As the treasurer lauds supply-side economics, a once-controversial recovery theory is gaining traction.This is the essence of modern monetary theory – that government budgeting is nothing like household or business budgeting, for the simple reason that government can create money.
Fighting obesity through sugary drinks pricing
The question is from a tall woman with a booming voice. She is a doctor in central New South Wales, worried by the burden of obesity in the community where she works.
Quite often when I speak, the questions are the same. I specialise in non-communicable diseases, and the talk is mostly about the drivers and outcomes for diabetes, heart disease and cancers.
But this question stood out. It came late in the piece. Somewhat reluctantly – possibly in trepidation of criticism from the colleagues around her – this woman with the booming voice stood and asked, “Sandro, do you support a tax on sugary drinks?”
I paused for a moment and thanked her for her question. It was a great question, and I understood her reluctance and respected her courage in posing it. “The answer to your questions is ‘Yes’,” I said, “but I believe the question itself needs reflection.”
Our global population and its governments are struggling alike with the burden of obesity and resultant non-communicable diseases. With no sign of abating, almost two in three Australians are now overweight or obese, including one in four of our children. Between 1980 and 2011, age-standardised rates of obesity-related diabetes more than quadrupled. One million Australians are now known to live with preventable diabetes and anything up to the same number could be affected but unaware. More than one in three Australians now have a non-communicable disease –such as diabetes, heart disease, stroke, lung diseases and cancers – while one in 50 of us is living with four or more of these serious ailments.
Given the costs and seriousness of the problem, global policy and research focused on addressing obesity and non-communicable disease have taken centre stage in recent years. Since the 2011 High-Level Meeting on Non-communicable Diseases of the United Nations, many solutions are emerging that are cost-effective and present a building evidence-base for a comprehensive response. Measures include food labelling, investments in urban and active transport infrastructure, limitations on the marketing of junk foods particularly to children, school-based food education and more.
One of the lowest hanging fruits, though, is a group of drinks so high in unbound or added sugar that they themselves pose a serious health risk to populations. Known as sugar-sweetened beverages, this group includes soft drinks, reconstituted and concentrated fruit drinks, energy drinks, sports drinks and cordials.
A single can of cola, for example, contains 40 grams or approximately 10 teaspoons of sugar, but contributes almost no worthwhile nutrients to a person’s diet. In the 12 months to October 2012, it was reported that Australians bought 1.28 billion litres of carbonated and still drinks with sugar, with regular cola drinks being the most popular. The result: good evidence exists linking the consumption of these products with increased energy intake, weight gain, diabetes and dental erosion – to name just a few of the problems.
With economic and health costs mounting, governments are working to find a solution. One approach supported by the World Health Organisation is commonly called a “sugar tax”. Empirically effective in many ways, a marginal cost is applied to products that are unhealthy for us or the environment, such as cola, in order to nudge consumers in a better direction. A small disincentive for the easier, more pleasurable and often cheaper options that are linked to disease, towards the choice that will benefit the consumer and the population of which they are part.
One criticism of this approach, though, is its potential to be regressive – placing the largest economic burden on those least able to bear it. As a proportion of low-income budgets, the marginal cost will be less marginal, given the association between low-income households and higher consumption of poorer quality foods and soft drinks. Importantly, however, a second opportunity that such a pricing approach would offer is the ability to use the increased revenue to offset the costs of healthier, more costly foods – foods that have become more expensive over the past 100 years, as junk foods have become cheaper. Another option could be to use revenue to fund primary care, dental care or even child education around healthy eating and good food.
Combined, the concept of a progressive pricing policy on sugar sounds like a good idea. But does it work?
Based on data emerging from Mexico, a nation with one of the highest obesity rates in the world and which in 2014 implemented a one peso additional cost per litre on sugary drinks, the answer is a resounding yes. In the initial analyses, sales of sugary drinks dropped between 6 and 12 per cent across the regions included in just the first year. More impressive, though, is that the greatest reductions were seen in some of the poorest regions, hardest hit by chronic disease and obesity.
This all sounds pretty straightforward: implement a small added cost that doesn’t restrict consumer choice but reduces consumption and offsets the very outcomes or negative externalities created by the product. It is an effective measure that works best in those populations most at risk. Yet apart from a few examples around the world of nations, states or cities that have implemented some iteration of this same idea, it is proving anything but simple. And I think I know why.
Fundamentally, it is not in industry’s interests or mandate to implement an added cost on products that create enormous profits for their shareholders. A bottle of Coca-Cola, for example, can be reduced to three things – sugar, water and a petroleum casing. These three very cheap commodities are then packaged, marketed and sold. Considering the longstanding economic windfall for producers, companies will do anything to create the confusion or concern we need to keep us from implementing important policies such as these.
Coca-Cola recently published a long list of the hundreds of millions they spend “supporting” community organisations, science bodies and even experts throughout society that build and shape the rhetoric on scientific research and policy implementation. This is in the shadows of the $4.6 billion Coca-Cola alone spent on advertising in 2013. In the middle of a global plateau in sales, in early 2014, Coca-Cola’s global CEO Muhtar Kent pledged to increase media spending and brand-building initiatives by up to $1.4 billion by 2016.
When a bottle of Coke is consumed, as a population we pay the costs for that product three times. We pay at the point of sale, usually about $2 to $5. What we forget about though, and pay later and often for generations to come, are the environmental costs that are ignored in its manufacturing, transport and recycling, and the health costs caused as a result of the product’s consumption. All three costs are supported by evidence, and all three are substantial.
When we talk about adding a state cost to the sale price of a sweetened drink, we are not actually talking about adding a tax. We are talking about building in the true cost of the product.
Since the birth of soft drinks, we have been subsidising these products. Taxpayers have been footing the bill for the social, health and environmental fallout and been kept from seeing the reality by careful and clever marketing. These drinks might have “brought us happiness” and they might “deliver summer”, but they are also taking a massive toll on the health of our populations and planet, and those costs must be reflected in an informed decision by each of us as consumers at the point of sale.
We are subsidising soft drinks with these hidden payments made out over generations. We’re making the unhealthy artificially affordable and buckling under the economic strain that it truly takes on society.
This is not a “left” versus “right” issue, either – although the industry will tell us otherwise. If we believe a free market will resolve all challenges, collectively paying or deferring the price of products that cause ill health will result in oversupply and gross market failure. At the moment, that market is propped up by aggressive advertising and by the fact it is states rather than companies that pay for the damage these drinks do. Removing this societal subsidy doesn’t restrict or remove choice, but provides consumers with choices that reflect true economic reality. The fundamental flaw is not in the concept or effectiveness of ensuring the cost for sugary drinks reflects the true social and economic costs of the product, but in the framing and understanding of the approach itself.
We should not accept an inaccurate and distracting characterisation of a strong solution to our great challenges. This is not about taxing, this is about removing a subsidy we didn’t know we were paying.
That is why a sugar tax is a terrible idea, but building in the true costs of unhealthy products is a great solution. And that’s what I told the country doctor with her booming voice and her reticent question, the one we don’t ask often enough.
This article was first published in the print edition of The Saturday Paper on Nov 28, 2015 as "Hip-pocket serve".
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