Sweet Tax Temptation

Giovanni Francesco Caroto: Sophonisba Drinking the Poison // Public domain

Slovakia’s new government has finally succumbed to the Sweet Tax Temptation, as we called it in our last publication. The Ministry of Finance has published a preliminary announcement describing its intention to introduce the tax.

You read that right; it is not the Ministry of Health that is in charge of the health of the population and the sustainability of health spending. It is the Ministry that is in charge of filling the public purse, and the explanation for the proposal for this tax is along the same lines. We disagree with the proposal for this tax, and we have published our expert arguments in our study, “The Sweet Tax Temptation.” We have, therefore, responded to the comments on the preliminary information with the following text.

INESS comment:

According to the preliminary information, the basic objective of the proposed tax on sweetened beverages is to introduce the tax “as an effective instrument proven by the practice of several OECD countries with significant potential to motivate consumers to adopt healthier lifestyles”.

The Ministry’s hypothesis is that a tax on sugar-sweetened beverages can reduce healthcare expenditure. However, it is very difficult to find support for this causality in scientific studies based on real data. A tax on sugary drinks does have the ability to reduce consumption of sugary drinks, but this behavioral change is still far from improving the health status of the population.

First, consumers can reach for substitutes. They can satisfy their need for ‘sweet’ by buying other sweet products, desserts. There may be no decrease in caloric intake. A particular problem is shopping abroad for sweetened beverages.

Secondly, even if there is a decrease in caloric intake, this does not translate into an improvement in health, as sugar accounts for only a small proportion of the calories consumed.

Thirdly, unlike, for example, smoking – tobacco, which, due to combustion, is in principle harmful even in small quantities – this is not the case with sugar (carbohydrates), which are an essential part of the diet. The tax will also have a negative impact on taxpayers in excellent health. It is therefore questionable whether this negative impact is at all outweighed by the uncertain benefits of the proposed tax.

The Ministry refers to examples of countries that have already introduced the tax. This suggests that the Ministry lacks an analysis that looks at the actual effect of the tax. There are quite a few countries in the EU that have seen an increase in overweight or obesity rates following the introduction of this tax. This is contrary to the expectation of improving health and reducing health spending. Academically, we can only speak of a slowdown in the rise in obesity, which can only be proven by models with arbitrarily set assumptions.

The proposal for a tax on sweetened beverages comes at a time when Slovakia is witnessing a long-term trend of declining consumption of sweetened beverages. Despite falling consumption, obesity rates are not falling and it is very likely that the new tax will not reverse this trend either.

The only true claim is that the tax revenue will increase state revenue, but that does not mean that it will actually contribute to consolidation, given the amount of new spending that the new government is coming up with. Meanwhile, the tax on sugary drinks is regressive. It will mainly affect people on lower incomes, which will negatively affect income inequality statistics (as measured by after-tax income).

That the real interest of the promoter is only in a higher excise duty burden is evident from the fact that there is no mention in the preliminary information of linking the revenues of this tax to addressing the high costs of obesity and overweight.

Based on the above, we propose not to proceed with the drafting of the sweetened beverages tax bill until the Ministry of Finance, in collaboration with the Ministry of Health, presents a focused analysis that credibly demonstrates the relationship between current consumption of sweetened beverages and the rising obesity rate in Slovakia. The blanket statement ‘everybody says so’ does not hold water. The drafting of Slovak legislation should also be ‘evidence-based policy’ legislation.

Such an analysis should include a projection of what effect the tax will have on health spending over 3-5 years. If these targets are not met, the tax should be abolished or adjusted accordingly.

Given the limited ability of this tax to reduce health expenditure, a critical part of the proceeds of this tax should be allocated to effective obesity and overweight reduction programs (e.g. funding for counselling centers, couching, active mentoring of patients).

In line with OECD recommendations, the proposal to increase indirect taxes (such as the tax on sugar-sweetened beverages) should be combined with a reduction in direct taxes (VAT or levies).

Translated by Sofia Tokošová

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