Fat Taxes: What Role for Fiscal Policy Interventions in Promoting Good Health in Barbados?

Alicia Nicholls

Public health is once again under the microscope in Barbados, with the lens being focused on the crippling burden of non-communicable diseases (NCDs) on the country’s health care system. According to data reported by Nation News, “an estimated 64 per cent of adult Barbadians are overweight and 31 per cent of children are obese or overweight”. If that is not worrying enough, NCDs account for 84 percent of total deaths in Barbados, according to World Health Organisation estimates. What is more, the rates of diabetes and diabetic-related amputations in Barbados are among the highest in the world. The net result is a reported $700 million a year health care budget, which is very unsustainable for a cash-strapped small island developing state which also has an aging population.

Not for the first time, public health advocates in Barbados have proposed levying a tax on foods with high fat and sugar contents as one policy measure to force dietary change among Barbadians. While it would appear that this suggestion has not met with the Barbados Government’s approval at this time, it does raise the question of what role could and should fiscal policy interventions play in promoting good health in Barbados.

The intersection of fiscal and health policy

Fiscal policy instruments are used by Governments mainly to raise revenue. However,their use  as tools for pursuing public health objectives has been receiving increased attention by governments around the world which are faced with a high incidence of obesity and NCDs. Public health advocates have argued that in much the same way that “sin taxes” such as excise taxes on alcohol and cigarettes have reduced consumption of these products over time, taxing foods high in fat, sugar or salt could influence consumption patterns away from poor dietary habits, a major risk factor for obesity and NCDs.

The fat tax is usually levied as an ad valorem or specific tax, increasing the price of the product with the intention of dampening consumer demand for the taxed product and forcing a switch to healthy alternatives. Effective August 2015, Barbados introduced a 10 percent excise tax on “sweetened beverages”. Given its novelty, it is unknown whether the “sweet drink tax” has led to any shift in Barbadians’ soft drink consumption patterns. It is to be reviewed in two years to determine whether it has met its objectives.

Fat taxes, like most taxes, are highly unpopular. Opponents argue that these measures are regressive and inefficient and are an intrusion by Government on consumers’ rights to choose their own lifestyles. Opponents also argue that these taxes place a disproportionate burden on the poor, who spend a larger proportion of their income on food.

Worldwide use of “fat taxes” 

There is still limited empirical data on the efficacy of “fat taxes” in changing consumption patterns. Several academic studies internationally have sought to model the impact of proposed taxes on consumption behaviour with mixed results. However, as one study points out, there appears to be some consensus in the academic literature that these taxes have to be substantial (at least 20 percent) in order to shift consumer behaviour.

In the real world, what little is known about fat taxes shows that their impacts has varied by market. Among the countries which have experimented with, or currently have fat taxes include Norway, France, French Polynesia, Samoa, Finland, Hungary, to name a few.

Denmark is perhaps the favourite “poster child” for anti-fat tax critics. In October 2011 Denmark instituted a tax on foods with a saturated fat content of more than 2.3 percent, which was repealed only a year later after much public outcry and dissent. According to an IEP report, the tax failed for several reasons, including the lack of impact on Danes’ purchasing habits. Many Danes either switched to cheaper brands or crossed the border into neighbouring countries to purchase these items, phenomena which Danish policymakers either had not considered or had dismissed at the time of design and implementation of the tax.

On the flipside, Mexico has been a success story. Mexico is currently battling an obesity rate which is the second highest among OECD countries. It imposed a tax of MX$1 (US$0.80) per litre on sweetened beverages and an 8 percent tax on foods containing 275 calories or more for each 100 grams in 2014. A study found that in the first year of the tax’s operation, the volume of sweetened drinks sales is said to have declined on average by 6 percent while there was a 4 percent increase in the sale of untaxed beverages like bottled water. The impact on consumption was most marked on lower income households.
What these two case studies show is that the efficacy of a fat tax  would depend on its design and application.

The proof is in the pudding

While fat taxes are often regarded as a Government intrusion, lifestyle choices, though personal in nature, can create huge burdens on the public health apparatus and the public purse. In this vein, they are a legitimate Government concern. Government intervention in the market  is sometimes necessary to save people from themselves. My personal belief is that there is a role for fiscal instruments like fat taxes in public health policy.

However, like the two cases studies of Denmark and Mexico show, the proof is in the pudding. After all, on what basis should unhealthy foods/drinks be taxed? Should it be based on their caloric content? What level of tax would be prohibitive enough to have a material impact on Barbadian consumers’ purchasing behaviour? The answers to these questions require extensive market research, including research on Barbadian consumers’ habits, the level of price elasticity of demand for these unhealthy foods, income elasticity, of unhealthy food demand, and any other unhealthy substitutes which consumers might logically shift to.

International studies and case studies are instructive but as each market is unique, Barbadian-based studies would be more consequential. A good case study would be the “sweet drinks tax” which was introduced last year. Some economists have argued that the 10 percent levy is too small influence consumer behaviour and this may well be the case.

While any policy no doubt should take into account the impact on the local manufacturing sector and employment levels therein, particularly at a time when the sector has not seen much growth, such a policy could induce manufacturers to reduce the sugar and fat contents in their products and to produce more health-conscious alternatives. Even without a fat tax and before the introduction of the “sweet drink tax”, we have seen some of our Barbadian manufacturers over the years introducing health-friendly alternatives to the market with success as Barbadians become more health conscious. One ice cream manufacturer has introduced diabetic ice cream, while another manufacturer has a line of low fat milks and low sugar juices.

There is a possible role for a fat tax but other policy interventions are needed as well. One of the major reasons given by most Barbadians for the popularity of unhealthy foods over healthy foods is the lack of affordability of many healthy alternatives. This pricing discrimination is seen in some supermarkets where low-fat foods are often more expensive than their high fat counterparts, which gives consumers little incentive to buy “healthy”. Healthy foods should be exempted from the imposition of value added tax, while import duties should be removed on healthy products, vegetables and fruits which are not made or produced locally to increase their affordability to the general public.

Alicia Nicholls, B.Sc., M.Sc., LL.B. is a trade and development consultant with a keen interest in sustainable development, international law and trade. You can also read more of her commentaries and follow her on Twitter @LicyLaw.

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