By Eric Crampton 02/02/2018 5

Sugar taxes just are not effective in improving health outcomes. When we surveyed the evidence for our report, The Health of the State, we found no compelling reason to think the things would work. NZIER’s report for the Ministry of Health reaches the same conclusion.

First, some backstory and grousing about document release under OIA.

Back in October, I requested that the Ministry of Health provide me a copy of the report it had commissioned reviewing the effects of sugar taxes.

The Ministry of Health delayed my request under section 9(2)(f)(iv) “to maintain the constitutional conventions for the time being which protect the confidentiality of advice tendered by Ministers of the Crown and officials”, and under 18(d) as the report would soon be publicly available. But they never said how long ‘soon’ was.

I interpreted that combination as meaning they needed time to brief the Minister. I advised the Ministry that as I expected that it would take a fortnight to brief the Minister on the report, I’d be following up with the Ombudsman at that point.

The Ombudsman’s Office provided a helpful hurry-along, reminding MoH of its preference that ‘soon’ have a definite date around it.

I received a copy of the report on Wednesday by courier, 50 working days after the initial request for a report that was just sitting on the desk at MoH. It’s also now up on NZIER’s website, which is fortunate as the only digital copy MoH was willing to provide would have been unusable: image files in a PDF rather than searchable text.

But enough complaining about the OIA.

It looks like NZIER found the same thing that we did. They reviewed forty-seven peer-reviewed studies and working papers published over the last five years.

In our review of the literature, we find that:

  • Taxes do generally appear to be passed through to prices and some reduced demand is likely
  • Estimates of reduced intake are often overstated due to methodological flaws and incomplete measurement
  • Price elasticities from early studies with fundamental methodological flaws have later been used in a number of other studies to assess the impact of sugar taxes, resulting in significantly overestimated reductions in demand
  • There is insufficient evidence to judge whether consumers are substituting other sources of sugar or calories in the face of taxes on sugar in drinks
  • Studies using sound methods report reductions in intake that are likely too small to generate health benefits and could easily be cancelled out by substitution of other sources of sugar or calories
  • No study based on actual experience with sugar taxes has identified an impact on health outcomes
  • Studies that report health improvements are modelling studies that have assumed a meaningful change in sugar intake with no compensatory substitution, rather than being based on observations of real behaviour.

The evidence that sugar taxes improve health is weak.

The NZIER report notes that the Ministry was particularly interested in the evidence around taxes on sugar-sweetened beverages.

The report emphasises that sugar taxes only improve health outcomes through a chain that must hold at every link. Imposing the tax must increase prices; increasing prices must reduce consumption; reducing consumption must reduce energy intake; reduced energy intake must reduce physiological risk factors.

When NZIER evaluated the literature, they found substantial reason to worry about the chain that leads from taxes to potential health benefits. They find causality hard to determine; problems in estimates of consumption elasticities; difficulty in finding links between taxes and health outcomes; and little work on optimal tax design.

They conclude:

As we noted in the section on frameworks, there are multiple steps in the chain of intervention logic from the well-established principle that an increase in the price of a good leads to a reduction in consumption of that good and, all else equal, to an improvement in health outcomes.

There have been several recent examples of governments imposing taxes on sugar with the intention of improving health outcomes and, thus an extensive literature examining the effects of those taxes.

Our conclusion is that the evidence base gets weaker further along the chain of intervention logic.

If taxes did not have economic costs, through deadweight losses and implementation costs, then even a slight causal link between a tax and an improvement in health outcomes might be justified. That, however, is not the case.

We have yet to see any clear evidence that imposing a sugar tax would meet a comprehensive cost-benefit

Anti-sugar campaigners have framed opposition to sugar taxes as reflecting the pecuniary interests or ideology of those opposing those taxes. The evidence instead suggests that those taxes would have little discernible effect on health outcomes and would be unlikely to pass any cost-benefit assessment.

5 Responses to “Sugar taxes – NZIER’s advice”

  • Hi Eric, you may know more on the subject than me, but from what I understand, taxes did eventually lead to reductions in smoking. Could the same occur with sugary drinks?

  • Yup! But remember that cigarette taxes are around 150% of the price of the base tobacco for the cheapest cigatettes. If you put in an across the board sugar tax that saw the price of soda rise from a buck a can for cheap ones to $2.50 per can, I’d be surprised if there weren’t an effect.

    • The other distinction would be the shorter intervention chain. For cigarettes, price goes up, consumption goes down, and mortality from smoking declines. For sugar, there’s an extra step. Even if sugar consumption drops, daily kJ intake must also decline before obesity can be effected. That last step is far more complicated because of the array of substitution possibilities.

      • Very true. There are many substitutes for sugar that are high in kilojoules and unhealthy in many ways. Also, because we are usually talking about sugar-sweetened beverages, many of the possible substitutes are also high in sucrose or fructose, like pure juices or lollies. Sugar tax supporters like to say that sugar is addictive and yet they also like to claim that replacing a can of fizz with a bag of lollies is implausible. Surely an addict will do whatever is necessary to get their fix. Furthermore, sugary drinks provide lots of room for within-category substitution and significant price variation week-by-week across different retailers, that allow consumers to offset a tax. Cigarettes are really not a good comparator.

    • Correction here – I was getting the tax number from memory. I checked it more recently. The excise on a cheap cigarette is 488% of the value of the pre-tax cigarette. The cheapest cigarettes are about a dollar a stick tax inclusive, and tax on a cigarette is about $0.83. That leaves $0.17 as the value of the cigarette. We could fiddle it a bit to correctly get the GST component out but it’s close enough.

      So if a can of soda were $1, a sugar tax of similar magnitude to current tobacco taxes would bring the price of that up to $5.88.