Sugary Drink Tax Information
LiveLighter’s Key Messages
- As part of a comprehensive approach to overweight and obesity, a tax on sugar-sweetened beverages has the potential to reduce consumption, which may result in substantial health benefits.
- Price is a significant factor affecting the consumption of sugar-sweetened beverages. It has been estimated that a 20 per cent tax, if passed on to consumers, could reduce consumption of sugar-sweetened beverages by 12.6 per cent, with a corresponding decline in obesity of 2.7 per cent (0.7 percentage points) among men and 1.2 per cent (0.3 percentage points) among women.[i]
- A tax on sugar-sweetened beverages may also have the benefit of encouraging reformulation by manufacturers, increasing the demand for healthier drinks (such as water and low fat milk), educating the public about the health risks associated with sugary drinks, and raising considerable revenue, which may further assist to reduce the health burden if redirected to other preventive health measures.[ii]
What are sugary drinks?
For the purpose of this information sheet, the term ‘sugar-sweetened beverages’ or ‘SSBs’ encompasses all non-alcoholic, water based beverages with added sugar, including sugar-sweetened soft drinks, energy drinks, fruit drinks, sports drink and cordial. This term does not include milk based products, 100% fruit juice or non-sugar sweetened beverages (such as artificially sweetened drinks). ‘Sugar sweetened soft drinks’ refers to all non-alcoholic carbonated drinks, excluding non-sugar sweetened varieties and energy drinks. The term ‘fruit juice’ includes only 100% fruit juices.
Australians are consuming too many sugary drinks
Recommendations about sugary drinks consumption
Guideline 3 of the 2013 Australian Dietary Guidelines (ADGs) states that Australians should limit intake of foods and drinks containing added sugars.[iii] The ADGs also note that sugar sweetened drinks are the largest source of sugars in the Australian diet[iv] and that energy from sugary drinks, in particular, may add to total energy intake without displacing energy consumed from solid food, which may contribute to excess energy intake through lack of impact on satiety.[v]
The World Health Organisation (WHO) recommends a reduced intake of free sugars throughout the life course, with free sugars (those added to beverages by the manufacturer) reduced to less than 10 per cent of total energy intake.[vi] The WHO notes that a further reduction to below 5 per cent or roughly 27 grams (just under seven teaspoons) per day would provide additional health benefits, and that a single can of sugar sweetened cola contains up to 40 grams (to teaspoons) of added sugar.[vii]
Data concerning consumption
In 2014, Australia had the 11th highest consumption of soft drinks, with Australians annually consuming 86.8 litres per capita.[viii]
Over half of all Australians exceed the WHO recommendation that energy from added or ‘free’ sugars be limited to less than 10 per cent of dietary energy. [ix] In 2011-12 Australians consumed an average of 60 grams of added sugar per day (equivalent to 15 teaspoons), with an average of 51 per cent of this added sugar coming from beverages (including fruit juice and sugar added to alcoholic beverages).[x] For those aged 19-30, beverages contributed over 60 per cent to total free sugar consumption.[xi] The proportion of people consuming sugar-sweetened beverages and the proportion of dietary energy obtained from added sugars was highest (67 per cent) for males aged 14-18 years.[xii]
People living in areas with the highest levels of disadvantage are more likely to drink sugar sweetened beverages than those living in areas of least disadvantage (38 per cent in the most disadvantaged quintile compared with 31 per cent in the least disadvantaged).[xiii] In 2012-13, half of Aboriginal and Torres Strait Islander people consumed sugar sweetened beverages, and the proportion of Aboriginal and Torres Strait Islander children aged 2-3 consuming soft drinks was three times higher than that of non-Indigenous children.[xiv]
Evidence regarding the relationship between sugary drinks and obesity
While overweight and obesity are complex conditions with multiple causes, there is evidence demonstrating a significant association between sugar-sweetened drink consumption, long-term weight gain, and increased risk of type 2 diabetes.[xvii]
Sugar sweetened drinks are energy dense and nutrient poor, and the association with weight gain appears to be related to the reduced effect of satiety of sugars in a liquid medium.[xviii]
There is evidence that people who consume sugar sweetened drinks compensate less for consumption by reducing energy intake from other foods and drinks than that for energy consumed in solid form.[xix] This means that consumption of sugar sweetened drinks can lead to increased total energy intake.[xx] The relationship between high sugary drink consumption and elevated BMI has been observed in adults and children, including 2-5 year olds.[xxi] Females who are overweight or obese are more likely to drink sugar sweetened beverages than those who were of normal weight.[xxii]
The literature review used to inform the 2010 Dietary Guidelines for Americans found strong evidence that greater intake of sugar-sweetened drinks is associated with increased adiposity in children and moderate evidence that consumption is associated with increased body weight in adults.[xxiii] It has been estimated that sugar-sweetened beverages account for at least 20 per cent of weight gained between 1977 and 2007 in the US population.[xxiv]
Does tax lead to a reduction in consumption?
Consumers tend to reduce consumption of a good in accordance with increases in price.[xxv] There is evidence, both from international examples (explored below) and modelling studies, that taxes on sugary drinks can significantly reduce consumption, resulting in improved weight and health outcomes.[xxvi]
Generally speaking, higher the sugary drinks price increase, the greater the reduction in consumption.[xxvii] A higher tax rate, combined with gradual increases, and a broader tax base (in terms of the range of products taxed), is likely to result in a greater decrease in consumption, and has greater potential to benefit health.[xxviii] Most researchers who have focused on taxes for sugar sweetened beverages using model based approaches (given the lack of working examples ) have recommend that taxes be set at a minimum of 20 per cent in order to observe the higher reductions in purchases and consumption that may translate to positive health outcomes.[xxix]
A 2015 Australian study has examined the potential impact of a 20 per cent valoric tax on sugar sweetened beverages (excluding fruit drinks, energy drinks and cordials), simulating the impact of the tax as if in place from 2010 onwards.[xxx] The study used consumption data from the 2011-12 AHS, and assumed that the tax would be passed on in full to consumers, as has been demonstrated when applied to whole countries.[xxxi] The study found that the 20 per cent increase in price of sugar sweetened beverages could[xxxii]:
- Result in an average change in consumption from 141g/day to 124g/day for men and from 76 to 67mg/day for women, with a resultant reduction of 16kJ per day for men and 9kJ for women.
- Give rise to a reduction in the prevalence of obesity of 2.7 per cent among men (0.7 percentage point), and 1.2 per cent among women (0.3 percentage point).
- Reduce the number of type 2 diabetes cases by 800 per annum, and 1600 fewer deaths over 25 years.
- Raise taxation revenue in excess of $400 million per year, even where taking into account changes in consumption in response to the tax.
Other benefits of a sugar sweetened beverage tax
In addition to reducing consumption, a tax on sugary drinks may also present a number of other health benefits, including[xxxiii]:
- An increase in demand for healthier drinks that do not attract tax, such as water and low fat milk.
- Reformulation of drinks by manufacturers to reduce sugar content.
- Education of the public about the health risks associated with sugary drinks. A tax is a way to establish that the government sees sugary drinks as a matter of concern for public health.
- Raising considerable revenue, which may further assist in reducing overweight and obesity if redirected to other public health projects.
Despite the numerous benefits of a tax on sugar-sweetened beverages, the most common argument put forward by opponents to the tax is that food and beverage taxation is regressive, as lower income households spend a higher proportion of their income on food.[xxxiv] However, studies of taxation impacts have found that lower income groups are generally more responsive to price increases.[xxxv] As noted above, those who are most disadvantaged are also most likely to consume sugar sweetened beverages. In this respect, lower income groups would stand to derive the greatest health and obesity related benefits from any reduction in consumption from an increase in price,[xxxvi] and the sugary drinks tax could be seen as an equalizing health policy.[xxxvii]
Where the goal is to alter the prices of healthy compared with unhealthy foods, instruments in the form of subsidies for lower income groups may assist to offset any regressive impact of food taxes.[xxxviii] Revenue from a sugary drinks tax could be redirected to lower income groups through a subsidy for healthy foods such as fruits and vegetables.[xxxix]
Where have sugary drinks taxes been implemented?
The WHO has urged governments to consider economic policies, including taxes and subsidies, to improve the affordability of healthier food products, discourage the consumption of less healthy options and to achieve goals for improved health and contained obesity rates by 2020.[xl]
Sugar-sweetened beverage taxes have become an increasingly popular anti-obesity measure over the past decade. In March 2016, the UK Government announced that it will introduce a soft drinks industry levy to help tackle childhood obesity, by incentivising companies to reduce sugar in the drinks that they sell.[xli] Revenue raised from the soft drinks levy will be used to fund primary school sports.[xlii] It is also expected that a tax on sugar-sweetened beverages, aimed at reducing excessive sugar intake, will also commence in South Africa in April 2017.[xliii] Taxes on sugary drinks and soft drinks have been implemented in Chile, a number of pacific island countries, Finland, Hungary and France.
In January 2014, the Mexican government implemented an excise tax of one peso per litre (approximately 10 per cent) on sugary drinks (defined to include all non-dairy and non-alcoholic beverages with added sugar).[xliv] The tax was intended to be an anti-obesity measure which would introduce a ‘culture of change’ in Mexico.[xlv]
The Mexican tax has been effective in reducing consumption of sugary drinks. An observational study that compared purchases of beverages from January 2014 to December 2014 found that purchases of taxed beverages decreased by an average of six per cent during 2014, and with the rate of decline increasing to 12 per cent by December 2014.[xlvi] The study also found that while taxed beverage consumption decreased for all groups during the year, reductions were highest amongst households of lower socioeconomic status, averaging a 9 per cent decline during 2014, and up to a 17 per cent decrease by December 2014.[xlvii] Purchases of untaxed beverages were 4 per cent higher, mainly due to increases of sales of bottled water.[xlviii]
The Mexican sugary drinks tax experience demonstrates that even a relatively small tax (approximately 10 per cent, compared with the 20 per cent that is recommended by most researchers) can result in a noticeable reduction in the demand for sugary drinks.[xlix]
In March 2015, the City of Berkeley in California became the first United States jurisdiction to implement an excise tax on sugar-sweetened beverages.[l] The $0.01 per ounce tax applies to a range of sugary drinks including soft drinks, energy drinks, sports drinks, sweetened water, sweetened coffee and tea and syrups used to make sugary drinks.[li]
A recent study of the Berkeley tax compared the frequency of sugary beverage consumption before and after March 2015 and found that the tax has given rise to a 21% reduction in consumption of sugary drinks, with 69% of the tax passed on to consumers through higher beverage prices.[lii] The study noted that this greater than predicted reduction in consumption of sugary drinks could reflect the effects of campaigns surrounding the tax (focusing on the health harms of sugary drinks and the inappropriate behaviour of the sugary drinks industry) which may have shifted social norms.[liii]
Denmark – Fat Tax
In October 2011, Denmark introduced saturated fat tax applying to foods with more than 2.3 per cent saturated fat, including meat, dairy products, butter oils and margarine, as well as foods containing these ingredients, such as pizza and pre-cooked meals.[liv] While the tax was abolished in January 2013, it was observed to be effective in that it gave rise to a reduction of consumption in Denmark of saturated fat of 10-15 per cent during the applicable period.[lv]
What should the Federal Government do?
While there are many ways in which fiscal disincentives can be enacted, the Federal Government could impose a sugary drinks using existing tax structures, which would lower the costs of administration and implementation.[lvi]
For example, a sugary drinks tax could be imposed at a federal level using an item-specific excise tax, such as those currently imposed on tobacco, fuel and alcohol (other than wine).[lvii] In Australia, excise taxes are often used to mitigate the societal costs of goods that are not borne by the buyer or the seller, such as the healthcare costs associated with tobacco.[lviii] A volumetric tax has the benefit of being applied by volume, rather than as a percentage of the price as with GST, which works as a disincentive to counteract the effect of volume discounts.
As noted above, the tax should give rise to a sugary drinks price increase of at least 20 per cent, and revenue should be redirected to other preventive health strategies. A sugary drinks tax should be implemented as part of a comprehensive approach to reducing sugary drinks consumption, and should feature alongside public education campaigns and restriction of sale of sugary drinks in schools, children’s settings and public institutions.[lix]
[i] J Veerman, G Sacks, N Antonopoulos, J Martin, ‘The Impact of a Tax on Sugar-Sweetened Beverages on Health and Health Care Costs: A Modelling Study’, PLoS One (2016) 11(4), p. 4.
[ii] Obesity Policy Coalition, Policy Brief – The Case for an Australian Tax on Sugar-Sweetened Beverages (2015), p. 4
[iii] National Health and Medical Research Council, Australian Dietary Guidelines 2013, 2013, Canberra, p. 67.
[iv] Ibid, p. 76.
[v] Ibid, p. 22.
[vi] World Health Organisation, Guideline: Sugar intake for adults and children, 2015, Geneva, p. 4.
[viii] Rethink Sugary Drink, p. 3.
[ix] Australian Bureau of Statistics, Australian Health Survey: Consumption of Added Sugars (2016) Canberra, p. 6.
[x] Ibid, p. 10.
[xiii] Australian Bureau of Statistics, Australian Health Survey: Nutrition First Results – Food and Nutrients 2011-12: Consumption of Sweetened Beverages (2016) Canberra.
[xiv] Ibid, as sourced from the 2012-13 National Aboriginal and Torres Strait Islander Nutrition and Physical Activity Survey.
[xv] Australian Bureau of Statistics, Australian National Health Survey: First Results 2014-15 (2015) Canberra, p.2.
[xvii] Obesity Policy Coalition, p. 2.
[xviii] National Health and Medical Research Council, p. 78.
[xxi] Obesity Policy Coalition, p. 2.
[xxii] L Lei, A Rangan, V Flood and J Louie, p. 875.
[xxiii] National Health and Medical Research Council, p. 20. See US Department of Agriculture and US Department of Health and Human Services, Dietary Guidelines for Americans, 2010, Washington.
[xxiv] Australian National Preventive Health Agency, Obesity: Sugar-Sweetened Beverages, Obesity and Health (2014), Canberra, p. 4.
[xxv] L Kaplin and A Thow, ‘Using economic policy to tackle chronic disease: Options for the Australian Government,’ Journal of Law and Medicine, 2013, 20, pp. 604-620, p. 605.
[xxvi] See K Brownell et all, ‘The Public Health and Economic Benefits of Taxing Sugar-Sweetened Beverages,’ The New England Journal of Medicine, 2009, 361, p. 1604 and M Escobar et all, ‘Evidence that a tax on sugar-sweetened beverages reduces the obesity rate: a meta analysis,’ BMC Public Health (2013) 1072.
[xxvii] Brownell et al., p. 8.
[xxviii] L Cornelsen and A Carreido, ‘Health-related taxes on foods and beverages,’ Food Research Collaboration, 2015, p. 1.
[xxix] M Colchero et all, ‘Beverage purchases from stores in Mexico under the excise tax on sugar sweetened beverages: observational study,’ BMJ, 2016, 352, p. 2.
[xxx] Veerman et all, p. 4.
[xxxiii] Obesity Policy Coalition, p. 1.
[xxxiv] L Powell and F Chaloupka, ‘Food prices and obesity – evidence and policy implications for taxes and subsidies,’ The Milbank Quarterly, 2009, Vol 87, No. 1, p. 247.
[xxxv] Cornelsen and Carreido, p. 14.
[xxxvii] OPC, p. 4.
[xxxviii] Powell and Chaloupka, p. 247.
[xl] World Health Organisation, Global Action Plan for the Prevention and Control of Non-communicable Diseases 2013-2020; World Health Assembly, May 2013, Geneva, p. 32.
[xli] HM Treasury (UK), Budget 2016, London, p. 3.
[xliii] Republic of South Africa National Treasury, Taxation of Sugar Sweetened Beverages – Policy Paper, 2016, p.
[xliv] Colchero et all, p. 2.
[xlv] Sarah Boseley, ‘Mexico to tackle obesity with taxes on junk food and sugary drinks,’ The Guardian, 2 November 2015.
[xlvi] Colchero et all, p. 1.
[l] J Falbe et all, ‘Impact of the Berkeley Excise Tax on Sugar-Sweetened Beverage Consumption,’ American Journal of Public Health, 2016, New York, p. 1.
[liii] Ibid, p. 5.
[liv] M Bodeker, ‘The rise and fall of the world’s first fat tax,’ Health Policy, 2015, 119, p. 740.
[lv] Dejgard et al., “The Danish tax on saturated fat – short run effects on consumption, substitution patterns and consumer prices of fats” (2013) 42 Food Policy 18-31.
[lvi] OPC, p. 5.
[lvii] L Kaplin and A Thow, p. 609.
[ [lix] Ibid, p. 5.