Soda taxes: The fizz goes flat

Peter Shawn Taylor is the author of the 2017 report Sweet Nothing: Real-World Evidence of Food and Drink Taxes and their Effect on Obesity, for the Canadian Taxpayers Federation.

Plenty of folks have lots of reasons why Canada needs a soda tax – from rising obesity rates to the cupidity of soda manufacturers to consumers' inability to make proper choices, plus the opportunity to create an exciting new source of government revenue. Every budget cycle seems to present another set of arguments in its favour, such as a current campaign in Alberta calling for a 20-per-cent provincial tax on sugary drinks based on claims this would save 1,200 lives, prevent 21,700 cases of diabetes and raise $3.5-billion in taxes over the next 25 years.

There's never any shortage of big promises and sweeping generalizations when it comes to soda taxes. But what if you simply want an honest assessment of the facts on the ground? For that, you've got to go halfway around the world. And make a Freedom of Information request.

Given the international attention paid to food and drink taxes recently, last year, New Zealand's Ministry of Health commissioned the respected New Zealand Institute of Economic Research (NZIER) to examine the global body of evidence on the topic. The result is a comprehensive and authoritative review of the effectiveness of taxing food and drink to improve public health that evaluates nearly 50 academic studies published over the past five years. Upon completion, this thorough review was promptly buried.

Only after a local think tank made an official Information Act request did the government allow it to see the light of day. If the report was meant to pave the way for a new soda or sugar tax in New Zealand, this reluctance no doubt arises from its inconvenient conclusion. "Evidence that sugar taxes improve health is weak," it declares.

The NZIER report brings an appropriately rigorous economic perspective to the issue. Taxes are an economic tool and arguments in favour of sugar or soda taxes are similarly economic in nature − by making sugary products more expensive, tax proponents argue, consumers can be induced to eat or drink less of them and hence become healthier.

Such a proposal, however, requires a necessary chain of logic to hold. Any new soda tax, for example, must increase the price of soda. This price hike must lead to reduced consumption of pop. Any reduction in consumption must then lead to fewer overall calories being consumed. And this in turn must produce better health outcomes.

While NZIER finds lots of support for the assertion that soda taxes make pop more expensive, the logic chain breaks down at the very next link. Claims from tax advocates that soda taxes will inevitably lead to substantial reductions in demand, the report states, are based on "flawed" estimates of price elasticity – the economic term for how much demand can be expected to decline given a price increase. It seems soda-tax proponents have been making unrealistic assumptions about the impact such taxes can have on human decision-making in order to promote their preferred policies. Real-world evidence suggests the shift away from soda following a tax is actually quite modest, and thus the health implications are nil.

This is particularly true in Mexico, where a one-peso-per-litre tax on soft drinks has been held up as a mighty blow struck against obesity and Big Soda. Following its implementation, some tax proponents predicted that up to a two-kilogram drop in Mexican per-capita weight was imminent. NZIER concludes such claims are dramatically overstated. "The tax on sugar-sweetened beverages in Mexico is unlikely to have made any difference to body weight significant enough to translate into health benefits," it states.

It is a mistake, NZIER cautions, to argue soda taxes will work in the same simplistic manner as tobacco taxes. Even one cigarette constitutes a health risk while the consumption of calories, however constituted, remains a necessity for human life. This makes the relationship between food and health far more complex and unpredictable than cigarettes, particularly when consumers habitually substitute non-taxed, high-calorie items for taxed products.

"Our conclusion is that the evidence base gets weaker further along the chain of intervention logic," NZIER summarizes. "We have yet to see any clear evidence that imposing a sugar tax would meet a comprehensive cost-benefit test." In fact, the report finds there's not even enough evidence to justify a "slight causal link" between taxes and improvements in population health.

While a soda tax may satisfy latent urges for greater tax revenues or as a way to punish big corporations or overrule individual choices – when it comes to their alleged purpose of making people thinner or healthier, they're flat-out useless.