TAX: Claims don't add up

By Katherine Rich (in FMCG Business) 1 August 2015

When Benjamin Franklin said there are “only two things certain in life: death and taxes” he was spot on. After all, times were much simpler back then.

Fast forward to 2015 and he might be inclined to amend it to something like “death and Auckland University academics coming up with new taxes on everything we eat and drink”. Because that seems to form the big part of their contribution to the obesity debate. No new ideas around education or getting schools and communities to buy in to programmes that might lay the foundation to change attitudes around diet and exercise. Leave that to the Government, NGOs, and industry. For academics it’s all about taxes, taxes, taxes.

It wouldn’t be so bad if it could be shown that taxes worked, but it can’t because they don’t work anywhere in the world they have been tried, despite claims to the contrary. In Mexico, the latest to try a tax on fizzy drinks, official sales figures show consumption volumes a year later are the same as before the tax was introduced. All that’s changed is that the government’s collecting more money.

It seems that every other month over the past couple of years academics have been calling for taxes on salt, fizzy drinks, sugar generally, and fat – anywhere between 10% and 20%.

So it’s no surprise that early in July a report by researchers from the university made another call for taxes on “unhealthy” foods, although this time they added subsidies on famiy necessities like milk, butter, cereal and bread. They claimed a 20% subsidy on fruit and vegetables and a 20% tax on saturated fat and salt could prevent or postpone thousands of deaths each year.

But the real kicker came in their call for a 20% tax on major food group contributors to greenhouse emissions – that is, meat, dairy products such as milk, cheese and yogurt plus chicken and even that popular staple many New Zealand families love - eggs! They claimed their “computer ‘macro-simulation’ model” told them such tax-subsidy scenarios would prevent or postpone even further deaths.

Unfortunately, such calls are divorced from reality, and what might look sophisticated and compelling in this computer model is actually completely different in real life.

For a start, they are relying on a computer prediction, while what we do know for a fact is that slapping taxes on here and subsidies on there is not going to make change their eating habits – unless those taxes are levied at an extremely high rate.

The study assumed that small price changes would make people eat more of certain products, when we know that for those who don’t eat enough fruit and vegetables such changes will not make the slightest bit of difference. Unless the taxes or the subsidies were very high then the demand for the affected products would remain inelastic. That has been proven around the world. Seriously, does anyone really believe that subsidising broccoli by 20% will make people eat more of it? I think not.

Then there is the reality of what happens in a market where between 60% and 90% of groceries are purchased while on promotion. A 10% tax here and a 20% subsidy there will get totally lost in the complex world of supermarket pricing and regular discounting.

The reality is that if these latest ideas were taken up, fruit and vegetables would be subsidised, sure, but the cost of around 90% of the rest of what’s in our shopping trolleys would jump, including the meat, the dairy and the poultry which form a vital part of a healthy and balanced diet. The only beneficiary is the government, which collects more tax, while no one changes their eating habits. Based on Nielsen figures for the categories mentioned we worked out that the new taxes would cost New Zealand families over $1 billion more.

We need to spend our time and money convincing people through education to eat a balanced diet, not flog the same discredited ideas.