Molinari Institute Report – Nutrition taxes: a broken tool in public health policy

Molinari Institute Report – Nutrition taxes: a broken tool in public health policy

Recent reports by French senators Yves Daudigny and Catherine Deroche and by Professor Serge Hercberg highlight the public health problems (cardiovascular disease, diabetes and cancer) linked to expanding waistlines. The Hercberg report also notes that, since France’s National Nutrition and Health Programme was launched in 2000, it has not halted rises in excess weight, diabetes or hypertension. The solutions suggested in both reports are based on three lines of analysis: (a) the social cost of excess weight; (b) irrational behaviour by consumers; and, to a lesser degree, (c) social inequalities in health. Instituting new taxes on foods targeted for lower consumption would be the main remedy. Subsidies (financed by these levies) for healthful foods would provide new incentives to encourage their consumption. Nevertheless, both reports note that poor nutrition and its consequences are a complex problem that calls for an entire set of solutions, though they mostly favour tax measures. These are not a panacea, however: their effects on changes in dietary habits are often uncertain, making it hard to pursue the stated goals.

 

Conclusion 
The impact of taxes in reducing the consumption of nutritionally poor foods is uncertain.

While the goals may be laudable (though this is questionable), there is a major risk of applying additional constraints on economic activity without getting the expected public health benefits (in particular, improved results from France’s National Nutrition and Health Program) while nurturing a dynamic of government interventionism that is making French society more sclerotic.  Experts and public authorities tend to depict a black‐and‐white situation, whereas reality is far more complex. Excess weight and the pathologies it leads to are a relatively recent problem in the history of humankind. We still lack the full knowledge that could guarantee an adequate solution.

Although nutrition taxes may appear to provide a response, it is important to understand their limits, especially in terms of a rational approach to avoidance, because the economic costs of these taxes are high in the long run. We should not delude ourselves. In this time of strained public finances, an ulterior motive in the renewed interest in this type of levy is to generate more tax receipts. There are many precedents. President Franklin D. Roosevelt ended the prohibition of alcohol in the United States to boost tax revenues. Due to the Great Depression, Congress had an urgent need for financing, and the best way to get it was to institute taxes on alcohol.

It is always preferable to change the context in which individuals make decisions so that they internalise the externalities they create. In this regard, obesity imposes few or no externalities if individuals bear its costs. We must therefore make sure that incentives for reducing obe‐
sity are in place. Nutrition taxes, by imposing the theoretical frame work of caloric imbalance, would limit the emergence of new ideas that could help reduce excess weight. In the end, we need to show a degree of humility toward the social and biological process. Western society, open and based on free enterprise, dates back only to the late 18th century. It is possible that the human body, after many thousands of years of survival in penury, has not yet adjusted to the abundance generated by capitalism.

 

To read the full report, please follow this link http://www.institutmolinari.org/IMG/pdf/note0314_en.pdf

 

 

 

Fat taxes could hit competitiveness thanks to complex rules says EU report

Fat taxes could hit competitiveness thanks to complex rules says EU report

Taxes on foods high in sugar, salt and fat, do reduce consumption but can lead to consumers simply switching brands or finding other ways to purchase fatty foods while avoiding the tax, according to a new report from the European Commission.

Higher taxes “In general do lead to a reduction in the consumption of the taxed products,” the report concluded. However, consumers can use a variety of methods to purchase the foods they want while avoiding the tax, such as buying similar products that do no fall under same burdensome tax regime or switching brands.

Commissioned by the directorate general for enterprise and industry of the European Commission, the study also argues that fat taxes could have a damaging impact on the EU’s agri-food sector.

SMEs would be particularly vulnerable to fat taxes as consumers switch from premium brand producers to cheaper alternatives. Furthermore, taxes would increase the administrative burden, especially if the taxes are imposed on ingredients or if the rules defining which products are liable under the tax are highly differentiated and complicated.

Director of lifestyle economics at the Institute of Economic Affairs (IEA) Christopher Snowdon, told City A.M.:

It’s a basic economic principle that when prices go up, consumption goes down. But price rises have other effects, as this study shows, such as making consumers buy cheaper brands from cheaper shops. People will go to any lengths to eat the food they like, and that is why fat taxes never have any measurable effect on obesity.

The report’s warnings echo research conducted by the IEA last year on Denmark’s saturated fat tax. The tax had a variety of negative economic impacts including the loss of 1,300 Danish jobs. At least 10 per cent of the revenue generated by the tax was ploughed back into administration.

One survey found that only seven per cent of Danish consumers cut their purchases of butter, cream and cheese while 80 per cent did not change their shopping behaviour at all.

However, some Danes did switch brands, and others hopped over the border to Sweden and Germany to shop for their favourite high-fat foods.

The Danish government had hoped to collect 1bn krone (£115m) from the tax. But the amount raised came in at 1.4bn krone, suggesting that reduced saturated fat consumption was less than hoped for.

At the same time, the tax was in operation the market for crisps and snacks grew rather than diminished. Public opinion turned overwhelmingly against the tax. In October 2012, 70 per cent of Danes considered the tax to be “bad” or “very bad.” The policy was abandoned 15 months after its introduction.

UNESDA, which represents the soft drinks industry, said the Commission study, “finds hard evidence from a number of member states on the negative impact which food taxes can have on competitiveness and jobs, leading to an increase in administrative burdens.”

However, while the study made some initial conclusions, it also found that further research will be needed in order to assess more extensively the impact fat taxes could have on the competitiveness of the agri-food sector.

 

Read the full article here

Seeder: Estonia not ready for sugar tax

Seeder: Estonia not ready for sugar tax

Helir-Valdor Seeder, Minister of Agriculture is of the opinion that Estonian society is not ready to support a separate tax on excessively salty, sweet or fatty food products.

People’s awareness should be raised instead, as the latest survey on energy drinks published by Eesti Paevaleht indicates that incorrect conceptions of such drinks are spreading, especially among young people.

Seeder has previously presented the idea of imposing an extra tax on products that contain excessive amounts of sugar or salt in the media, but he now acknowledges that quite a few countries that have tested the tax – including Finland and Denmark – have since revoked it.

“There are quite a few countries that have acted inconsistently in terms of additional taxation, which shows that such taxes aren’t clearly justified and that proper solutions haven’t been found” Seeder said. He clarifies that earnings are insufficient and that the tax would change the prices of all products.

The minister says that promoting healthy dietary habits and exercise as a lifestyle should be the main government focus instead.

 

Please see the Ohtuleht website for more information

Heterogeneous Consumer Responses to Snack Food Taxes and Warning Labels

The experiment assessed the possible effects of targeted snack food taxes on purchase decisions via computer-assisted intercept surveys in Canadian supermarkets. Some key insights from the experiment:

  • “The low own-price elasticities found here provide support to the existing literature that suggests that a tax on less healthy food products would not be an effective way to decrease consumption of these products”.

You can find the whole paper here.

Increase of the Value Added Tax (VAT) on food products: budget and welfare effects for consumers

Increase of the Value Added Tax (VAT) on food products: budget and welfare effects for consumers

On January 1st 2007, German VAT was increased from 16% to 19% – the regular 7% tax on food remained untouched, however. Since then, this 7% tax has been subject to many debates, primarily regarding the effect it would have on different German household groups should the tax in be increased.

Looking at price elasticity models and using data from 11,831 German households, the study confirmed that low-income households and households with children will have a comparatively high welfare loss.

From this study we can see the impact of any tax increase on food products. Food taxes are regressive, and a tax that raises the price of food and beverage products would disproportionately hit the living standards of lower-income households.

The study is available here. To read more about the regressive nature of food taxation see here.