Sugar taxes come not as advertised

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The expression “Bermuda is another world” pops into my mind almost every day; I wish I could say for always good reasons. Sadly, I also think of the expression in a not so positive way as well. The latter was my initial feeling when I read the Sugar Tax Consultation Paper published by the Ministry of Health on January 4.

Why?

Because of the line “ ... while sugary drinks have been the focus of the sugar taxes in other jurisdictions, the tax proposed by Bermuda goes further to include items such as candies and plain sugar”.

I am of the ideological view that taxes generally should be kept to a minimum and there should be minimal interference by the state in the lives of individuals. As such, I am naturally sceptical of new taxes. I am even more sceptical when we believe we administer a tax better than any other jurisdiction; especially so when those taxes of other jurisdictions have not worked.

As I read the paper, I noticed it lacked sufficient references to identify the sources of most of the assertions made, especially given the absoluteness of the paper’s conclusions. For example, vague and unconvincing statements such as “studies have shown” simply is not enough information to make an informed decision without a reference to the particular study — lauding Mexico as the success story for a sugar tax by referring to a 2017 article to support how this is supposedly true does not amount to comprehensive research.

In addition, the paper is woefully lacking in any counter-argument in respect of implementation of a sugar tax and it does not explain the long-term success, if any, that such a tax has had on public health improvements by citing actual statistics from abroad. That is at best sloppy, or at worst intellectually dishonest.

What is clear is that this is not, as the Government will have you believe, a real consultation on whether sugar tax should be introduced. After all the noise about consultation when in Opposition, the Government unsurprisingly is not practising what it preached — or screamed or marched about for that matter, but at least all can opine from both the East End and West End, unlike the all-terrain vehicle consultation.

A sugar tax will be introduced; that much is abundantly clear in the consultation paper. What is being asked is at what levels and on what products the tax should be introduced. In short, we are looking at “pseudo-consultation”. Something, it seems, we should all get used to.

The paper does not suggest what the actual revenue amount will be raised through the levy. That, too, is left for us to speculate. The sugar tax is supposedly being levied and earmarked to “encourage healthy lifestyles”.

So what is the sugar tax supposed to do, other than create a marketing fund for the anti-obesity education cubicle in the Ministry of Health? The theory behind the tax is that higher taxes will result in a higher price for sugary foods. This supposedly will lead to fewer sales and therefore fewer calories — less obesity — and thus better health, thereby reducing the strain on the healthcare network.

As to whether sugar taxes work or not, the paper makes absolute assertions that they do work. But work doing “what” exactly is still as clear as the mud on the Store Hill cow fields on a rainy day. In short, Big Brother says sugar tax will do what it says on the label, so suck it up. And, by the way, we will do it better than everyone else and expand it.

Despite the theory espoused in the paper, how has sugar tax worked in practice? Recent evidence as to practice versus theory has blown a huge hole in the theoretical effect of sugar tax on consumption. I have mentioned above the reference in the paper to Mexico as the sugar tax success story. Let’s look at the Mexican facts in a bit more detail:

• Sugar tax was introduced in Mexico in 2014

• Mexico’s National Institute of Public Health showed that from 2007 to 2013, Mexicans drank per capita 160 litres of soft drinks

• In 2014, they drank 162 litres and in 2015 they drank 161 litres

In other words, despite the laudable theory as to how sugar taxes are supposed to work, Mexicans actually drank more soft drinks after the implementation of the tax than before.

In other jurisdictions such as Finland, when the price of soft drinks rose by 7.3 per cent for two years, the European Competitiveness and Sustainable Industrial Policy consortium found that consumption fell by less than 1 per cent in the first year and by only 3.1 per cent in the second year. This is what Big Brother does not want you to know.

Jack Winkler, emeritus professor of nutrition policy at London Metropolitan University, argues in a number of learned articles on the matter that such taxes could be a positive development in principle, but are usually politically unpalatable and would have to be enormous to have any real effect on changing consumer purchasing patterns. Denmark, for example, withdrew its tax. He adds that food taxes are also economically ineffective and goes on to explain that two rigorous UK studies cited in the British Medical Journal found that a 10 per cent tax would reduce average personal daily intake by 7.5 millilitres — less than a sip — while a 20 per cent tax would reduce consumption by 4,000 calories. He further argues that effects of this size will not reverse global obesity, never mind Bermuda and our small economies of scale. I suspect he is correct.

The British-based Institute of Economic Affairs said: “There is a striking contrast between theoretical studies, which generally predict that such taxes ‘work’, and studies of hard data in places that have actually implemented them, which generally show the opposite. Lacking real-world evidence that sugar taxes are effective as health measures, campaigners continue to cite findings from crude economic models, which do not adequately account for the ability of consumers to choose cheaper or discounted brands, to shop at cheaper shops and to switch to alternative, high-calorie food and drink products.”

Translate this to Bermuda, and the effect of a new and improved sugar tax on public health will be negligible.

The paper is grossly deficient in explaining to the consumer the economic effect the sugar tax could have as a result of raising food prices in both local grocery stores and bakeries. For example, what would a can of Coke cost with the tax versus what it costs now? How much will the restaurant trade and hotel trade have to raise prices? What will a bakery pay extra in taxes for loose sugar to produce doughnuts, or an ice-cream maker to make their frozen treats? How much more is a customer willing to pay before the tax is “eaten” by the small Bermudian business owner who employs a dozen Bermudians that may then have to be laid off? The paper quite openly explains that the Government is not interested in your views on these points.

I suspect that the Government knows that sugar tax will raise costs at the till for the consumer and raise costs for small Bermudian-owned business. However, I suspect that the recently introduced Cost of Living Commission will be tasked with “encouraging” wholesalers to eat the costs themselves. Remember, nothing is what is seems and yet everything is what it seems with this government.

What you should expect is the implementation of an anti-obesity education campaign, expanded possibly, which supposedly will be funded using sugar-tax revenue in an unknown amount, in phases as yet to be shared, at tax rates unidentified, based on sugar-tax outcomes in other jurisdictions that has been proven to be nebulous at best.

Consultation indeed. Bermuda is another world.

Michael Fahy is a former Minister of Home Affairs, Minister of Tourism, Transport and Municipalities, and Junior Minister of Finance under the One Bermuda Alliance government

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Published Jan 16, 2018 at 8:00 am (Updated Jan 16, 2018 at 6:59 am)

Sugar taxes come not as advertised

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