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Soda taxes all fizz, no substance in changing consumers' habits

Such taxes do little to reduce consumption of targeted products, don't change health habits and can produce perverse, unintended consequences

HALIFAX, N.S.— The New Brunswick Medical Society (NBMS) has released the results of a survey about various health-related public policies. Chief among its recommendations is a tax on sugary drinks.

At first glance, the logic of a soda tax appears to be sound. Higher costs on unhealthy food items should encourage people to purchase and consume less of them, resulting in fewer unhealthy calories and better health.

However, a soda tax is not a new idea and the evidence of how these policies actually work should give New Brunswickers pause.
Experience elsewhere suggests that such taxes do little to reduce consumption of the targeted products, don't change overall health habits and can produce perverse, unintended consequences.

The NBMS report cited Mexico's one-peso-per-litre soda tax, saying it showed signs of success in depressing soda sales since its introduction in 2014. While soft drink sales did decline in Mexico by six per cent during the first year of the tax, sales have since rebounded. Mexico's two biggest Coke bottlers reported in April 2016 that their sales were 5.5 and 11 per cent higher than the previous year.

Other taxes seeking to reduce consumption of particular food products have had limited impact.

In 2011, Finland began taxing sweets, increasing the price of confectionary by 14.8 per cent. Yet consumption only declined by 2.6 per cent in the first year.

And 15 months after Denmark introduced a fat tax in 2011, only seven per cent of Danes had reduced their fat intake.

These small consumption declines occurred in the aftermath of the Great Recession. Ongoing changes in consumer tastes may also explain part of the decline. Soft drink consumption in the United States, for instance, has declined by more than 25 per cent since the mid-1990s, long before debates about soda taxes began and before various cities introduced them. So these declines could have occurred even without new taxes.

While soda consumption may have slowed slightly in jurisdictions that introduced targeted taxes, it hasn't resulted in an overall improvement in health outcomes. A review of sugar taxes by the Institute of Economic Affairs (IEA) found that, in response, consumers tended to switch to cheaper brands or suppliers, or to other high-calorie drinks such as juice, milk or alcohol.

The same survey cited a 2011 U.S. study that found changes in food prices have no effect on obesity rates. According to The Economist, various U.S. states with fizzy drink taxes of three to seven per cent have raised revenue from said taxes but only marginally affected consumption.
So when people want to consume calories, they'll get them in one form or another.

Soda taxes could have perverse effects in the larger economy. Denmark introduced a tax on sweetened soft drinks in the 1930s and by 2013, it was bringing in €60 million a year. However, the Danish government also estimated it was losing €38.9 million in sales tax revenue due to illegal soft drink sales, effectively negating nearly two-thirds of the revenue. The tax was repealed in 2014.

Denmark's fat tax, meanwhile, caused 1,300 job losses from 2011 to 2013, because Danish shoppers crossed into neighbouring Germany and Sweden to make purchases at lower prices.

The perverse effect of tax increases on some products will be familiar to New Brunswickers. That province's liquor sales monopoly artificially inflates the price of alcohol, encouraging savvy consumers to purchase cheaper booze in Quebec. We can assume a soda tax in New Brunswick will encourage more illegal soft drink sales and out-of-province purchases.

The theoretical merits of a soda tax are not fulfilled by experience. Indeed, given the actions of recent provincial governments, there's a risk that a soda tax in New Brunswick will simply become another means of squeezing more tax dollars out of citizens, without contributing a whit to overall public health.

Patrick Webber is a research associate with the Atlantic Institute for Market Studies. He is the author of Measuring Austerity in Atlantic Canada, a study published by the AIMS.