A sugar tax, does it really work?

The Belgian Federal Government decided in its Summer Agreement to extend the tax on sugary drinks. In the context of an optimal tax mix, this measure can be justified. Taxing negative items (in this case, the consumption of sugar) is always better than taxing positive ones (such as labour). However, the measure falls short when it comes to combating health problems such as obesity or dental decay. This is because the tax is too small to actually change consumer behaviour. Moreover, to be effective the measure must be part of a broader preventive health policy. The first steps have been taken towards a major nutrition plan in Belgium, but much work remains to be done.

This summer, the Belgian Federal Government extended the tax on sugary drinks. The so-called ’sugar tax’ was introduced two years ago in the context of the tax shift that was adopted at that time. It is now being extended to soft drinks without sugar, but with a zero-calorie alternative sweetener. The rationale behind the broadening of the tax is that these so-called light or zero drinks also encourage people to consume sugary products. The extended sugar tax is expected to deliver EUR 75 million to the Belgian Treasury in 2018.

The Belgian sugar tax is controversial for various reasons. A first practical objection relates to the way the sugar tax is being introduced. In particular, it is clearly a stop-and-go policy, which gives rise to economic uncertainty. When the tax was introduced at the end of 2015, it was intended to generate EUR 50 million in the first year. This amount would be increased each year to reach EUR 250 million at cruising speed by 2020. In this context, a ’real’ sugar tax would be introduced in 2017 on all sugar products. This was intended to help finance the reduction in the tax burden on labour. However, at the end of 2016, the government decided to abandon the extension of the tax. At the time, it believed that this would seriously affect the purchasing power of Belgian households. The tax is now on the agenda again for the draft budget for 2018.

More fundamentally, there is the question of whether a sugar tax (or fat tax) is an effective measure to reduce health problems such as obesity, diabetes and tooth decay. Before going into more detail on this, it is necessary to mention that the problems listed do indeed constitute a point of attention, in particular for public policy. According to the Scientific Institute for Public Health, the number of Belgians suffering from obesity is clearly increasing. For example, the latest survey shows that 14% of the population over 18 years of age is obese (i.e. has a Body Mass Index above 30). 90% already has teeth affected by dental decay at the age of 30.

In essence, the fight against the health problems mentioned above and ’welfare diseases’ more generally, is tantamount to achieving sustainable behavioural changes among the population. This can be done by intervening in pricing. Often it is still the case that the most healthy dietary choices in the department store are also the most expensive. The government can change this by means of a tax on unhealthy food, like sugar or fat. However, there are arguments to be cautious about their introduction.

Health psychologists point out that a sugar or fat tax only works when you make unhealthy food considerably more expensive and the tax is part of a broader preventive health policy. According to the World Health Organisation (WHO), the tax only has a proven effect on reducing unhealthy eating when it reaches at least 20%. The Belgian sugar tax is only a few euro cents per litre of soft drinks. This is too little to actually change people’s consumption behaviour.
There is also the problem that a tax on unhealthy food is regressive, i.e. it weighs relatively more heavily on the budgets of poorer families. Poor dietary choices are often caused by poverty. By making unhealthy products more expensive, poverty is likely to increase. Therefore, if a sugar tax were to be introduced, the yields would preferably have to be used to make healthy food cheaper, so that it would be within the reach of poorer families.

It is also advisable not to place additional burdens on specific products, but to design a generic tax for all food products, for example based on the calorie content. If just one type of product (such as soft drinks) is taxed more, consumption may shift to other unhealthy foods (e.g. confectionery). Such avoidance behaviour will certainly occur if the tax is sufficiently high to be effective. In small countries, such as Belgium, cross-border shopping moreover will result in citizens buying cheaper unhealthy food abroad. Experience with a fat tax in Denmark, where it has since been removed, shows that citizens hardly changed their eating habits there. Instead they went to Germany and bought the fattening food there, which also caused many jobs in their own food industry to be lost. In order to avoid cross-border consumption of unhealthy foods, a sugar or fat tax needs to be introduced in a more coordinated way at European level.

The Belgian authorities took little account of the above arguments when drawing up the sugar tax. The main purpose of the measure is therefore to finance the tax shift and to help make public finances healthy, rather than to improve the health of Belgians. It may seem surprising, but that view can be defended in itself. Even if citizens do not change their consumption behaviour, the sugar tax works, but only in the context of an optimal tax mix. Taxing negative matters (in this case sugar consumption) is always better than taxing positive ones (such as labour). In that case, however, the tax may not be communicated to citizens as a health policy measure. After all, the sugar tax can result in either additional tax revenues or in health gains, but not both at the same time.

An effective health policy consists of several policy measures. Steering taxes are appropriate, but they must be effective and form part of a broader preventive policy aimed at a healthier population. Direct intervention in the lifestyles of citizens, for example through regulation, is usually not desirable because it is often seen as patronising and interferes with individual freedom of choice. After all, when a person eats fat or sugar, this is not bad in itself. It is the quantity of fat or sugar that matters. Therefore, it is better to indirectly influence behaviour via people’s living environment by supply measures that keep freedom of choice intact (e.g. increasing the supply of healthy food, providing sufficient playgrounds, cycleways and easily accessible sports infrastructure, limiting soft drinks in schools, designing buildings so that stairs will be used more often than elevators).

With its Covenant on Balanced Nutrition, the Belgian government has taken already a good step in this direction. This partnership with the food industry and retail trade, which was signed in the spring of 2016, aims to make a wide range of frequently consumed food products healthier. It would make sense to set up more similar initiatives with other partners, such as schools, sports organisations, health care providers, employers, etc. This could then result into a major integrated nutrition plan. Unlike a small sugar tax, this will really benefit public health.