There is strong evidence that a tax on carbonated soft drinks reduces carbonated soft drink consumption. Therefore, should a sales tax of 5% be added to carbonated soft drinks in Australia?
Consumption of carbonated soft drinks is strongly related to increased overweight and obesity.1,2 Consequently, the main target of many anti-obesity initiatives have been around carbonated soft drinks. Much attention surrounds the proposal of increasing soft drink taxation as a means to combat the obesity epidemic.3-6 It is predicted that as the price of these beverages rise, its consumption will decrease. This paper aims to critically review available evidence to decide the veracity of the evidence statement: “There is strong evidence that a tax on carbonated soft drinks reduces carbonated soft drink consumption.” From this, a conclusion will be made as to whether this supports the evidence translation: “A sales tax of 5% should be added to carbonated soft drinks in Australia.” For the remainder of this paper the term ‘soft drinks’ will be used to refer to carbonated soft drinks and sodas.
Ample research has found that soft drinks have been consumed at considerably higher quantities over the past decade, with teenagers and young adults consuming the most amounts.1-3 Sugar-sweetened beverages are energy-dense products that have little or no nutritional value.1 A number of studies have combined data from well-designed trials or research and data from state-level soft drink taxation to determine the effectiveness of whether this changes soft drink consumption behaviour.3,4,7
A United States (U.S.) partially ecologic study3 analysed data for state-level soft drink sales tax rates and information from the ‘Early Childhood Longitudinal Study – Kindergarten Cohort (ECLS-K)’.3 The ECLS-K performed in the U.S., followed children who began kindergarten in autumn of 1998 through to elementary school over time. During this period, individual-level data on soft drink purchases and consumption at school from 7414 children and information on body mass index (BMI) for 7300 children was collected. Information about food consumption was collected in 2004 (when the subjects were in 5th grade) in the form of a questionnaire. This study found that small increases in soft drink sales tax (up to 7%) will unlikely have any considerable effect on soft drink consumption among children. However, it was found that differential tax on soft drinks (tax that is higher than tax on other food items) had a greater effect on subgroups of at-risk ‘children who are heavier, have lower family income, are African American, or watch a great deal of TV’.3 Support is given to the findings of this study as the data used from longitudinal study design used is plausible. However, the authors noted that the ‘clustered sampling design at the school level’ reduced the statistical power to detect small policy effects. This was a limitation of the study.
Another U.S. partially ecologic study4 showed similar findings. This study looked at information collated from the ‘National Health Examination and Nutrition Survey between 1989 and 2006’ as well as data regarding state levied soft drink sales and excise tax for the same period. The effects of soft drink tax were estimated using a quasi-natural experimental design.
A number of robustness checks were carried out to validate the results from this study and many empirical models were used to conceptualise the data. This study suggests that soft drink taxation will moderately decrease the amount of soft drink consumed among children and teenagers. Due to the nature of the price elasticity of soft drinks (-0.8 to -1.0), it is predicted that additional taxation could significantly reduce soft drink consumption.2,4,8 This means that a 10% increase in tax is estimated to reduce soft drink consumption by 8%.
Using a similar strategy, Kim and Kawachi7 examined state-level soft drink and snack food tax data from 1991 to 1998 and relative increases in obesity prevalence over the same time period. Data about the latter was sourced from the ‘U.S. Behavioural Risk Factor Surveillance System’ surveys (42 U.S. states’ data was collected).7 It was found that obesity prevalence was four times higher among states without a soft drink or snack food tax than states that did have these taxes. States that had repealed a soft drink or snack food tax during this time period were more than thirteen times more at risk of increased obesity prevalence than states with a tax. Additionally, states without either tax were three times more likely than states that have levied a minimum 5% tax to experience a relative increase in obesity prevalence. It is important to note that this data implies relative increase in obesity prevalence of the state and does not refer to individual consumption patterns.
There is strong evidence supporting the association of soft drink consumption with increased calorie intake and overweight and obesity. However, evidence to show that implementing soft drink tax to decrease soft drink consumption as a means to combat obesity is equivocal. More research needs to be conducted to decipher the magnitude of effect soft drink tax has on consumer consumption behaviour, considering larger sample sizes with different demographics. From the available evidence, it can be concluded that there is some evidence that a small sales tax on carbonated soft drink moderately reduces carbonated soft drink consumption by particular groups of the population.
The proposal of implementing soft drink taxation is a complicated issue as it affects many stakeholders and such, has attracted a lot of attention. Although small taxes have been found to be politically feasible4,6 many soft drink taxes have been repealed6 in the past due to a number of factors like strong opposing lobbyists, pressure from soft drink industries, and unclear nature of tax initiative. However, this does not mean soft drink tax should not be implemented at all.
All public health nutrition initiatives must adhere to basic health promotion principles like those depicted in the Alma Ata Declaration9, Ottawa Charter10 and Jakarta Declaration11. Specifically, implementing soft drink taxes is consistent with one of the health promotion strategies outlined in the Ottawa Charter – ‘to build healthy public policy’.10 The notion of introducing soft drink taxes is controversial.2,5,6,8 Firstly, which tax (excise or sales) is more effective? Secondly, how much tax should be placed on soft drinks? The information below introduces the proposed advantages and disadvantages of each type of tax.
The advantages and disadvantages of excise and sales tax2
- Excise tax (fee per ounce)
Can be levied at the bottler, distributer, wholesaler or importer level
Easier to collect
Generates stable and predictable revenues
Does not change if industry reduces prices
Does not encourage consumers to purchase larger quantities
Does not rise with inflation, therefore will not generate substantial revenues
- Sales tax (percentage of product’s price)
Likely to have beneficial effects on consumption
Rises with inflation
Consumers may buy larger containers as it is better value for money
Caraher and Cowburn5 aimed to analysis food tax policy as a means to influence food consumption behaviour. They found that small taxes intended at promoting the health of specific groups (children) will gain most public support. This report also highlights the unclear nature of many tax initiatives and further suggests that future (excise) tax initiatives could focus on food manufacturers rather than the consumer. Taxes and subsidies could be used to encourage manufacturers to produce healthier alternatives, thereby exerting effect at a population level.2,5,6
Obesity is a complex issue12 and a single policy intervention like soft drink tax is insufficient to combat the problem.5, 8 Nonetheless, this does not discredit its implementation. Rather, soft drink tax policy should used in conjunction with other policy intiatives.5 A multifaceted policy approach would be more effective. Soft drink tax could be used as part of the Epidemiological Triad12 model for obesity prevention. It is widely accepted that the obesity epidemic is driven mainly by changing environments and the vectors (that make life easier). Soft drink tax could influence the policy aspect of the environment in the following ways.
Often anti-obesity initiatives incorporate nutrition education and nutrition promotion strategies. Implementing soft drink taxes requires a combination of both strategies to have a positive, sustainable and effective outcome.2,5 Nutrition promotion aims to influence manufacturers to alter the composition and availability of foods and beverages (thus referred to as the ‘supply side’ approach). This can be achieved (as mentioned by Caraher and Cowburn5) through excise soft drink taxes as well as subsidies. On the other hand, the ‘demand-side’ approach aims to alter the demand for various food and beverage products. This is achieved through nutrition education which provides knowledge and skills for consumers so that they can perform healthier eating and drinking choices. Ideally, this can be funded by the revenues generated from soft drink taxes.
It is suggested that excise taxes would be more effective than sales taxes3,8 because it puts the onus on soft drink manufacturers rather than the individual. For example, taxes and subsidies could encourage manufacturers to produce healthier (less caloric) products. Producers and wholesalers could be levied with excise taxes, which would almost inevitably translate to passing down these costs to retailers. This cost would then be incorporated into the retail price; thus, consumers would become aware of the cost at the point of making a purchase decision.5 Although theoretically sound, in practice, to impose excise soft drink taxes on manufacturers is difficult as opposition is strong.
In conjunction with soft drink tax, the revenues generated from tax should be used to fund nutrition education programs and subsidise the cost of healthier foods.2,6,8 To date, data shows that in the U.S. most of the revenues from soft drink tax have been used as general funds.6 Studies showed that in the U.S., ‘a very small national excise tax of 1 cent per 12-ounce soft drink would make at least $1.5 billion per annum’2,4,6 – three times the amount spent on childhood obesity research over five years. A tax of 7 cents per 12 ounces could potentially generate about $10 billion annually.2 The generation of revenues has the potential to support much needed public health initiatives to combat the obesity epidemic. But this hope is stymied by how governments choose to spend revenues.
For a sales tax to exert more effect on a population level, careful consideration needs to be made with regard to the use of generated revenues. If individuals were more educated about the health consequences of consuming excess sugary beverages, this would be one way to equip them to make more informed food choices. Consequently, the revenues from soft drink sales tax could potentially reduce soft drink consumption. A sales tax of 5% (politically feasible) should be added to carbonated soft drinks in Australia and the generated revenues be used to fund nutrition education and subsidise healthy foods.
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2. Rudd Center for Food Policy and Obesity. Yale rudd center soft drink tax policy brief. Yale University; 2009. p. 1-8.
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9. Alma-Ata Declaration [internet]. Declaration of Alma-Ata: International conference on primary health care, Alma-Ata, USSR. 1978;Sep [cited 2013 May 20]. Available from: HYPERLINK http://www.who.int.hpr/NPH/docs/declaration_almaata.pdf.
10. Ottawa Charter [internet]. Ottawa charter for health promotion. 1986;Nov [cited 2013 May 20]. Available from: HYPERLINK http://www.who.int/hpr/NPH/docs/ottawa_charter_hp.pdf.
11. Jakarta Declaration [internet]. Jakarta declaration on leading health promotion into 21st century. 1997;Jul [cited 2013 May 20]. Available from: http:// HYPERLINK http://www.who.int/hpr/NPH/docs/jakarta_declaration_en.pdf.
12. Egger G, Swinburn B, Rossner S. Dusting off the epidemiological triad: could it work with obesity?. Obes Rev. 2003;4(2):115-19.