TAX: Calls for move on staple foods surprises

By Katherine Rich (in Food New Zealand) 10 August 2015

Recent calls by Auckland University academics for a tax on basic staple foods such as bread, meat, and eggs caught commentators and the general public by surprise. Other nutrition and food researchers were also left more than a little bemused. A tax on breakfast cereals and milk? Surely not. 

Food taxes have become a new cause celebre despite the fact that nowhere in the world have such taxes done little more than boost government coffers. Even the recent and repeated claims that Mexico’s year-old tax on fizzy drinks is working are just not correct. Official sales data shows consumption volumes have returned to pre-tax levels, after initially dipping slightly.

Not content to repeat the calls of the past year for a tax on saturated fat, fizzy drinks, or sugar generally, the Auckland academics added a call for a new tax on the food group that contributes to greenhouse gas emissions – cheese and other dairy products, meat, poultry and other staple foods that New Zealand families rely on for a healthy and balanced diet. The claim was that many lives would be saved or deaths postponed annually by doing this.  The fact that this was a prediction from a computer ‘macro-simulation’ model based on a range of broad assumptions and did not necessarily mean real lives would actually be saved, got lost in much of the media coverage.

What is not a prediction, and what we do know, is that adding taxes does not change eating or drinking habits significantly – unless those taxes are very high (e.g. tobacco-level which can increase prices 4 to 5 times). The limitation with these sorts of studies is that they assume small changes in price will make people consume less of certain products (the so-called “bad” food) and cross over to eat more of other products (the so-called “good” food), when all our experience suggests such changes can be completely irrelevant in real life.  Adding 20 cents to a litre of fizz and taking 20 cents off a bag of carrots does not mean a consumer will switch consumption just because of pricing signals.

In economic terms, consumer demand for staple foods is relatively inelastic. People buy staple foods because they need to live, and fiddling with pricing mechanisms just means they merely end up paying more. This is why FGC called taxes on staple foods “lunacy”.

Then there is the reality of what happens in the grocery market where between 60% and 90% of groceries are purchased while on promotion, depending on the category.  The overall effect of any low-level tax or low-level subsidy soon gets lost in the complex world of supermarket pricing and regular promotions. Once again the only winner is the government collecting more revenue.

What I found disappointing was that the academics made no attempt to consider the cost of the taxes for consumers or administration. FGC did some basic calculations based on sales of staple foods over the past 12 months and found that at the very minimum a 20% tax would add more than $1 billion a year to families’ grocery bills. For example, it would generate $40 million in tax from eggs, $92 million from milk, $56 million from breakfast cereals, $90 million from bread, $74 million from cheese, $40 million from butter and margarine, and $70 million from sausages and other packed meats.   And that’s just supermarket sales. If the tax applied to all eggs produced in New Zealand it would raise $220 million just for one staple food, but what’s the long-term effect on New Zealand families who rely on eggs for good nutrition?  

Economists agree that food taxes are very regressive, affecting most those who can least afford it. What was extraordinary was that in some media interviews one of the authors argued that higher priced food was good for people on low incomes!

Obesity is problematic for New Zealand. The challenge for us all is to convince people through education to follow a balanced diet. Price is only one part of the equation and rationing food choices by applying high taxes can only have further unintended consequences. If as much effort was applied in engaging communities as the campaign for higher priced food through taxes, more New Zealanders would make positive changes to their lifestyles.