Here is a short post on a Year 12 student's thoughts regarding the recently unveiled plan to implement a sugar tax across Britain in 2018...Original post here.
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The March 2016 budget revealed Chancellor George Osborne's plan to levy a tax of up to 20% on soft drinks and other sugary products in the United Kingdom in an attempt to shadow the results of Mexico, where a sugar tax cut sales of sugary drinks by 12% during 2015. The tax aims to combat the rising obesity that has become endemic to Britain and burdens the national healthcare system whilst simultaneously acting as a fundraising tool to boost government revenue. Economically, the motivation for this tax is sound but could it actually be an effective tool to reduce the domestic consumption of sugar or is a lower obesity rate a distant dream?
The rationale behind this tax is that it will simply increase prices which should suppress demand and therefore reduce consumption. Proponents argue that the soft drink market is quite competitive so this taxes forces suppliers to either absorb this tax through lower profits margins or change their recipes. Both these options seem unlikely to me and so it is extremely probable that the consumers will be the party bearing the brunt of this tax. Perhaps Osborne has forgotten that demand for sugar in general is price-inelastic due to it;s highly addictive nature which is why this sugar tax has to potential to act as a regressive tax because it represents a larger proportion of income for principal consumers who are concentrated in lower income groups. Others employ a different and slightly more assuming argument. Shouldn't the poor man be allowed to have his daily coke without worrying about the effect on his wallet, after all his challenges with high pressure and low income work? Or we could assume that sugary drinks are in fact price sensitive. Well in this case, if I was denied a coke, I would simply eat a slice of cake or some bacon or maybe even both and then land up at the doorstep of the NHS with a malfunctioning liver, diabetes and clogged arteries. ( I'll leave you to calculate the total damage). The point is that there are ample substitutes and a poor man facing financial restrictions from consuming his soda will not be hindered as he can easily invest these calories elsewhere. As for those who just can't live without these drinks, we might witness a black market emerge.
Meanwhile, Osborne also hopes that people still consume enough so revenue is raised and can be used for physical programs targeted at children. I'm just perplexed as to why greater revenue to finance this type of activity needs to be generated from this tax specifically; a 5% cut in the defense budget could easily finance this. Yes, consumption of these drinks does generate externalities- but how can we accurately estimate the exact effect of these externalities, most of which are internalized ( in comparison with alcohol consumption and it's strong correlation with drunk driving related deaths) and reflect these in the tax we wish to introduce?
I understand obesity is a public health concern; but an intricate tax system akin to this to reduce consumption of sugary drinks or tax-credits ( for obese individuals who have lost weight) are not palatable policies for me. I am a staunch supporter of greater regulation and the promotion of a more active lifestyle through education campaigns in schools and workplaces or even a proportional rate of tax per gram of sugar in a litre of any drink would be a good start. For now, slimmer waistlines across Britain remain an elusive goal.....
-Nehmat
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