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Why Soft Drink Taxes Will Not Work

December 11, 2011
By J.T. Winkler

This paper, published in the British Journal of Nutrition, examines the flaws in soft drink taxes, criticizing several economic papers claiming to find evidence of a health benefit of tax hikes on soda and soft drinks.

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J.T. Winkler, a retired professor of nutrition policy at London Metropolitan University, writes that proposed health-related taxes make two incorrect assumptions.

“Proposals to tax less healthy products incorporate two assumptions: the tax will be translated directly into price increases, and consumers will recognise the rise,” Winkler wrote. “With soft drinks, both are unlikely. The pricing of soft drinks is extremely complex. Both nominal shelf prices and continuous price promotions vary between outlets, regions and seasons, even between supermarkets. Discounts of 50 percent or ‘better than half price’ are common, and so a 10 percent tax is easily absorbed or concealed. It is difficult for consumers to determine the ‘normal’ price. Any increase would be invisible behind the marketing fireworks.”

Making healthier alternatives to sugar-sweetened beverages (SSBs) less expensive improves public health better than making soft drinks more expensive, Winkler writes.

“Shifting consumers from sugared to sugar-free drinks cuts more sugar, more quickly, than trying to depress SSB sales,” Winkler wrote. “Any tax on added sugar would reinforce the trend, encouraging manufacturers to use more sweeteners, as in the 1990s. … If the tax was not applied to sweeteners, it could be a first, small step towards opening a price differential between sugared and sugar-free drinks. At present, all companies maintain ‘parity pricing’ between the two types. But production costs of sugar-free drinks are much lower. Companies add extra margin onto sugar-free variants. They effectively charge a ‘health premium’ for products consumers think will help control their weight. The challenge is to invert that premium into a ‘health incentive’ to reduce sugar. A tax exemption on sweeteners is one instrument.”