Debate on taxing sugar sweetened drinks continues

The latest government inquiry into diabetes by the Standing Committee on Health, Aged Care and Sport has recommended a 20 per cent tax on sugar sweetened beverages as one of its 23 recommendations, but industry bodies say there is no evidence such taxes are effective.  

The tax should follow international best practice and the anticipated positive impact it would have on people’s health and be graduated according to the sugar content.

A national public health campaign, education-based obesity screening, and a national screening project were some of the other recommendations.

Diabetes in Australia

Around five per cent of Australians – 1.5 million people – have diabetes, a condition of chronically elevated blood glucose (sugar) levels.

Type 1 is caused by a deficiency of the hormone insulin, which is produced in the pancreas, when the body’s immune system destroys pancreatic cells.

Type 2 occurs when the body doesn’t form enough insulin, or its insulin production is not effective. Type 2 is the most common, affecting 1.3 million Australians or 87 per cent of all diabetes cases.

The inquiry said in wealthy societies, a ‘rich’ diet high in protein and fat puts people at risk of developing diabetes, while in lower socio-economic communities, the increased risk comes from a “restricted access to affordable fresh food, a lack of time and space for regular physical activity, and an inability to access quality health care”.

The 20 per cent tax on SSB proposal including all non-alcoholic water-based beverages with added sugar and include soft drinks, cordial, energy drinks, sports drinks, fruit drinks, and flavoured mineral waters. It also sought the distributional analysis of the impact with a start date of 1 July 2025.

The proposal would be expected to increase the fiscal and underlying cash balances by around $1.4 billion over the 2023-24 Budget forward estimates period, reflecting an increase in tax revenue partially offset by departmental costs to administer the tax.

It did state the financial implications were uncertain and sensitive to SSB sales and behavioural responses from consumers and manufacturers to the price increase.

The Parliamentary Budget Office (PBO) prepared four costings for the inquiry on:

• a 20 per cent tax on sugar sweetened beverages (SSB);
• limiting marketing of unhealthy foods on radio television, print and social media, especially for children;
• subsidised insulin pumps for all Australians living with Type 1 diabetes; and
• subsidising glucagon-like peptide 1 receptor agonist drugs (GLP-1 RAs) on the Pharmaceutical Benefits Scheme for obesity and individuals with Type 2 diabetes requiring intensive insulin therapy.

The PBO made a number of assumptions in costing the idea:

• the tax would be levied on the Goods and Services Tax (GST)-inclusive price of SSBs at the point of retail sale;
• SSB sales would be approximately $4.4 billion in 2025-26 and grow by two per cent annually – informed by 2023 IBISWorld analysis that estimated a small decline in real sales of SSBs of around -0.5 per cent per annum, offset by price inflation resulting in an estimated nominal growth of two per cent;
• consumers lowering their consumption in response to the tax – the PBO has assumed that a 20 per cent increase in price (due to the tax) would reduce demand by approximately the same amount – informed by weighting the price elasticities for different beverages by available data on the volume of the respective beverage types;
• the decrease in demand is expected to impact the amount of GST collected;
• departmental costs are based on policies with a similar degree of administrative complexity; and
• flow on impacts to the Consumer Price Index (CPI) or consequential CPI-related impacts on transfer payments are not considered.

Dissenting view

Coalition members on the committee released a dissenting report, saying it did not agree with the SSB tax recommendation, in part because it would see a new tax during the cost-of-living crisis, and because the case for it had not been made out.

They highlighted Labor’s objection to a SSB levy in a 2018 senate inquiry, in which they said they were “particularly concerned that an Australian SSB would likely be regressive, meaning that it would impact lower-income households disproportionately”.

The national body for the non-alcoholic drinks industry, the Australian Beverages Council Limited (ABCL), said it had “profound” concerns with the committee’s findings. It was disappointing the majority of the committee recommended a SSB tax, despite no evidence demonstrating it would reduce obesity rates.

ABCL highlighted the fact that during the inquiry’s hearings, an official from the federal Department of Health said, “Over 100 countries worldwide have implemented a sugar-sweetened beverage level. I think the evidence is lacking as to whether that has impacted overweight or obesity rates”.

ABCL CEO, Geoff Parker, said the council acknowledged the breadth of the inquiry’s report, implementing a SSB tax in Australia “lacks real-world evidence of any discernible impact on weight”.

“In Australia, for over two decades, the non-alcoholic drinks industry has been adapting its products to meet Australian consumer preference for low and no sugar drinks and plain bottled water.

“Consumption of sugar from drinks in Australia has markedly decreased over this period, including being boosted by innovations implemented because of the ABCL’s Sugar Reduction Pledge, which since 2015 has decreased sugar consumed from drinks by 192,000 tonnes.

“From 2015 to 2022 the Sugar Reduction Pledge has seen an 18 per cent reduction in sugar across non-alcoholic beverages by the pledge signatories.

“At the same time, overweight, obesity and diabetes rates have continued to rise which makes this call for an SSB tax illogical” Parker said.

The National Retail Association (NRA) also rejected the recommendation, saying it would “hurt both retailers and consumers at the height of a cost-of-living crisis”.

NRA Health and Nutrition Committee chair, Dr Alan Barclay, said, “There is no evidence to suggest that a modest price signal will change behaviour or decrease rates of obesity or type 2 diabetes. In fact, the recommendation of a sugar tax is predicated on the assumption that people will continue to drink sugary drinks.

“There is already a de facto sugar tax in Australia – the GST. Core foods are GST-free, making it 10 per cent cheaper than discretionary foods and drinks like soft drinks. If a 10 per cent tax doesn’t change behaviour, how high do they think the new consumer tax should be.”

Barclay said Australians were increasingly looking to retailers for a range of nutritious options.

“The health and wellbeing of Australians is influenced by the retail and food service sectors, and we support the Government’s 2030 National Diabetes Strategy that promotes better access to nutritious foods and puts consumer choice at the forefront," he said.

Competing views reign

Taxing SSB has been an ongoing debate for years. In January, the Rethink Sugary Drink Alliance – the Australian Medical Association (AMA), Cancer Council Australia, the Australian Dental Association, Food for Health Alliance, and Heart Foundation – urged the government to introduce a 20 per cent health levy on sugary drink manufacturers.

In February 2023, the AMA recommended the federal government add a tax of 40 cents on every 100g of sugar manufacturers add to drinks, which would be a 16-cent increase to the price of a regular can of soft drink. The association said the health outcomes would be significant for individuals while also reducing future burdens on the health system.

In 2016, the ABCL commissioned CSIRO to complete a secondary analysis of the 2011-12 Australian Health Survey. It found that in adults, there was no clear association between weight status and the proportion consuming sugar-sweetened beverages, or the total consumption of these beverages. The contribution of beverages to total energy intake was relatively low across the adult population – 4 per cent of intake – and across the population, sugar-sweetened drinks contributed less than two per cent of total energy intake.

 

Meanwhile research by the University of Sydney in the same year presented a contradictory picture, with the latest report by the AMA looked at a SSB tax as a preventative health measure.