519

Professor De Schutter’s suggested solution is a global pact to tackle obesity similar to the UN convention on tobacco control in 2005. The accord should include taxes on unhealthy products, regulation of food high in saturated fats, salt and sugar and restricting junk food advertising.

This debate has been around for a while and doesn’t look like going away any time soon, particularly in NZ during an election year.

Similar calls are made for environmental taxes which are also about discouraging certain consumption or behaviour.

In New Zealand recently the debate on food taxes culminated in a Bill before Parliament from the Maori Party to remove GST on fresh fruit and vegetables, i.e. “subsidising” healthy foods as opposed to taxing the unhealthy, admittedly because a focus of the policy behind the Bill was the cost of food. The Bill did not get Parliament’s support.

It seems to me the “subsidy” versus “penalty” debate is now pretty settled. Plenty of studies have shown subsidising healthy foods benefit most those who already consume the greater proportions of healthy food (which we are told are higher income households). So, those who least need to change their eating behaviour receive the greatest subsidies.

Another issue with healthy food subsidies is they aren’t as effective in changing consumer behaviour. The money saved by high consumers of unhealthy foods tends to be spent on more unhealthy food or other stuff rather than more healthy food, the opposite of what is sought. In part this is because the amounts they save from the subsidy are too small to make a big difference.

Increasing taxes on unhealthy products can be effective. Tobacco is a good example. Various trials with taxes on sugary drinks in the US and Ireland and a 2013 study in Norway indicate small tax increases are hardly worth doing. Real behavioural change comes when the tax is at least 20%.

The big problem with extra taxes on food is their regressive impact, i.e low income households end up paying a higher proportion of their income on the tax than better off households. Supporters of these taxes will argue this is exactly why they can be so effective (i.e. the tobacco example).

Reportedly lower income households are more highly represented in poor health statistics. One reason we’re told is that unhealthy food per calorie is cheaper than healthy alternatives and, therefore, low income households tend to consume proportionately more unhealthy food resulting in poorer health outcomes. Thus, supporters of fat taxes would argue they may be “regressive” but their outcomes are “progressive”.

If countries follow Professor De Schutter’s advice and those arguing for fat taxes New Zealand could well find itself grappling with how best to tax unhealthy food.

The tobacco model would suggest some sort of excise tax.

Personally I think GST has to be the preferred mechanism for implementing this sort of policy. Sure it flies in the face of our “pure” GST system, of which we have every right to be very proud. It’s the most efficient VAT/GST in the world. However, it just makes sense to me. Why add another tax to businesses and the IRD when they already have a collection system that they’re quite used to?

Yes, there’s complexity with having a higher GST rate for certain products but that’s going to arise whatever mechanism is used for any fat tax. The legislation is going to have to be very clear on what’s in and what isn’t. As long as that part is got right the added complexity for most businesses will be no more than businesses all over the world already deal with.

The problems with differential rates in VAT/GST systems arise mainly from definitional issues. What items are caught by the higher rate? Any legislation taxing unhealthy foods would have to find a clear, scientific way for identifying those items. Provided that can be done I think the best way to impose any such tax is to have a higher GST rate for those items.

Cheers

Iain

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One response to “Fat taxes

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  1. Reblogged this on Mid market madness and commented:

    Sugar taxes are back in the news with the UK Budget announcement to introduce one: http://www.theguardian.com/uk-news/2016/mar/16/budget-2016-george-osborne-sugar-tax-growth-forecast-falls

    There is evidence they work but they need to be significant to have any real impact.

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