Making sugar sweetened beverage tax work effectively

Sugary drinks are directly associated with an increased risk of dental caries and obesity – translating into higher rates of chronic diseases like diabetes, heart disease, and certain cancers.

In fact, liquid sugars are particularly harmful as they are absorbed more quickly by the liver and processed in a way that increases fat and glycogen deposits.

Raising taxes and thereby increasing price on products carrying health risks like tobacco, has shown to be one of the most effective ways to reduce its use.

The research is clear. Price affects virtually all measures of cigarette use, including per-capita consumption, smoking rates and the number of cigarettes smoked daily. These effects apply across a wide range of socioeconomic groups.

Since sugar sweetened beverages (SSB) carry no nutritional value and pose health risks to consumers (hitting those of lower socioeconomic status the hardest), many public health advocates have argued that it is logical to tax them like cigarettes or alcohol.

So why all the hoopla on taxing SSB?

Taxing SSB is an absolute political hot potato. While over 50 countries around the world have introduced a SSB tax – including a number of our Pacific neighbours – New Zealand is yet to make a move.

Sugary drink taxes around the world



 Sugar tax benefits

First, the tax directly reduces sugar consumption by reducing SSB purchases.  We now have data from many different countries on the effectiveness of SSB taxes.

For example, 2 years after introducing a SSB tax (10%) in Mexico purchases of sugary drinks decreased by nearly 8%. The effect was even greater among lower socioeconomic populations – nearly a 12% reduction. This should reassure policy makers that these tax policies work and are not driving further inequities.

Second, taxing encourages companies to reformulate their beverages, so they contain less sugar. This is evident in the UK where tax rates are based on sugar content. These changes translate into savings in healthcare.

A further advantage is the generation of tax revenue that can be used to improve government services and fund health initiatives.
 
A New Zealand modelling study estimated that a 20% tax on carbonated drinks would generate revenue of $40 million per year. It estimated this would reduce or postpone 0.2% of deaths per year, with higher impact for Māori and Pacific populations.
 
Communicating the tax is key

The WHO recommend sugary drinks should be taxed at least 20% to have a meaningful effect. But a recent study has suggested that the way the tax is conveyed on the price tag may have an even bigger impact.  
 
The authors performed a series of experiments where they trialled 3 different price tags, which differed in the way the SSB tax was communicated.
 
The experiments took place in convenience stores on a university campus in San Francisco (SF). Each trial period was 2 weeks. The primary outcome variable was sales data.

Drinks were taxed at a rate of 1 cent per ounce, which is equivalent to about 20 cents for a 600 mL drink – a tax rate of around 8%. Sales in each period were also compared to historical sales data collected in the 2 years preceding the introduction of the SSB tax. This was to establish the effect of the tax per se.

The authors calculated the share of sugary drinks purchased for each period by dividing the number of units of SSB by the total number of drink units purchased.

Trial 1
Baseline period; here the drinks had no price tag even though the tax was in effect.

Trial 2
Control period where price tags stated the price was ‘tax-inclusive’.

Trial 3
Intervention period, the price tags explicitly mentioned the SSB tax, stating: ‘includes SF sugary drink tax’.
 
And the winner was....Trial 3 reduced sales of SSB by 10% when compared to the historical pre-tax period. The reduction was around 4% compared to the control period and 5% compared to baseline.

No differences in sales of SSB were reported during Trial 1 – meaning an 8% increase in the price of the product was not effective at reducing purchases. Purchases decreased slightly during Trial 2 where the tags mentioned the price included tax.

One more interesting intervention. The authors were also interested to see if purchasing habits changed when the price tag described how the tax revenue would be spent.

Stating that the proceeds of the tax would be donated to fund student programmes was just as effective as explicitly displaying the added tax on the price tag.

Some limitations to consider when interpreting the findings include the short intervention period and the quasi-experimental design (lack of randomisation), which meant the authors could not account for the order of the intervention. Also, the generalisability of results beyond a university campus are unknown. The tax rate of around 8% is lower than the WHO recommendation. It would be interesting to compare the effects of a higher tax rate.
 
But what about the livelihood of the shop owners?

Purchases of water and diet drinks increased significantly, suggesting stores did not miss out on revenue.
 
Explaining the findings (and human behaviour)

A series of experiments were then conducted to find out why people buy less when they are aware the price contains a SSB tax.

It seems people overestimate the amount of tax they are paying, which acts as a deterrent – ultimately reducing purchases.

On average, the amount participants believed they were paying was over 3 times the actual tax amount.

Don't mention the amount of tax. In experiments where they were informed of the amount of tax (8%), they were more willing to purchase the drink! This may tell us 8% is not high enough to make a meaningful difference.

Take away

• Taxing SSB works when the price tag mentions the sugar tax, but not the amount of tax.