No sugarcoating: concerns over sugary drink taxes are overblown
A cool, refreshing soda drink on a hot summer’s day. Bright bottles at the birthday party. A shot of energy in the middle of a long shift. Most people have enjoyed this type of tasty treat at one point in their life.
But when consumed too frequently, sugary drinks can lead to long-term health problems such as weight gain, diabetes, heart disease, tooth decay, and at least 12 types of cancer. All of these conditions are linked to risk of premature death. The pandemic made painfully clear how serious these health effects are when obesity, diabetes, and heart disease – conditions increased by sugary drink consumption – made people far more vulnerable to serious illness or death from COVID-19.
These facts are particularly worrying in Kazakhstan, where 86 percent of deaths are due to chronic diseases and nearly one in four children is overweight or obese.
Increasing prices of sugary drinks through taxes can help encourage citizens to make healthier choices. The World Health Organization (WHO) recommends this intervention to help reduce obesity and chronic diseases. To date, at least 65 jurisdictions around the world – including the United Kingdom, France, Portugal, Saudi Arabia, Qatar, and several major cities in the United States – have taken this advice on board and are now taxing sugar-sweetened beverages using a specific excise tax. As the Republic of Kazakhstan pursues its “Healthy Nation” National Project, the government is proposing a similar tax to come into effect in early 2023 in an effort to improve public health.
While this tax will be good for public health, could it be bad for business?
Concerns have been raised about unintended consequences like harm to small businesses, job losses or lower productivity. When we look at the evidence, we find reasons for optimism.
How sugar taxes affect business
Analysis of taxes on sugary drinks in other countries shows that, as demand for these products declines, customers start switching to other products, such as diet drinks and bottled water. Careful design of such taxes by policymakers actively encourages this substitution with no- or lower-sugar products with the aim of improving health.
In Kazakhstan, when we look at the top ten producers of sugary drinks and the top ten producers of bottled water by total volume, seven of these companies are the same. These companies are already producing healthier alternatives to sugary beverages and will be the main beneficiaries as consumers switch over, reducing any threat to the overall health of the business sector. Sugary drink retailers, such as grocers and restaurants, also typically sell a range of other foods and drinks, and consumers tend to reallocate spending to other products.
For another example, we can look to the United Kingdom, where the Soft Drinks Industry Levy imposed higher tax rates on drinks with higher sugar content. One year after the implementation of the tax, the total volume of all sugary beverages bought by consumers had not changed – but the sugar purchased in these drinks had decreased by nearly 10 percent. Both manufacturers and consumers had switched to lower-sugar drinks.
Manufacturers and producers may express concern about job losses due to reduced demand. But the facts tell a different story. No robust evaluation of employment following the introduction of a sugary drink tax has found evidence of a spike in unemployment.
Two years after the introduction of a tax on sugary beverages in Mexico, for example, research found no impact on employment in the country’s beverage industry. In fact, the opposite was true – employment in retail stores increased in the first year after their introduction. Studies done two years after similar taxes were introduced in San Francisco and Philadelphia also found no loss of jobs.
Finally, the negative health impact of drinking sugary beverages poses a long-term threat to a country’s productivity. A nation is less prosperous when citizens work less productively due to illness. Consumption of sugary beverages is linked to the development of a multitude of chronic diseases to which households lose members in the prime of their working lives. In Australia, a tax on sugary drinks was estimated to lead to lifetime productivity gains equivalent to nearly 2 percent of total health spending or 0.2 percent of gross domestic product.
Thirsty for Change
Research carried out by the World Bank shows that when lower medical costs and longer working lives are taken into account, sugary drink taxes in Kazakhstan would be progressive, meaning, the poorest would benefit most.
Equally important, governments can also use the additional tax revenue from sugary drink taxes in many ways that will improve the health and well-being of people, from supporting employment and incomes during the COVID crisis, to helping maintain essential health services as the economy recovers.
Concerns over the lost business, unemployment and slower economic growth from a tax on sugary drinks in Kazakhstan are overblown and have little evidence to support them. A sugary drink tax will not make people less thirsty. Beverage producers in Kazakhstan have the option to prosper by making their products healthier – and many are already producing healthier alternatives. While a sugary drink tax alone will not solve the epidemic of chronic diseases in Kazakhstan, it is an important component of a comprehensive package that can create a truly healthy nation.
Authors: Jean-François Marteau, World Bank Country Manager for Kazakhstan, Kate Mandeville, Senior Health Specialist, and Lynn Silver, Senior Advisor at the Public Health Institute and Clinical Professor at University of California, San Francisco.