Reference: 20150441
12 November 2015
Thank you for your Official Information Act request, received on 14 October 2015. You
requested the following:
“This request for information is made under the Official Information Act. It relates
to any work undertaken by The Treasury in relation to economic, financial and
regulatory policy advice in the area of sugar taxes. The request seeks:
1. Copies of any Working Papers, commissioned by The Treasury relating to the
issue of a sugar tax and or sugar sweetened beverages (SSB) tax for the 2014
and 2015 year to date.
2. Copies of any Analytical Papers of data and research undertaken or
commissioned from internal or external authors by The Treasury on a sugar tax
and or SSB tax for the same period.
3. Copies of any Policy Perspective Papers on a sugar tax and or SSB tax for the
same period.
4. Copies of any communications received by The Treasury that seeks The
Treasury’s modelling on a sugar tax and or SSB tax for the same period.”
Information Being Released
Please find enclosed the following documents:
Item
Date
Document Description
Decision
1.
February 2014
Withhold junior official’s
details under s9(2)(g)(i).
2.
16 December
2014
Treasury Intern Research Report:
Regulatory Responses to address
the growing Obesity problem in
New Zealand
Treasury Report: Options for
regulatory responses to the
growing obesity problem
3.
February 2015
(Incomplete Draft) Treasury Intern
Research Report: A Conceptual
Basis and Evidence Base for
Health Tax
Withhold junior official’s
details under s9(2)(g)(i) and
personal contact details
under s9(2)(a).
Withhold junior official’s
details under s9(2)(g)(i).
I have decided to release the documents listed above, subject to information being
withheld under one or more of the following sections of the Official Information Act, as
applicable:
•
personal contact details of officials, under section 9(2)(a) – to protect the privacy
of natural persons, including deceased people, and
•
names and contact details of junior officials and certain sensitive advice, under
section 9(2)(g)(i) – to maintain the effective conduct of public affairs through the
free and frank expression of opinions.
It is worth noting that documents 1 and 3 are not Treasury opinion and that document 3
is an incomplete draft. The Treasury internship programme requires interns to produce
a report on a topic supplied by the policy team they are assigned to. Alongside a
mentor, they undertake their own research and engagements to feed into this report.
The reports are high level and are sometimes not finished in the three-month time
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documents may be published on the Treasury website.
This fully covers the information you requested. You have the right to ask the
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Yours sincerely
Ben McBride
Manager, Health
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Information Being Released
OIA 20150441
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New Zealand Treasury
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Regulatory responses to address
the growing obesity problem in New
Zealand
Withheld under s9(2)(g)(i)
February 2014
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INTERNSHIP RESEARCH
PROJECT
MONTH/YEAR
NZ TREASURY
DISCLAIMER
Regulatory responses to address the growing obesity problem in
New Zealand
February 2014
New Zealand Treasury
PO Box 3724
Wellington 6015
NEW ZEALAND
Email
[email protected]
Telephone
64-4-472-2733
Website
www.tre a su ry.g o vt.n z
The views, opinions, findings, and conclusions or
recommendations expressed in this Policy Perspectives Paper
are strictly those of the author(s). They do not necessarily reflect
the views of the New Zealand Treasury. The Treasury takes no
responsibility for any errors or omissions in, or for the correctness
of, the information contained in these Policy Perspectives
Papers. The paper is presented not as policy, but to inform and
stimulate wider debate.
Acknowledgements: Ministry of Health, Ministry of Primary
Industries, Boyd Swinburn, Elaine Rush, Geoff Simmons, Tony
Blakely, Jim Mann, and Louise Signal for their contributions to
the paper.
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Ta b l e o f C o n t e n t s
List of Figures
iv
1
Executive Summary
1
2
Introduction
3
3
Overview of the problem
4
3.1 Obesity in New Zealand
4
3.2 Factors seen to underpin the problem
6
3.3 Costs and impacts on Living Standards
7
4
Actions currently undertaken
11
5
Regulatory measures
13
6
5.1 Regulatory options considered
13
5.2 Criteria for assessing regulatory measures
14
5.3 Interpretive front of pack labelling
14
5.4 Regulation of marketing to children
17
5.5 Pricing mechanisms
19
5.5.1 Sugar-sweetened beverage tax
5.5.2 Saturated fat tax
5.5.3 Removal of GST from fruit and vegetables
20
22
25
Recommendations
28
6.1 Recommended approach
28
6.2 Areas of further work
29
6.2.1 Sugar-sweetened beverage tax
6.2.2 Regulation of marketing to children
6.2.3 Front of pack labelling
29
29
29
7
Appendix
30
8
Reference List
34
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L i s t o f Fi g u r e s
Figure 1: Overweight and Obesity in the OECD (Sassi, 2010)
Figure 2: Obesity trends in New Zealand 2006-2013 (Ministry of Health, 2013).
Figure 3: Attributable burden for selected risk factors 2006 (Ministry of Health, 2013).
Figure 4: Treasury Living Standards Framework (Treasury, 2014)
Figure 5: Policy options, goals and desired outcomes
Figure 6: Example of Traffic Light labelling UK (Food Standards Agency Scotland, 2013).
4
5
8
9
13
15
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1
Executive Summary
This report assesses the regulatory responses appropriate for New Zealand to employ in
order to address the growing problem of obesity.
In 2013 the New Zealand adult obesity rate was 31 per cent, with a further 35 per cent
overweight (Ministry of Health, 2013). This rate has increased threefold since 1977
representing an escalating problem. Obesity has significant impacts upon health and
productivity costs, with the growing problem having serious implications for future economic
growth and sustainability. It is important to understand how improvements in health
outcomes can provide benefits to population wellbeing.
Obesity is a complex problem with a number of inter-related causes, which are still not
completely understood. The current problem in New Zealand is generally seen to stem from
an obesogenic environment: an environment that facilitates and promotes weight gain.
The current policy approach to obesity in New Zealand focuses on initiatives that aim to
support and encourage individuals to lead healthier lifestyles and encourage the food
industry to provide healthier products and inform consumers.
The purpose of this paper is to investigate the role and effectiveness of a range of
regulatory measures that the government could implement in response to the growing
obesity crisis. The options considered are:
•
An interpretive front of pack labelling system
•
Regulation of marketing to children
•
A sugar-sweetened beverage tax
•
A saturated fat tax
•
Removal of GST from fruit and vegetables.
The options focus on targeting the price and information aspects of the obesogenic
environment. The tax and GST options have been analysed from a health policy
perspective, rather than focusing on the precise mechanism (for example, excise tax vs.
sales tax). Each measure has been selected due to international application and substantive
evidence.
From analysis, it is evident that promising areas for further work include a sugar-sweetened
beverage tax, an interpretive front of pack labelling system, and regulation of marketing to
children.
A sugar-sweetened beverage tax would lead to a reduction in the consumption of sugarsweetened beverages. According to Briggs et al. (2013) a 20 per cent tax on sugarsweetened beverages could reduce consumption by 16 per cent. A UK study found a 20 per
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cent tax on sugar-sweetened beverages in the UK would have a 1.3 per cent reduction in
the prevalence of obesity (Briggs et al., 2013). It would also have a number of health
benefits, with a particular benefit on diabetes rates and dental health. There are concerns
that the tax would have greater financial implications for lower socio-economic groups.
However, some have suggested that this would be progressive in terms of health outcomes
as low socio-economic groups have a higher incidence of obesity. There are a number of
areas for further work, such as the mechanism by which the tax could be introduced, and a
number of policy formulation and implementation issues to consider.
Interpretive front of pack labelling is a policy that would provide the population with greater
information about food composition and would therefore drive behavioural change among
consumers to reduce consumption of products high in sugar, fat and salt. Evidence shows
there can also be an effect on producers in the space of product reformulation. The main
drawback of this policy is the impact on producers. A strong industry push back is to be
expected due to producer losses, product reputation and reduced sales of foods; however,
the gains in health impacts are seen to outweigh the costs. An area requiring further work in
this policy is defining the optimal interpretive system of front of pack labelling for New
Zealand, such as the ‘Health Star Rating’ or ‘Traffic Light’ systems. In addition, further work
into the possible implementation issues and costs to the producer would be required.
Finally, placing restrictions on marketing to children is a regulatory measure that would
reduce exposure to advertising for unhealthy foods, which could ultimately reduce demand
for these products and have benefits upon consumption. An issue of this approach is the
various media that are used by firms; regulations would have to consider an approach to
target a range of advertising media, which is likely to be complicated for some. There are
several issues that require further work namely policy formulation issues, such as the most
effective way to introduce the restrictions. It would be important to avoid unintended
consequences such as those that arose in Britain, where the policy increased children's
exposure to marketing as the restrictions were poorly targeted and implemented (elaborated
on p.18).
Whilst a sugar-sweetened beverage tax appears as a consideration for further work, a
saturated fat tax has not been considered due to a number of significant economic
implications, which have been seen from the Denmark experience. This is largely attributed
to implementation issues. In addition, the effect upon consumption is viewed as ambiguous;
this is mainly due to difficulties in specification and administration, the potential for increase
in other food consumption (e.g. salty foods) due to cross price elasticities, and push back
from powerful dairy and meat industries.
Another policy that has not been recommended is the removal of GST from fruit and
vegetables. This policy represents a loss of key government income, would compromise
GST efficiency, and has an unclear impact on obesity. Higher intakes of fruit and vegetables
are likely to have a health benefit; however, there are issues regarding efficiency and equity
in using GST to achieve this increase (elaborated in section 5.5.3). Other mechanisms that
could be used to achieve an increase in fruit and vegetable consumption without
compromising the GST efficiency should be investigated.
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2
Introduction
Obesity is a complex health issue, affecting a significant proportion of New Zealanders. In
2013 the obesity rate for New Zealand adults was 31 per cent, representing a threefold
increase since 1977.
The current problem in New Zealand is generally attributed to an obesogenic environment:
an environment that facilitates and promotes weight gain. If left unaddressed obesity is
predicted to rise, resulting in increased mortality, morbidity, financial pressure on health care
systems and productivity, as well as broader impacts on living standards.
This report assesses a range of regulatory responses that may be appropriate for New
Zealand to employ in order to address the growing problem of obesity. Options to improve
labelling, restrict marketing, and change the price of food products were considered and
evaluated against a set of criteria.
Research and international experience relating to each of the relevant approaches is
discussed, presenting the costs and benefits of each measure. The information is drawn
together in the final section, which presents the recommended approaches for New Zealand
and identifies a number of areas for further work.
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3
Ov e r v i e w o f t h e p r o b l e m
3.1 Obesity in New Zealand
In the past 30 years New Zealand has been experiencing an increase in obesity. New
Zealand has one of the highest rates of obesity in all age groups when compared with
similar developed countries (Health Committee, 2013). While overweight and obesity rates
have been increasing relentlessly in all industralised countries, including a number of lower
income countries, New Zealand has the third highest rate of overweight and obese adults in
the OECD (Figure: 1) (Sassi, 2010). In 2013 the New Zealand obesity rate was 31 per cent,
with a further 35 per cent overweight (Ministry of Health, 2013).
Overweight and obesity are defined as abnormal or excessive accumulation of weight that
may impair health (World Health Organisation, 2013). Body mass index (BMI) is a simple
measure that is commonly used to classify overweight and obesity in adults (World Health
Organisation, 2013). The World Health Organisation (2013) defines overweight and obesity
in adults as:
•
a BMI greater than or equal to 25 as overweight
•
a BMI greater than or equal to 30 as obesity.
Figure 1: Overweight and Obesity in the OECD (Sassi, 2010)
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In 1977 the rate of obesity in New Zealand was 10 per cent (Ministry of Health, 2013). This
has continued to rise for the last thirty years with the adult obesity rate reaching 31 per cent
in 2013 (Ministry of Health, 2013).
The burden of obesity in New Zealand falls disproportionately on Maori and Pacific Island
populations, socio-economically disadvantaged populations, and those living in areas of high
deprivation. Among New Zealand’s multicultural society there are some clear ethnic
disparities throughout the country. In 2013, 68 per cent of Pacific adults and 48 per cent of
Maori adults were obese (Figure: 2) (Ministry of Health, 2013).
Figure 2: Obesity trends in New Zealand 2006-2013 (Ministry of Health, 2013).
One particular concern is the growing child obesity rate. In 2013, obesity among New
Zealand children reached 11 per cent with a further 21 per cent of children classified as
overweight (Ministry of Health, 2013). Childhood obesity continues to rise (Health
Committee, 2013). This is problematic because nutrition and physical activity patterns in
childhood are likely to influence adult behaviours with emerging evidence that health during
childhood affects health into adulthood (Health Committee, 2013). Whilst many other
countries are experiencing decreasing obesity rates, this is not the case for New Zealand
(Sassi, 2010).
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3.2 Factors seen to underpin the problem
Obesity is a complex problem with a number of inter-related causes, which are still not
completely understood. The basic cause of obesity is defined as an individual regularly
taking in more calories than required (Harvard School of Public Health, 2013). Heredity
plays a role in obesity; however, the rapid increase in prevalence suggests that it is unlikely
that genes are the main source of the epidemic (Harvard School of Public Health, 2013).
Instead the dramatic increase in population body mass distribution is attributed to exposure
to an ‘obesogenic’ environment: that is an environment that facilitates and promotes weight
gain (Jenkin et al., 2011). This term was coined by Swinburn in 1997, and has attained
international recognition as the basis of the obesity problem (Sassi, 2010). An ‘obesogenic’
environment includes physical, social, economic, and policy aspects, which have contributed
to higher obesity rates in the last 30 years (Sassi, 2010; Waikato District Health Board,
2011). A prevalent theme across the range of factors is the current nature of lifestyles, and
the high proportion of energy dense foods consumed.
Obesity has been described as people responding normally to the environment they find
themselves in (Waikato District Health Board, 2011). Marmot (2011) notes that the
behavioural choices we make as individuals are embedded in our social and economic
circumstances; individuals born into more advantageous situations find adopting a healthier
lifestyle easier than socially disadvantaged individuals (Waikato District Health Board,
2011). The literature suggests there are a number of factors that may encourage people to
become obese. These factors are summarised as:
Information
•
Lack of information about healthy products, exacerbated by an inability to cook
(Swinburn et al., 2004).
•
An increase of fats and sugars in the composition of foods, which is difficult to
identify due to an inability to understand the current labelling system (Health
Committee, 2013).
Environmental
•
High concentration of fast food outlets, particularly in high deprivation areas
(Swinburn et al., 2004).
•
Urbanisation: urban environments encourage sedentary lifestyles (Waikato District
Health Board, 2011).
•
Impact of technology through use of labour-saving devices, including transport
(Swinburn et al., 2004).
Price
•
Low cost of unhealthy food, which may promote greater consumption of unhealthy
products (Swinburn et al., 2004).
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Lifestyle
•
Heavy marketing to children and adults, which may increase the demand for
unhealthy food products (Health Committee, 2007).
•
Increased eating out: food prepared away from the home is higher in total energy,
fats, cholesterol and sodium (Swinburn et al., 2004).
•
Larger portion sizes (Swinburn et al., 2004).
•
Increased snacking: snack foods tend to be energy dense and encourage weight
gain (Swinburn et al., 2004).
•
Sedentary jobs with non-active forms of recreation, which encourage inactive
lifestyles (Waikato District Health Board, 2011).
•
Reduced time to prepare home-prepared meals (Swinburn et al., 2004).
3.3 Costs and impacts on Living Standards
Obesity has significant impacts on health and productivity costs, with the growing problem
having serious implications for future economic growth and sustainability.
The Ministry of Health (2001) defines the economic cost of obesity as being made up of
three components:
•
Direct costs to the individual and the healthcare service provider.
•
Opportunity costs to the individual, i.e. the social and personal loss associated with
obesity generally arising from premature death or morbidity.
•
Indirect costs usually measured as lost productivity due to absenteeism from work
and premature death.
Costs
Obesity is a major public health concern because it is a key risk factor in a range of chronic
diseases, which are costly to individuals and the health system. Type 2 diabetes is closely
linked to obesity (Sassi, 2010). High cholesterol and high blood pressure are more common
as an individual’s BMI increases; this relationship means that heart disease, stroke, and
coronary artery disease are more prone to develop (Sassi, 2010). A link between obesity
and cancer has also been identified (Health Committee, 2007). Quality of life and length is
significantly impacted by these conditions (Sassi, 2010).
In addition to chronic non-communicable diseases obesity can cause debilitating conditions
and psychological problems. These conditions include: osteoarthritis, gallbladder disease,
respiratory difficulties, infertility, skin problems and clinical depression (Waikato District
Health Board, 2011).
Figure 3 displays the relationship between obesity (high body mass index) and health
conditions. It shows that in 2006 high BMI was the second highest risk to health, at 7.9 per
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cent Disability Adjusted Life Years (DALYs). By 2016 health loss from high BMI is expected
to be greater than that from tobacco (Ministry of Health, 2013)
Figure 3: Attributable burden for selected risk factors 2006 (Ministry of Health, 2013).
According to the World Health Organisation (2000), the economic costs of obesity range
from 2 to 7 per cent of total health care costs, with obesity health care expenditure expected
to grow in future years (Waikato District Health Board, 2011). In 1991 the direct costs from
obesity were conservatively estimated to be NZ$135m per year and 2.5 per cent of health
care expenditure (Health Committee, 2007). In 2006 Lal et al. (2012) estimated health care
costs attributed to obesity equated to 4.5 per cent of total health care expenditure,
calculated at NZ$686m. 10.5 per cent and 18.5 per cent of total obesity costs were
attributed to Maori and Pacific Island populations (Lal et al., 2012). Due to higher rates of
obesity presently compared with 2006 it can be assumed these health costs have also
increased. An obese person incurs health care expenditure at least 25 per cent higher than
someone of a normal weight (Sassi, 2010).
The ageing population and high prevalance of obesity represents a challenge for New
Zealand health care expenditure. This suggests that understanding and minimising liabilities
from obesity should be a priority, especially in the context of growing demand for limited
health care resources.
Opportunity costs
In addition to health costs, an obese individual may suffer other costs such as psychological
distress and employment issues. According to the OECD (Sassi, 2010), the obese are likely
to earn less than people of a normal weight; research has suggested wage penalties of up
to 18 per cent. An obese person is more likely to be unemployed compared to an individual
of a normal weight (Sassi, 2010). The OECD suggests obesity is a factor in job
discrimination and social stigmatisation, and is found to have an increased prevalence in
bullying (Sassi, 2010).
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Indirect costs
Obesity has detrimental impacts for economic growth and productivity. Overweight and
obese individuals generate productivity costs estimated to be between NZ$98m and
NZ$225m, using 2006 data (Lal et al., 2012). These costs are created through absenteeism,
premature death, or recruitment and training of replacement staff. It is also suggested that
an obese individual may work at less than full capacity (Lal et al., 2012). If an individual is
unable to work due to obesity, there may be costs to the welfare system. Impacts upon the
transport industry would also be important to consider, as greater resources are required for
larger individuals.
As the obesity problem worsens it is predicted that these economic, health and social costs
will escalate creating further problems.
Impacts on Living Standards
The Treasury’s goal of increasing the living standards of all New Zealanders is reflected in
its 'Living Standards Framework' (Treasury, 2014). This framework (see Figure 4)
represents a unique policy tool that identifies the key dimensions that need to be considered
when addressing particular issues of concern (Treasury, 2014). In this paper the Treasury
Living Standards framework has been considered to gain a greater sense of the impacts of
the obesity problem, and the impacts of regulatory measures that could help address it.
Figure 4: Treasury Living Standards Framework (Treasury, 2014)
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The table below identifies possible impacts of the obesity problem in New Zealand using the
Living Standards Framework.
Living standards dimension
Application to problem of obesity in New
Zealand
Economic growth
A healthy population supports greater
productivity
and
ultimately
stronger
economic growth. Obesity compromises
productivity and labour market participation
as it prevents individuals from working,
impacts longevity of life, and reduces
productivity.
Health spending represents a significant
proportion of government expenditure. As
obesity increases this puts pressure on
spending with potential implications for
taxation and deadweight economic costs.
Sustainability for the future
If health spending increases there are
implications for the Government’s other
spending priorities.
A sustainable diet is considered a healthy
diet; if individuals are consuming an
unhealthy diet this may place pressure on
the sustainability of food provision.
Reducing risks
Obesity is a fiscal risk for the future, as there
are many health costs associated with
obesity as well as potential risks to
productivity and GDP. Higher welfare and a
weaker economy present a risk for the New
Zealand macro economic outlook.
Increasing equity
Low socio-economic groups have a higher
prevalence of obesity. If it is not addressed
this will exacerbate existing inequalities.
Social infrastructure
An effective health system is an important
part of New Zealand’s social infrastructure.
Trust in the health system may be weakened
if it fails to respond to the growing obesity
problem.
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4
Actions currently undertaken
The current policy approach to obesity in New Zealand focuses on initiatives that aim to
support and encourage individuals to lead healthier lifestyles and the food industry to
provide healthier products and inform consumers. In 2001 the Ministry of Health published a
strategy that placed obesity as an important health priority; this included a stock take of
obesity prevention programmes and an evidence-based review of successful international
programmes (Ministry of Health, 2001). Since 2001 there have been a number of mostly
short-term preventive initiatives at national, regional and local levels directly targeting
prevention and management of obesity. However, no dedicated regulatory measures have
been implemented, e.g. by changing the price of food. Many critics argue that there is no
organised strategy and an organised strategy should be the first priority in targeting the core
of the problem. There are calls for work to be completed in this field to impact on the New
Zealand obesity problem. New Zealand has also engaged internationally in efforts to reduce
global obesity rates.
Today obesity is seen as overwhelmingly a societal issue given its prevalence and costs.
Existing programmes provide part of the solution. In 2007 and 2013 the Health Committee
investigated the obesity and diabetes problem in New Zealand, suggesting a number of
regulatory approaches. The 2013 Health Committee paper reported that the obesity problem
will not be solved by targeting individuals in isolation but must reflect their food environment,
family, cultural background and financial constraints (Health Committee, 2013).
The current initiatives to improve nutrition and increase physical activity include but are not
restricted to (important to note the intention of these policies in many cases is not based on
obesity):
Diet:
•
The Health Promotion Agency organises campaigns such as ‘Breakfast Eaters’
(Ministry of Health, 2013).
•
Public health contracts are in place to promote nutrition and physical activity
promotion, including product reformulation (Ministry of Health, 2013).
•
Fruit in Schools programme provides fruit to children in low-decile schools (Ministry
of Health, 2013).
•
The 5 plus a day programme promotes consumption of fruit and vegetables (Ministry
of Health, 2013).
•
In 2006 Counties Manukau DHB “Let’s Beat Diabetes” programme prompted the
initiation of a joint venture with McDonalds and Coca-Cola to substitute sugar-free
lemonade for the full sugar beverage (Food Industry Group, 2006).
•
The food industry, including manufacturers such as McDonalds, Coca-Cola,
FRUCOR, KFC, New World and Burger King, has made pledges to reformulate
products, review and refine marketing practices and provide opportunities for
communication, information and education (Food Industry Group, 2006).
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•
The Ministry of Primary Industries has made efforts to modify the composition of
food products by working with industry to reformulate in the areas of sodium and
trans-fat. It has also completed work strengthening rules around food labelling
(Ministry of Health, 2013). In 2007 the Australia New Zealand Collaboration on
Trans Fats was created with the goal of reducing trans-fats in the food supply (Food
Standards Australia New Zealand, 2013).
Education:
•
The Pacific Innovation Fund helps Pacific Island people to improve their health
and wellbeing. Three of the five current initiatives directly target obesity (Ministry
of Health, 2013).
Physical Activity:
•
The National Transport Agency encourages user friendly walking (Ministry of
Health, 2013).
•
DHB Green Prescriptions issued by GPs or practice nurses to encourage
physical activity (Ministry of Health, 2013).
One initiative that has been in place for a number of years and has promising results for
children is the Project Energize programme in Waikato (Rush et al., 2013).
Project Energize
The Energize programme began in 2005 funded by the Waikato District Health Board. It is a
health programme focusing on health literacy and physical activity (Rush et al., 2013).
Currently the programme is in place in 233 schools in the Waikato District, reaching 10 per
cent of the child population of New Zealand. When evaluated in 2011 children in the
Energize program ran 550m 13 per cent faster and their BMI was 3 per cent lower in
younger (6-8 years) and 2.4 per cent lower in older (9-11 years) children than those in the
comparison group (Rush et al., 2013). In 2010 $1.9m was spent to deliver the programme –
a cost of $44.96/child/year (Rush et al., 2013). If rolled out to the whole New Zealand child
population the programme is estimated to cost $20 million per year.
Given the continuing rise in obesity, there may be a role for regulatory measures to play in
reducing the New Zealand obesity rate. Regulatory measures are viewed as complementary
to community-based approaches; however, neither approach can be expected to reverse
the obesity problem individually. Regulatory change is an important tool in changing
attitudes towards societal issues. The introduction of the New Zealand Smoke Free
Environments Act has helped shaped some of the social norms held presently towards
smoking, from this experience it can be assumed regulations may play a role in shaping
norms towards obesity.
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5
Regulatory measures
5.1 Regulatory options considered
Figure 5 shows a range of measures that could be adopted to address obesity. This paper
focuses on the following regulatory options:
•
Interpretive front of pack labelling
•
Regulation of marketing to children
•
Pricing mechanisms:
o
Sugar-sweetened beverage tax
o
Saturated fat tax
o
Removal of GST from fruit and vegetables
These options are the most widely considered and commonly implemented internationally.
However, due to the complexity of the problem there is scope for further research into other
regulatory measures including minimum pricing, planning restrictions and banning of goods.
These are shown on the continuum below, along with voluntary measures (see Figure 5).
Figure 5: Policy options, goals and desired outcomes
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5.2 Criteria for assessing regulatory measures
The following criteria will be used to assess the regulatory options:
•
Impact on consumption
•
Efficiency and cost-effectiveness
•
Acceptability: Stakeholder support
•
Costs
•
Feasibility
•
Effects on equity
•
Positive and negative impacts
The Treasury Living Standards framework has been considered where appropriate (as seen
from Figure 4):
•
Economic Growth
•
Sustainability for the Future
•
Increasing Equity
•
Social Infrastructure
•
Reducing Risks.
The discussion of each regulatory option sets out the main issues to consider against the
options. A full analysis against all the criteria is in the Appendix (page 34).
5.3 Interpretive front of pack labelling
An interpretive front of pack labelling system would require the food industry to distribute
food products with a user-friendly label displaying key nutrients on the front of product
packets, including: fats, saturates, sugars and salt for 100g of the product. This would
clearly display easy to read nutritional content. The system may include use of colour such
as green, amber and red (traffic light system) or symbols such as stars (health star rating
system) to portray messages to the consumer. The analysis throughout this paper is from
a broad front of pack labelling policy perspective. Details on the precise mechanism would
be an area for further work.
Rationale
An interpretive front of pack labelling system should provide nutritional information in a
format that is easy for consumers to interpret and should help aide healthier food choices
through interpretation. This could reduce the level of obesity in New Zealand by encouraging
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consumers to choose healthier foods to the benefit of the individual and their family. It has
the additional benefit of providing incentives to producers to improve the health of their
products through product reformulation.
Consumer research on the current nutrition label suggests that the Nutrition Information
Panel (NIP) on the back of food packages in Australia and New Zealand is viewed by
consumers as confusing and technical (Signal et al., 2012). Of particular concern is
evidence that individuals from low socio-economic groups experience difficulties interpreting
the current label (Signal et al., 2012). Recent consumer studies in Australia found that 49
per cent of consumers misinterpreted the current nutrition information (Lanumata et al.,
2008). This suggests there is scope to improve understanding of current labels with
potential for a positive impact on eating patterns.
The dominant ideology surrounding the issue of obesity is based on commercial freedom
and personal responsibility (Magnusson, 2010). An interpretive labelling system informs
consumers about the nutrient profiling and allows them to make judgements. It allows the
consumer to make informed decisions about food products, which may be seen as a better
fit with this approach.
International application
The UK is one of the only countries to have introduced a voluntary front of pack labelling
system. In 2006 a voluntary traffic light front of pack labeling system for food manufacturers
was implemented (see Figure 6). More recently Ecuador and Mexico have introduced
mandatory regulations on food products.
Figure 6: Example of Traffic Light labelling UK (Food Standards Agency Scotland, 2013).
More than 100 companies of all sizes in the UK are now using the traffic light system
consistently on a voluntary basis. Labels are on the front of more than 20,000 product lines
(Department of Health & Devolved Administrations, 2013).
Analysis of an interpretive front of pack labelling in New Zealand
Evidence of effectiveness
Front of pack labelling encourages changes in consumer behaviour. The visual system aids
consumers with greater information about food products, enabling them to make informed
decisions about what products they consume (Signal et al., 2012).
Surveys have found a shift in consumer purchasing behaviour to healthier food products in
response to the traffic light system and a push from supermarkets to reformulate their
products (World Cancer Research Fund, 2012). Studies in New Zealand found that the
traffic light system was effective in deterring consumers from unhealthy foods encouraging
healthier eating in comparison to the Nutrition Information Panel (Veer, 2014). US research
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found significant shifts in sales towards healthier food products with the support of front of
pack labelling (Sacks et al., 2010).
It is understood that this policy in the UK has been accepted by consumers, who have found
it easy to understand and have shifted to healthier food options (Health Committee, 2007).
Further research into this system has found that front of pack labelling is used, liked by and
performs well for lower socio-economic groups (Department of Health & Devolved
Administrations, 2013). There is additional evidence that an interpretive front of pack
labelling system has resulted in higher comprehension of food composition by low socioeconomic groups (Department of Health & Devolved Administrations, 2013). This is
important as overweight and obesity are more prevalent in low socio-economic groups and
comprehension of the current nutrition information panels in New Zealand is low (World
Cancer Research Fund, 2012).
Sacks et al. (2010) believe the introduction of an interpretive nutrition labelling system would
act as a stimulus for food companies to improve the nutrition of their standardised offerings,
creating a healthier food environment for consumers. Interpretive front of pack labelling
incentivises producers to reformulate food products in order to obtain a favorable label. An
example of reformulation from labelling has been reported when the Heart Foundation Tick
was introduced resulting in food companies throughout New Zealand to exclude 33 tonnes
of salt due to reformulation (Hawley et al., 2012). In the US a number of producers reduced
the level of trans-fats when the Food and Drug Association mandated the listing of trans-fat
content on product packaging (Hawley et al., 2012). Even if an interpretive front of pack
labelling system produces little impact upon consumer behaviour there could still be
considerable public health benefits and it supports consumers’ rights to know what is in the
food they are consuming (Hawley et al., 2012).
Economic implications for producers
Support from the food industry is likely to be low for an interpretive front of pack labelling
system, however this is mainly restricted to large processed food manufacturers. A number
of producers would gain unfavourable nutrition labels for their product lines and fear this
would reduce demand for their products (Hawley et al., 2012). All submissions from food
manufacturers to the Australia and New Zealand Food Regulation Council in regard to an
interpretive front of pack labelling system opposed a traffic light front of pack labelling
system (Signal et al., 2012). This led the Panel to put consideration of the traffic light system
‘on hold’, but efforts to develop an interpretive system have continued (Signal et al., 2012).
A mandatory system would also have a number of economic implications for manufacturers
that would be forced to alter their packaging to incorporate the front of pack label, potentially
resulting in an additional cost to production. However, if introduced with a long enough leadin time the costs may be minimised. Further work into the implications of these economic
costs would need to be conducted to determine how the costs could be minimised or to
establish whether or not additional government support should be introduced. There could
be scope to help minimise costs through phasing in of the regulations or enabling producers
to combine the change with other planned changes to their packaging.
Policy formulation issues
Critics of interpretive front of pack labelling systems report the system as too simplistic and
potentially unhelpful (Consumer NZ, 2014). They believe that the system incorrectly labels
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food products providing some healthy food products with a detrimental label (Consumer NZ,
2014). To maximise health benefits there may have to be further consideration of the
quantity at which food is assessed. It has been argued that giving labels to 100g quantities
of food is misleading and confusing to consumers who may consume larger or smaller
quantities of the product (Consumer NZ, 2014). Equally, if labels are according to serving
size, it can be difficult to compare products that consider one serving to be of a different size
to a similar product. These are issues with policy formulation, but they can be minimised
with a focus on effective implementation.
Summary
Interpretive front of pack labelling is a policy that would provide the population with greater
information in regard to food composition. It would drive consumer behavioural change to
reduce consumption of products high in sugar, salt and fat. Evidence shows that there
would be an effect on producers that may encourage product reformulation, which is positive
for population health outcomes. The main downfall to this policy is the impact on producers,
with strong industry push back expected; however, the gains in health impacts are
considered to outweigh the costs. For some producers in the industry there will be
favourable impacts with consumers subsituting to their products. There are a number of
areas requiring further work (see 6.2), namely the best interpretive labelling system for New
Zealand, such as the star or traffic light systems. In addition, further work into possible
policy formulation issues and economic costs to the producers would be required.
5.4 Regulation of marketing to children
This policy would restrict advertising of unhealthy food products during children’s frequent
viewing times and other prominent advertising mediums. It would have the goal of reducing
children’s exposure to unhealthy food products, therefore reducing demand for and
consumption of unhealthy food products.
Rationale
The rights of children are commonly exploited as children are viewed as a vulnerable and
lucrative market to target. This needs to be curtailed. Marketing to children has been clearly
shown to influence parents’ and children’s preferences and food choices and drives ‘pester
power’, which can influence consumer behaviour (Health Committee, 2013). A UK study
showed that 73 per cent of children asked their parents to purchase things that they had
seen advertised on television (Diabetes New Zealand Inc et al., 2003). A recent Australian
survey examining children’s exposure to television advertising of ‘unhealthy’ food reported
an association of heavier and more frequent consumption of such foods from increased
television exposure (Jenkin et al., 2009).
Currently in New Zealand, children are exposed to advertisements for snack foods, sweet
snacks, drinks and fast foods, with 70 per cent of advertising in children’s viewing times
promoting unhealthy food products (Shaw, 2009). If exposure to these advertisements was
reduced it is suggested that obesity among children would decline (Jenkin et al., 2009). One
rigorous review commissioned by the Institute of Medicine concluded that “television
advertising influences the food preferences, purchase requests, and diets, at least of
children under age 12 years, and is associated with increased rates of obesity among
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children and youth” (Jenkin et al., 2009). In 2007 the fast food industry spent $12.94 per
person on advertising in New Zealand; the amount spent on healthy food advertising was
only $1.44 per person (Waikato District Health Board, 2011).
Currently New Zealand has an almost entirely self-regulatory system for television
marketing, with the Advertising Standards Authority (ASA) acting as a voluntary industry
body (Shaw, 2009). The current ASA reponse to regulating unhealthy advertising is seen as
flawed (Shaw, 2009). From the current evidence it is clear that the self-regulatory system in
place has failed to decrease children’s exposure to advertising of unhealthy foods (Shaw,
2009). Internationally self-regulatory systems are failing to protect children, suggesting a
statutory mechanism is required. The current situation could be defined as a market failure
and strengthens the argument for intervention; children are viewed as powerless to their
exposure. In terms of other mediums such as the internet, there are currently no regulations
in place restricting exposure to children and this is considered very complicated to
implement.
International application
In 2007 the UK regulator Ofcom introduced regulations banning the advertisement of foods
high in fat, salt and sugar during children’s programming on television (Adams, 2012).
Several countries in Europe, such as Sweden, Norway, Poland and Greece, and Quebec in
Canada have banned advertising to children through a number of mediums (Shaw, 2009).
Analysis of regulation of television advertising to children in New Zealand
Evidence of effectiveness
Regulations on advertising to children have been associated with reductions in exposure to,
and therefore demand for, unhealthy foods such as soft drinks. Evidence from Poland has
reported that a ban on television and radio marketing to children significantly reduced
product sales, notably of soft drinks (Diabetes New Zealand Inc et al., 2003).This represents
an association between a number of food products and advertising, suggesting that
reductions in exposure can have effects upon consumption behaviour. If restrictions were
implemented in New Zealand, children’s exposure to marketing could be reduced resulting
in positive consumer behaviour patterns.
Industry impacts
There may be issues with industry acceptability if the regulations were only enforced upon
television, raising issues about regulating other marketing mediums. For advertisers there
may be a shift to other types of media such as the internet or to adult viewing times. It would
be important to consider and monitor industry responses to ensure the policy worked as
intended. Further implications could be experienced by broadcasters who may be subjected
to reduced revenue; this would need to be monitored. Further work on regulations upon
other industries may be required in order to develop a well targeted policy.
Policy formulation issues
If the regulations are not well formulated they may not provide any gains for the child
audience. Lessons can be learnt from the UK; research following the UK restrictions on
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television advertising found that children were exposed to the same level of marketing as
before the ban, because children watched shows not specifically targeted to their audience
and which were not affected by the regulations (Adams, 2012). One of the Public Health
Research Centres of Excellence funded through the UK Clinical Research Collaboration
(UKCRC) has found evidence showing that restricting unhealthy advertising to viewing times
after 9pm would reduce children’s exposure by 82 per cent (Adams, 2012). The regulations
would need an effective monitoring body so that the progress in the New Zealand context
can be accurately measured (Shaw, 2009). In order to effectively regulate this industry a
regulatory body would have to be established or the Advertising Standards Authority (ASA)
given greater powers. The policy design is likely to be complicated in order to include
mediums other than television and radio.
Summary
Restriction of marketing to children could reduce children’s exposure to advertising and
reduce demand for unhealthy foods. There are several issues that require further work
namely policy formulation issues, for example, the most efficient way to implement the
restrictions and the medium in which the restrictions can be applied. This policy would
support the basic principle of society’s responsibility to protect children from known harms
and exploitation. Overall this policy represents a promising approach that could have
benefits for child nutrition and welfare.
5.5 Pricing mechanisms
Price is an important determinant in food choices and diet. Economic theory assumes as the
price of the item rises, according to the law of demand the consumption of that item will
typically fall. For governments, increasing the price of undesirable products through taxation
should reduce the consumption of the taxed foods. Economists generally agree that
government intervention is justified when the market fails to provide the optimum amount of
a product for the good of society; this argument is applied in the case of taxing tobacco and
alcohol (Mytton et al., 2012). A pricing mechanism is not an absolute tool but can be used
as a multi-tailored response to the obesity problem.
Price elasticity
Price elasticity of food consumption measures the level of responsiveness of demand for
food consumption to changes in food prices relative to prices of other commodities (O’Dea
et al., 2009). It is also likely that industry may alter the pricing of other products such as diet
drinks so that pricing matches the tax. Price elasticity is important to consider when
evaluating consumer behaviour in response to a tax.
The higher the level of elasticity of demand the greater the likelihood of substitution and
decreased consumption of a product. When increasing the price of one product, related
products such as substitutes (diet coke for coke) may be affected in response to the price
change (Mytton et al., 2012).
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Elasticities of demand are interpreted as follows:
0 = Perfectly inelastic demand
-1< 0= Inelastic or relatively inelastic demand
-1 = Unit elasticity
1 > = Elastic or relatively elastic demand
Demand is:
•
relatively inelastic when the percentage change in quantity demanded is less than
the percentage change in price
•
unit elasticity demand when the percentage change in quantity demanded is equal
to the percentage change in price
•
relatively elastic when the percentage change in quantity demanded is greater
than the percentage change in price.
Pricing mechanisms
There are a number of different goods that can be targeted by a tax on sugar, fat and/or salt
content for example. This paper focuses on three pricing mechanisms:
•
Sugar-sweetened beverage tax
•
Saturated fat tax
•
Removal of GST from fruit and vegetables
In addition to the variety of products that could be targeted, there are a number of different
ways of designing pricing regulations, including an excise tax, sales tax, minimum pricing
and tax exemption. Each approach may have different impacts. Nutrient profiling is a
promising area for taxation; it would provide greater effectiveness in targeting ‘unhealthy’
products. The purpose of this report is to understand the potential impact on consumption
from a health policy perspective, rather than focusing on the exact mechanism.
5.5.1 Sugar-sweetened beverage tax
A sugar-sweetened beverage tax would tax beverages containing added sugar. Sugarsweetened beverages include carbonated soft drinks, sports drinks, fruit drinks, flavoured
waters, sweetened teas, ready-to-drink coffees, and other non-alcoholic drinks containing
added sugars.
Rationale
There is evidence that taxes on foods with high sugar content can reduce consumption,
provided that the rate of tax is sufficiently high. Particular interest has been placed in sugarsweetened beverages because of their strong association with obesity, diabetes and dental
health.
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Sugar-sweetened beverages deliver little to no nutrition, are heavily marketed to children,
contribute to poor diet, and carry the risk of obesity, diabetes and other diseases (Brownell
& Friedman, 2012). The Global Burden of Disease panel estimates 0.6 per cent of deaths
worldwide per year can be attributed to diets high in sugar-sweetened beverages (Blakely et
al., 2014). By reducing consumption of these beverages through taxation, it is assumed
calorie intake will fall as people will be incentivised to reduce consumption. They may also
substitute these beverages for healthier alternatives, reducing sugar intake.
International application
Internationally a number of countries have introduced sugar-sweetened beverage taxes,
including France, Mexico, Finland and a number of US states (Landon & Graff, 2012). In
2011 Hungary introduced a sugar-sweetened beverage tax, and from evidence has proven
successful in reducing consumption.
Analysis of a sugar-sweetened beverage tax in New Zealand
Evidence of effectiveness
Sugar-sweetened beverage taxes have been associated with reductions in consumption.
Evidence from Hungary has reported consumption of sugar-sweetened beverages was
almost halved after the tax implemented in 2011 (Landon & Graff, 2012). Before the tax was
levied Hungary had an average soft drink intake of 290ml per day, with young people
obtaining 7 per cent of their daily energy from soft drinks (Landon & Graff, 2012). Following
the introduction of the tax, soft drink consumption in Hungary fell from 117 million litres to 69
million litres in the last quarter of 2011 (Landon & Graff, 2012). A New Zealand modelling
study found a decrease in consumption by 24 per cent when a 10 per cent tax was applied
to sugar-sweetened soft drinks (Eyles et al., 2012). In a recent study, Briggs et al. (2013)
found that a 20 per cent tax on sugar-sweetened beverages would reduce consumption by
up to 16 per cent. Evidence from other international taxes is still yet to be published.
Evidence from the Briggs et al. (2013) study suggested elasticity for sugar-sweetened
beverages was between 0.92 and -0.81, suggesting they are relatively elastic in nature. For
the lowest socio-economic group elasticity was estimated at -1.03 suggesting the reductions
would be proportionate to the increase in price (Briggs et al., 2013). This suggests a high
level of substitution with diet beverages or beverages containing no sugar content.
If the tax level was high enough there would be an impact on obesity in New Zealand. A
sugar-sweetened beverage tax is likely to have impacts on reduced consumption and
reductions on the rate of obesity. Modelling by Briggs et al. (2013) predicted that a 20 per
cent tax on sugar-sweetened beverages would reduce the prevalence of obesity in the UK
by 1.3 per cent, whilst a study in India by Basu et al. (2014) estimated that a 20 per cent
sugar-sweetened beverage tax would avert 4.2 per cent of the prevalence of obesity in
India. It is unclear if the obesity impacts would be to the same level in New Zealand;
however both represent promising indications in reductions of obesity (Blakely et al., 2014).
In addition to positive obesity outcomes there are reported benefits for diabetes, dental
cavities and a number of health conditions (Brownell & Friedman, 2012). Basu et al. (2014)
found that a 20 per cent sugar-sweetened beverage tax could reduce the incidence of
diabetes by 2.3 per cent from 2014 to 2023 (Blakely et al., 2014).
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Financial implications for low socio-economic groups
There are several concerns that a sugar-sweetened beverage tax would have greater
financial implications for lower socio-economic groups. However some have suggested that
this would be progressive in terms of health outcomes as poor people have a higher
incidence of disease, and consume less healthy food (Briggs et al., 2013). Consequently,
the greater absolute reduction in obesity would be assumed to be among poor people who
have a higher prevalence of obesity.
Industry push back
Opposition to a tax is to be expected from the beverage industry due to the high profitability
of sugar-sweetened beverage consumption and significant vested interests (Brownwell &
Frieden, 2009). From international experience, industry has opposed sugar-sweetened
beverage taxes and in many countries industry has spent large amounts of money to lobby
for the abolition of the tax (Lavin & Timpson, 2013).
Policy formulation issues
In the New Zealand context, an excise tax on these products is feasible whilst other designs
are likely to be complicated and ineffective. Issues with a sugar-sweetened beverage tax
raise a number of issues surrounding artificial sweeteners’ and the beverages subjected in
the tax. Internationally there is conflicting evidence surrounding artificial sweeteners, this
would have to be further considered in the policy design stage, with scope for artificial
sweeteners to be included in the tax (Fowler et al., 2008). However, it is important to
consider the switch from sugar-sweetened beverages to artificially sweetened beverages as
a positive shift in reducing sugar intake, although it is not as healthy as a switch to water or
milk beverages. Some retailers may not pass on the tax to consumers and instead may
absorb the price increases as sugar-sweetened beverages are commonly used as a ‘loss
leader’ by a number of retailers.
Summary
Evidence suggests that a sugar-sweetened beverage tax would reduce consumption of
sugar-sweetened beverages and caries the prevalence of obesity. It would have a number
of health benefits, with a particular benefit in reducing diabetes and reducing poor dental
health. The benefit is highly likely to be progressive (this has been seen in tobacco taxation),
however there are concerns that the tax would have greater financial implications for lower
socio-economic groups. Some have suggested that this is progressive in terms of health
outcomes, and it is viewed as correctly targeting the groups with the highest prevalence of
obesity. There are a number of areas for further work, such as the mechanism by which the
tax could be introduced, and a number of policy formulation issues to consider.
5.5.2 Saturated fat tax
A saturated fat tax would tax food products exceeding a threshold of saturated fat. This
could be applied to certain products such as meats, dairy, processed foods, cooking oils
and junk foods in the form of a ‘per kilo’ charge.
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Rationale
Saturated fats are the main type of fat in butter, dairy products, fatty meats, fried and takeaway foods. When an individual consumes a diet high in saturated fat they store large
amounts of excess fat and their risk of cardio-vascular and heart disease increases
(American Heart Association, 2013). A high level of saturated fat can increase the level of
bad cholesterol in the blood and is a major risk factor for heart diseases and stroke.
Australian guidelines recommend that saturated fats and trans-fats provide no more than 10
per cent of a person’s energy, due to the implications of excess consumption on obesity and
cardiovascular disease (Health Committee, 2013). Currently New Zealanders are obtaining
around 14 to 16 per cent of daily kilojoules from trans-fats and saturated fats; this is well
above the Australian and New Zealand recommendation not to exceed consumption of 8 to
10 per cent of daily kilojoule intake. This high rate of consumption is also well above the
recommendations of other OECD countries (Food Standards Australia Zealand, 2013).
If a tax was implemented, people would be incentivised to consume smaller quantities of
saturated fat, which is suggested to lead to decreased obesity rates. This would improve
health outcomes and improve the rates of obesity-related diseases.
An alternative approach could be a tax on trans-fatty acids. However, evidence suggests
that trans-fat consumption is not a major issue in New Zealand. Food Standards Australia
New Zealand’s dietary modelling found that New Zealanders obtain an average of 0.6 per
cent of their daily kilojoules from trans-fats; this is below the WHO organisation
recommendation of 1 per cent (Food Standards Australia Zealand, 2013). In 2007 the New
Zealand and Australian Governments established Australia New Zealand Collaboration on
trans-fats (Food Standards Australia Zealand, 2013). Since 2007 the intake level of transfats from manufactured products has declined from 70 per cent to 45 per cent in the food
supply (Food Standards Australia Zealand, 2013).
International application
In 2011 Denmark introduced the first fat tax in the world. The tax targeting saturated fat
products was placed on food items exceeding 2.3g/100g of saturated fat, charging NZ$3.50
for every kilogram of saturated fat (Petkantchin, 2013). This tax was applied to meat, dairy
products and animal fats that are rendered or extracted in other ways, edible oils and fats,
margarine and blended spreads (Smed, 2012).
Analysis of a saturated fat tax in New Zealand
Evidence of effectiveness
Price is a major factor in consumption patterns, so if a fat tax was introduced there is likely
to be a fall in consumption (Smed, 2012). Evidence from Denmark suggests that
consumption of products containing saturated fat fell following the introduction of the fat tax
(Smed, 2012). However, a survey from the Danish Agriculture and Food Council reported
that 80 per cent of households reported no change in their consumption patterns after the
fat tax was introduced (Petkantchin, 2013). There is still debate on the exact figures of
decreased consumption as the tax was only in place for fifteen months, but some studies
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indicated decreased consumption of up to 15 per cent for some products (Petkantchin,
2013).
Internationally there is a lack of evidence regarding the effect of a saturated fat tax. From
available evidence it appears there is an ambiguous effect on consumption. Further
evidence would be required before judgement on the effect could be concluded. A modelling
study from Auckland and Otago Universities predicted that for every one per cent price
increase there would be an overall decrease of 0.02 per cent in energy intake from
saturated fats (Eyles et al., 2012).
Economic implications
In Denmark, the fat tax created a number of issues for businesses and industry.
Supermarkets were able to absorb the price changes and spread the burden across other
food products (Petkantchin, 2013). In contrast some retailers, such as butchers, were
significantly harmed by the tax. According to the Danish Agriculture and Food Council,
Denmark experienced a loss of jobs due to the fat tax (Petkantchin, 2013). From the Danish
experience the potential impact on jobs and economic growth are serious considerations if it
were to be implemented in New Zealand (Petkantchin, 2013).
One issue raised from this tax is that a small country with an open border cannot raise their
prices or they will face cross border shopping and a loss of competitiveness. However, this
is unlikely to occur in New Zealand due to its geographical location. It is difficult to measure
the effectiveness of the Danish fat tax as low public support and pressure from industry
meant it was repealed after fifteen months, but during this time the tax did raise NZ$216
million with estimates of administration costs over NZ$44 million (Nestle, 2012). This
suggests revenue could be raised from a fat tax to reinvest into obesity prevention
programmes. The tax mechanism performed as desired with the price increasing and
consumption falling, the failure from the tax is largely attributed to poor conception and
implementation by policy makers exacerbated with a lack of public health support.
If the fat tax were implemented in New Zealand, it is likely that it would be applied to dairy
and meat products, which are leading sources of income for New Zealand producers. It is
likely there would be high levels of industry push back in response to such a policy, although
this is dependent on producers’ reliance on the New Zealand market. If producers
responded by exporting larger quantities then the economic costs would be minimised.
These administration costs and economic implications would need to be balanced against
the health benefits.
Impact on low socio-economic groups
As lower-income households generally spend a higher proportion of their income on food,
the tax may have a greater impact on these groups (Health Committee, 2013). For these
low socio-economic groups there could be issues with behavioural change, as some of
these individuals may not have the resources to adapt their behaviour accordingly. It is likely
that the tax may have an income effect in which the consumer will buy fewer healthy foods
as well as unhealthy foods, as the basket they habitually bought is more expensive so they
feel poorer (Smed, 2012). However, it could be argued that if the policy was successful in
improving health outcomes, it would provide low socio-economic individuals more
opportunities to participate in society.
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Summary
Overall this policy could have health benefits, but it is important to consider the serious flaws
of this policy. There is a serious risk that targeting products that have nutritional benefits
could have negative consequences. There are a number of significant economic
considerations and the effect upon consumption is unclear.
5.5.3 Removal of GST from fruit and vegetables
The removal of GST from fruit and vegetables would mean the current 15 per cent goods
and services tax would be removed from fruit and vegetable products.
Rationale
There is scope for New Zealanders to increase their intake of fruit and vegetables, with
potential positive impacts on health and obesity rates. In 2012/13 the Ministry of Health
survey reported that 66 per cent of adults ate at least three servings of vegetables, while 58
per cent of adults ate at least two servings of fruit and vegetables presenting a lack of
fulfilling daily nutritional needs (Ministry of Health, 2013).
If GST was removed from fruit and vegetables, it would incentivise households and
individuals to purchase larger quantities of fruit and vegetables for a given amount of
income. This could make fruit and vegetables more attractive relative to less healthy food
products. This measure would benefit health outcomes, and may reduce obesity and related
diseases through improving nutrition.
This analysis focuses on the removal of GST from fresh fruit and vegetables. Some critics
have argued that GST should be removed from healthy foods; however, there is some
ambiguity around what is defined as a healthy food product. This can be determined by
nutrient profiling.
Analysis of GST removal from fruit and vegetables in New Zealand
Evidence of effectiveness
According to advocates for the removal of GST, the quantities of fruit and vegetables that
consumers would be able to purchase would increase as they could use a given level of
income to purchase higher quantities. According to a study published in the American
Journal of Clinical Nutrition, if a 12.5 per cent GST sales tax was removed from fruit and
vegetables the consumption of these products would increase by 11 per cent (Mhurchu et
al., 2010). In Australia fruit and vegetables are exempt from GST; it is estimated if GST of
10 per cent was added to these products then fruit consumption would decline by 4.9 per
cent and vegetable consumption by 4.8 per cent (Veerman & Cobiac, 2013). In Australia the
removal of the GST exemption is expected to increase health costs and health loss by 3 per
cent annually (Veerman & Cobiac, 2013). However, in New Zealand it is difficult to predict if
the removal of GST at 15 per cent from fruit and vegetables would change consumption; in
2010 when the rate of GST increased to 15 per cent, income tax rates were reduced
simultaneously with the overall change in consumption ambiguous. It is also important to
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consider the market situation for the pricing of these products; the exemption may allow the
market to increase the price of these products.
It has also been argued that consumption of fruit and vegetables is not driven by the
absolute price. Even with the exemption, research suggests low income households will still
purchase unhealthy food products (Wynd & Familton, 2010). According to Drewnowski &
Darmon (2005) low income individuals think quite rationally when they purchase and they
wish to purchase the greatest amount of calories for the lowest value of income (Wynd &
Familton, 2010). The relative prices of fresh fruit and vegetables and poor quality food is
unbalanced and it is unlikely that the exemption would change the buying patterns of
households (Wynd & Familton, 2010). Instead, it is likely low income households would be
enabled with greater disposable income to purchase ‘unhealthy’ food products that are
typically low cost (Wynd & Familton, 2010).
Further work on the relationship between obesity and fruit and vegetables would need to be
completed to establish this relationship. It could be a component of the obesity strategy, but
it may not have the necessary level of impact to elicit changes in the levels of obesity in New
Zealand.
Loss of GST efficiency
The current GST system is viewed as a simple system which maximises the revenue
received with low administration costs (National Business Review, 2013). If exemptions were
added, this system would become more complex and the revenue received would decrease
forcing the government to compensate for loss of income, potentially through another
source of taxation (National Business Review, 2013).
Loss of key Government income
According to Treasury in 2009 the government received 21 per cent of tax income from
GST. The fiscal cost of the removal has been estimated to be $250 million dollars annually,
which is 2.16% of the total GST income (Wynd & Familton, 2010). New Zealand receives
the highest ratio of revenue from the GST system in the OECD (see Figure: 8) (OECD,
2012). It has been suggested that the GST system should not be used as a welfare tool;
instead it should be viewed as a revenue earner for the government and social welfare
should compensate for welfare issues.
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Figure 8: VAT revenue ratio for the OECD (OECD, 2012)
Disproportionate benefit to higher socioeconomic groups
The exemption is likely to have a disproportionate benefit for higher socio-economic rather
than lower socio-economic groups. GST is regressive in nature. By removing GST from fruit
and vegetables it would not make the system less regressive; all consumers would benefit
from the removal of GST. However, those on higher incomes spend a higher amount of
money on fruit and vegetables. As a result the exemption would provide these consumers
with a greater benefit compared to those in greater need, suggesting targeting issues with
the policy (Wynd & Familton, 2010).
Summary
This policy represents a loss of key government income and would compromise GST
efficiency. It is likely that the consumption of fruit and vegetables would increase, however
the relationship to obesity remains unclear. Further investigation into the market situation
would be critical to measure how pricing of fruit and vegetable products are set and if the
exemption would allow retailers to inflate these prices. Removing GST from fruit and
vegetables may not be viable; however, consideration of other mechanisms is necessary.
For example, a voucher system could be an effective mechanism to encourage greater
consumption of fruit and vegetables.
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6
Recommendations
6.1 Recommended approach
This paper suggests the most promising areas are:
•
Sugar-sweetened beverage tax
•
Regulations on marketing to children
•
Interpretive front of pack labelling system
A sugar-sweetened beverage tax has been proposed as an area that could use further
work. This regulatory option has a number of benefits namely:
• A reduction in consumption of sugar-sweetened beverages, suggested up to 16 per
cent reduction in consumption from a 20 per cent tax.
• A number of health benefits, with a particular benefit on reducing diabetes, prediabetes and a proven effect upon obesity.
• Increased revenue that could be used to support health promotion activities to
reduce obesity or prevent/treat diabetes.
Regulation of marketing to children is another policy that requires further consideration. It
has a number of significant benefits for child obesity and would protect children and support
parents through:
•
A reduction in exposure to unhealthy food advertising.
•
A reduction in pester power and demand for unhealthy food products.
The final policy that requires further consideration is an interpretive front of pack labelling.
Again, this policy would have a number of positive impacts including:
•
Product reformulation by producers.
•
Greater information for the consumer about food composition.
•
Driving consumer behavioural change to reduce consumption of products high in
sugar, fat and salt.
A saturated fat tax could provide a useful mechanism to reduce consumption of unhealthy
food products. However, in this paper the tax has been excluded due to a number of
negative impacts including:
•
Significant economic implications, loss of jobs and businesses, and harm to New
Zealand primary industries.
•
Implementation issues.
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•
Lack of consumer or producer acceptability.
•
Ambiguous effect on consumption.
Another regulatory option considered in this paper was removal of GST on fruit and
vegetables. Again, this paper excluded this regulatory option due to a number of financial
implications and efficiency issues such as:
•
Loss of key government income.
•
Equity impacts, higher proportion of benefit upon higher socio-economic rather than
lower socio-economic groups.
•
Loss of efficiency from a current simplistic GST system.
6.2 Areas for further work
6.2.1 Sugar-sweetened beverage tax
A sugar-sweetened beverage tax has the intended goal of changing the price of sugarsweetened products and ultimately changes in consumer behaviour. Further work would be
required on the level of the taxation, inclusion criteria (e.g. powdered drinks, juices, cordials,
sports drinks, energy drinks, RTDs etc) and the mechanism by which the tax is introduced.
There would have to be further work on the policy formulation issues, such as further
investigation into the harm of artificial sweeteners.
6.2.2 Regulation of marketing to children
Regulating marketing to children has the goal of reducing exposure to and demand for
unhealthy foods. There are several issues that require further work namely policy
formulation issues such as the most efficient way the restrictions would be introduced.
Regulation of some media such as the internet may be difficult to implement; further
investigation into the impact and the way this could be introduced is important to consider. In
consideration of manufacturers, there would have to be further work on ways that could
minimise producer loss from the regulations.
Another regulation highlighted for further work earlier in the paper was planning restrictions,
in particular restrictions on the number and locations of fast food outlets. Again, this policy
has the intention of restricting exposure to unhealthy foods. The relationship between fast
food outlets and low socio-economic areas is a theme highlighted earlier in the paper and
could be vital in understanding obesity causes.
6.2.3 Interpretive front of pack labelling
Front of pack labelling would increase the level of information available to the consumer.
This would help consumers to make better informed decisions about the food they
consume. An area requiring further work in this policy is defining the best system of front of
pack labelling for New Zealand, i.e. star or traffic light systems. In addition, significant
further work into the possible implementation issues and costs to the producer or consumer
would be required. There would have to be considerations into minimising the costs to
producers through a phasing-in period or a subsidy.
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7
Assessment
against criteria
Impact on
consumption
Appendix
Interpretive
labelling
•
front
of
pack
There is predicted to be a
Regulation of marketing to
children
•
Through less exposure there
Sugar-sweetened beverage
tax
•
The price of fruit and
consumption as price
consumption as price
vegetables would fall and
demand for and
increases.
increases.
as result consumption will
fat and salt. However this is
consumption of products
dependent on the
high in sugar, fat and salt.
understanding of the system
However there may be
issues in policy design.
increase. It has been
Greater impact expected
suggested this increase
some retailers absorbing
upon low socio-economic
would be 11 per cent, if
the tax and spreading the
groups, due to higher
12.5 per cent tax was
tax upon other product
elasticity. This is deemed
removed.
Likely to have a positive
lines, and so not
to be progressive in terms
impact upon children’s
transferring the tax to
of health outcomes.
wellbeing and diet.
consumers.
•
•
The main driver of change
There may be issues of
•
•
However this extra
income or wealth the
There may be issues of
consumer feels might be
Reduction in pester power
some retailers absorbing
used for other food
to achieve a favourable
and desire to consume
the tax and spreading the
products. So the real
label. This could help
unhealthy food products.
tax upon other products,
increase in fruit and
influence consumption of
and so not transferring the
vegetables would be
unhealthy foods over time.
tax to consumers.
unknown.
•
will be seen through
producers with the incentive
This regulatory approach is
•
•
Restricting advertising
•
A sugar-sweetened
•
The efficiency of a fat tax
•
This option may be seen
seen as highly efficient; it is
during children’s viewing
beverage tax would be
may be a poor use of
as inefficient as it would
providing consumers with a
hours may result in a shift to
seen as beneficial in
resources, there would be
create exemptions to a
higher level of information at
other media such as the
changing consumer
several exemptions and
system which is currently
little to no cost to the
internet and adult viewing
behaviour.
as seen in Denmark it
efficient and simple.
government.
times which are more
difficult to regulate. As a
•
•
is estimated to be less
the label.
•
Expected fall in
from products high in sugar,
the consumer places upon
Efficiency
•
Removal of GST from fruit
and vegetables
behavioural change away
in place and the significance
•
Expected fall in
Saturated fat tax
The labelling system is likely
would be difficult to make
•
Sugar-sweetened
sure the implemented tax
•
GST is not viewed as a
beverages have a high
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to drive the manufacturers
result children might have a
level of substitution so
would not overly affect
to reformulate their products
higher exposure such as in
consumers will reduce
businesses.
to obtain a more favourable
the UK.
consumption if the tax is
Removal would see the
This tax would be seen as
highest benefit go to
to have an impact on
efficient in terms of
higher socio-economic
formulated there could be
obesity rates and have
administration costs, but
groups as they buy the
positive health benefits.
there are some boundary
highest proportion of fruit
issues that would need to
and vegetables.
high enough. This is likely
significant health benefits.
•
•
However if the policy is well
rating.
•
tool for social welfare.
•
There may be issues in
be considered.
defining the classification of
defining the food products.
Acceptability:
Public and
Producer
Support
Public: High public acceptability.
Public: High public acceptability.
Public: High public acceptability.
Public: Low public acceptability.
Producer: Low producer acceptability.
Producer: Low producer acceptability.
Producer: Low producer
Producer: Low producer
acceptability.
acceptability.
Public: Dependent on other taxes
i.e. income taxes increase, would
result in low public acceptability.
Producer: Likely to be high
producer acceptability.
Costs
•
Likely to have little to no
•
costs for the government.
•
Likely to have little to no
•
Administration costs need
•
Administration costs need
•
One estimate has
to be considered.
to be considered.
indicated cost of $250
However the revenue that
However the revenue that
million tax revenue, 2.16
Monitoring harm to
the tax would generate
the tax would generate
per cent of GST revenue.
manufacturer costs would
broadcasters would be
would offset any losses.
would offset any losses.
This is income that the
be required, including ways
necessary; some
to offset the costs.
intervention could be
Consideration of
costs for the government.
•
government would have
•
required.
Policy would place higher
to generate from another
economic burdens upon
source i.e. income taxes.
manufacturers in terms of
internal administration
costs.
Impact on
Living
Economic growth: Likely to have a
Sustainability for the future: Likely
Sustainability for the future: Likely
Economic growth: Likely to have a
Economic growth: Likely to have a
negative impact.
to have a positive impact.
to have positive impact.
negative impact.
negative impact.
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Standards
•
Some manufacturers of food
•
Limiting exposure from a
•
Have positive health
Some retailers may
•
The government would
young age will encourage
benefits, with significant
experience significant
experience reduced GST
their products may be
children to live healthier
improvements in heart
harm, which could result
income and would have to
assessed as unfavourable.
lifestyles which would have
disease.
in job losses and business
fund this cost from
As a result demand for
positive benefits for society
failure.
another source.
these products may fall.
and the level of obesity.
•
Likely to have an impact
upon the rate of obesity in
•
•
products will be harmed as
Would have economic
Increasing Equity: Likely to have a
implications for
positive impact.
manufacturers that will have
to alter their packaging to
•
Advertising to children is
incorporate the mandatory
seen as inequitable as they
requirements.
are vulnerable consumers.
•
New Zealand.
The fat tax may apply to
•
Reduced GST income
significant New Zealand
may put pressure on
industries such as dairy
spending for other
Increasing Equity: Likely to have
and meat products; this
priorities.
impacts either way.
would decrease
consumption and could
•
The regressive nature of
•
The exemptions added to
the GST system would
harm producers.
By restricting marketing to
the tax places economic
Sustainability for the future: Likely
children it is limiting their
constraints on low socio-
Sustainability for the future: Likely
effectiveness of the
to have a positive impact.
exposure and provides
economic groups.
to have a positive impact.
system.
reduce the simplicity and
greater opportunities for
•
From an equity
Have positive health
Sustainability for the future: Likely
perspective the tax may
benefits, with significant
to have a positive impact.
aware of the nutritional
provide greater
improvements in heart
value of products they
opportunities.
disease.
Have positive health
benefits, with individuals
these children to live healthy
lifestyles.
•
•
•
consume.
•
•
Have positive health
outcomes.
Likely to have an impact
upon the rate of obesity in
Increasing Equity: Likely to have a
New Zealand.
negative impact.
Producers are likely to
reformulate to obtain a
Increasing Equity: Could have
favourable label. This would
impacts either way.
The exemption is
regressive in nature,
favouring higher socio-
have a positive nutritional
benefit for all consumers.
•
•
The regressive nature of
economic groups.
the tax places economic
Increasing Equity: Likely to have a
constraints on low socio-
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economic groups.
positive impact.
•
Provides greater information
•
From an equity
to the consumer so they can
perspective the tax may
make informed decisions in
provide greater
regard to their food choices.
opportunities for
individuals at risk of
experiencing obesity to
participate in society.
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8
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IN-CONFIDENCE
Treasury Report:
Options for regulatory responses to the growing
obesity problem
Executive Summary
This paper explores regulatory responses to the growing obesity problem. Regulatory
measures to combat obesity have been implemented internationally and there are often calls
for similar approaches to be implemented in New Zealand in the media and among
academics. The statistics on obesity in New Zealand have been worsening despite the
voluntary initiatives that have been implemented in recent years to combat the problem. This
has encouraged us to investigate potential regulatory responses that could be implemented
in New Zealand.
A third of New Zealand’s population is obese today and another third is overweight. Obesity
is expected to overtake tobacco use as the number one risk factor for health within the next
two years. Obesity is a key risk factor for a number of chronic diseases and has links with
diabetes, heart disease, stroke and coronary artery disease. The rising rates of childhood
obesity are of particular concern.
The environment we live in today has a huge impact on our lifestyles and is contributing to
the high rates of obesity. This environment, which facilitates and promotes weight gain, has
been named an ‘obesogenic’ environment. If this obesogenic environment is left
unaddressed, obesity rates, and subsequent health costs, are predicted to rise further.
The current approach to combat obesity involves a number of voluntary initiatives, which are
not underpinned by a coordinating strategy. Some regulatory and/or mandatory measures
may be required as an addition to the current initiatives to reverse the rising rates of obesity.
Based on international evidence and our engagement with academics in this field, we
consider that the most promising regulatory approaches to explore further are a sugarsweetened beverage tax, regulation of marketing to children and a mandatory front of pack
food labelling system. However, further work is needed to determine whether there is a
robust policy justification for each specific intervention, to clarify the trade-offs, and to
consider implementation issues.
Obesity is a complex problem and requires multiple initiatives to reverse the current trend.
Obesity has impacts on labour market participation, productivity and quality of life and
therefore cuts across several government sectors. A cross-government approach may be an
effective way to approach the issue. We consider that an obesity target, perhaps in the form
of an additional BPS target, could help to encourage cross-government collaboration and
make this growing problem a priority area for collaborative action. A target could also be
used to focus on the connection between child obesity rates and poverty.
: Options for regulatory responses to the growing obesity problem - revised
IN-CONFIDENCE
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IN-CONFIDENCE
Recommended Action
We recommend that you:
a
note that obesity is about to overtake tobacco use as the number one risk factor for
health and that regulatory interventions may need to be considered, alongside
voluntary initiatives, to address this problem
b
note that a sugar-sweetened beverage tax, regulation of marketing to children and
mandatory front of pack labelling show promise as possible regulatory measures,
although further work is needed to determine whether there is a robust policy
justification for each specific intervention, to clarify the trade-offs, and to consider
implementation issues
c
indicate if you would like to discuss this report with Treasury officials, and
Yes/No
d
refer a copy of this report to the Minister of Health.
Refer/not referred.
Ben McBride
Manager, Health
Hon Bill English
Minister of Finance
: Options for regulatory responses to the growing obesity problem - revised
IN-CONFIDENCE
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IN-CONFIDENCE
Treasury Report:
Options for regulatory responses to the growing
obesity problem
Purpose of Report
1.
This report is to advise you of some options for regulatory responses that the
Government could consider to respond to the rising obesity rates in New Zealand in the
future.
2.
Regulatory interventions to improve health outcomes involve trade-offs between
conflicting objectives, including improved health outcomes on the one hand and
individual choice and freedoms on the other. The net fiscal and economic impacts are
uncertain. Regulatory action to tackle obesity is most likely to be justified if individuals
currently lack the information necessary to make optimal decisions or face difficulty
making such decisions even in the presence of good information, or if obesity gives rise
to large externalities (including social, fiscal and economic costs).
3.
This report does not provide a detailed analysis of specific interventions in terms of this
framework. Nor does it make recommendations. Instead, it:
4.
•
Describes the high and rising levels of obesity in New Zealand and notes that
regulatory interventions may need to be considered as part of a package of
measures if the Government wishes to make progress in reversing these trends;
•
Provides a brief overview of three regulatory responses that have shown some
promise based on international evidence and academic research. It also notes
that an additional BPS target could help to drive cross-government action on the
problem of obesity.
If Ministers wished seriously to consider regulatory measures alongside voluntary
programmes, then further policy work would be needed to provide a balanced
assessment of the different options.
Obesity is a growing problem in New Zealand
5.
Obesity is a complex health issue affecting significant numbers of people.
Approximately a third of the New Zealand population is obese today. A further third is
overweight. New Zealand now has the third highest rate of overweight and obese
adults in the OECD, after only the United States and Mexico (see figure 1).
6.
Obesity disproportionately affects Maori and Pacific Island populations and socioeconomically disadvantaged populations, which reinforces ethnic disparities in the New
Zealand health system. In 2013, 68 percent of Pacific adults and 48 percent of Maori
adults were obese. The growing child obesity rate is also concerning. In 2013, obesity
among New Zealand children reached 11 percent with a further 21 percent classified
as overweight. There is also a strong connection between child obesity rates and
poverty: the NZ health survey indicates that children living in the most deprived areas
are three times as likely to be obese as children living in the least deprived areas (after
adjusting for sex, age and ethnicity).
7.
These figures are particularly alarming since obesity is a key risk factor in a range of
chronic diseases. For example, type 2 diabetes is closely linked to obesity, as are high
cholesterol and blood pressure, which can increase the likelihood of heart disease,
stroke and coronary artery disease developing. Obesity (or high body mass index) was
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the second highest risk to health in 2006 (see Figure 2) and is expected to overtake
tobacco use as the number one risk factor to health in the next couple of years (see
Figure 3).
Figure 1: Obesity among adults, 2012 or nearest year (OECD, 2014)
Figure 2: Attributable burden for selected risk factors 2006 (Ministry of Health, 2013)
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Figure 3: Trends and projections in health loss attributable to tobacco and high BMI,
total population, 2006 to 2016 (Ministry of Health, 2013)
8.
Calculating the fiscal and economic costs associated with obesity is not
straightforward. There is little doubt that obesity-related conditions account for a
material proportion of healthcare expenditure, although estimates vary depending
partly on differences in methodology and because co-morbidities make it difficult to
attribute costs to specific conditions. One 2010 OECD report cited an estimate that an
obese person has healthcare costs around 30 percent higher than someone of a
normal weight; this estimate is based on a meta analysis drawing on a range of studies
with different methodologies and timeframes. McKinsey (2014) estimated that obesity
accounts for between 2 and 7 percent of all health care spending in developed
economies. For New Zealand, Lal et al. (2012) estimated that spending related to
obesity in 2006 was equal to 4.5 percent of total health expenditure (or $686m). There
are also a number of obesity-related costs that fall outside the health sector – for
example, reduced productivity, inability to work, and reduced quality of life, which can
lead to other social problems – although these costs are difficult to quantify.
9.
Obesity-related interventions may thus be a cost effective way of improving population
health. This does not mean that they are necessarily cost saving in fiscal terms. The
evidence on this point is inconclusive. A number of older studies suggest that the
lifetime health costs of obese individuals are higher than those for people of normal
weight. However, a more recent paper has argued that reductions in obesity-related
costs are offset by higher expenditure on other diseases during additional life years
gained. More broadly, it is open to question how far healthcare expenditure is driven by
objective need rather than other factors, including supplier-induced and income-driven
demand and unit cost growth. Addressing one source of morbidity, while improving
health outcomes, may therefore displace rather than reduce demand.
10. Similarly, while improved population health may contribute to improved productivity and
economic growth, there are likely to be trade-offs in terms of the deadweight economic
costs associated with the taxes needed to fund public healthcare systems. There is
some empirical support for the view that reallocating government spending towards
infrastructure, education and (to a lesser degree) health is positive for economic growth
(Gemmell et al., 2009; 2014). Whether the effect of health spending on growth overall
is positive or negative once taxes are taken into account is not clear, particularly for
countries with advanced health systems which may face diminishing marginal returns
to expenditure.
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Regulatory measures could complement existing voluntary initiatives
11. In recent years there have been several initiatives that have aimed to combat the
problem of obesity in New Zealand. These initiatives have generally been voluntary in
nature and focussed on encouraging individuals to make healthier choices rather than
trying to change or regulate the ‘obesogenic environment’ – that is, an environment that
facilitates and promotes weight gain – the individuals are living in.
12. Some of these initiatives include:
•
•
•
•
Green Prescriptions issued by GPs or practice nurses to encourage physical
activity.
The Fruit in Schools programme for low-decile schools and the 5 Plus a Day
programme to promote consumption of fruit and vegetables.
The “Let’s Beat Diabetes” programme in Counties Manukau, which led to a joint
venture with McDonalds and Coca-Cola to substitute sugar-free lemonade for the
full sugar version.
Project Energize in Waikato (now in 233 schools in Waikato reaching 10% of
New Zealand’s child population), which focuses on health literacy and physical
activity.
13. Earlier this year the Government agreed to introduce two new initiatives: Healthy
Families NZ and a front of pack labelling system. Healthy Families NZ is a community
based initiative to encourage healthy choices and healthy lifestyles. Front of pack
labelling is intended to enable consumers to make healthier food choices. These are
both voluntary measures.
14. In 2001, the Ministry of Health published a Health Strategy document, which included a
stocktake of some obesity prevention programmes in New Zealand as well as an
evidence-based review of successful international programmes. Since then there have
been individual voluntary initiatives implemented like those mentioned above.
15. Regulatory measures could complement the range of existing voluntary measures. A
recent report by McKinsey (2014) argued that, while education and personal
responsibility were critical elements of any programme to reduce obesity, these were
not sufficient on their own and must be supplemented by interventions that “reset the
defaults” to make healthy behaviours easier. The report recommended a systemic,
sustained portfolio of initiatives, both government and non-government, delivered at
scale, to address the health burden associated with obesity.
Some regulatory options show promise
16. The obesity epidemic is a growing problem internationally. There are international
examples of regulatory measures being implemented to combat the problem and
recently there have been calls for such measures to be implemented in New Zealand.
The Treasury Health Team has undertaken an initial review of a range of regulatory
measures that have been implemented internationally and identified in academic
research.
17. The options that show promise include a sugar-sweetened beverage tax, regulations
on marketing to children and a mandatory interpretive front of pack labelling system.
These options are discussed below. Similar regulatory options are proposed in the
recent New Zealand Medical Association (NZMA) policy briefing, Tackling Obesity,
which recommends a sugar-sweetened beverages tax, marketing regulation, front of
pack labelling and licensing of fast food premises.
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Fiscal mechanism: Sugar-sweetened beverages tax
18. Sugar-sweetened beverages (SSB) deliver little to no nutrition, are heavily marketed to
children, contribute to poor diet and carry the risk of obesity, diabetes and other
diseases, as well as poor dental health.
19. A SSB tax has the intended goal of changing the price of sugar-sweetened products
and ultimately changing consumer behaviour. Taxes on SSB have been introduced in a
number of countries, including France, Mexico, Finland, Hungary and a number of US
states. Some international evidence has shown these taxes to be effective in reducing
consumption, for example, in France and Hungary (National Heart Forum, 2012). The
policy logic is that a reduction in consumption of these beverages will have an impact
on obesity rates as well as reducing diabetes and poor dental health, although the
evidence on this point is mixed. Some studies have suggested that consumers may
shift to other high-calorie products, with no impact on population weight.
20. A SSB tax may be a viable option for New Zealand in principle, but further work would
be required initially to ensure that a SSB tax is the most appropriate and effective
policy lever to help reduce obesity rates and to determine that there is a strong
rationale for targeting these products in particular through taxation. There would then
be policy trade-offs and design issues to work through before a decision to proceed
was made.
21. One concern about a SSB tax is that it may have negative distributional impacts
because the financial implications will be more significant for lower socio-economic
groups. However, this might also have a progressive impact on health outcomes given
that there is a higher incidence of obesity-related disease within lower socio-economic
groups and they generally consume more unhealthy foods.
22. If additional work determined that there was a rationale for introducing a SSB tax,
design and implementation issues would then need to be considered. Further work and
analysis would be required on the level of the tax and inclusion criteria (e.g. powdered
drinks, juices, cordials, sports drinks, energy drinks, RTDs, etc.). There are likely to be
additional compliance costs for business and administration costs for government,
which would also need to be considered.
23. Some opposition to a SSB tax could be expected from the beverage industry and we
have seen examples of this internationally. This is something to be considered as part
of further work on a SSB tax and this should involve working with and consulting
industry.
24. Other fiscal mechanisms to combat obesity include a saturated fat tax and removal of
GST from fruit and vegetables. International evidence has shown these regulatory
measures to be less effective and more complex to implement than a SSB tax.
Regulation of marketing to children
25. Marketing to children has been clearly shown to influence parents’ and children’s food
preferences and choices and also drives ‘pester power’ that can influence consumer
behaviour. Currently, children in New Zealand are exposed to advertisements for many
unhealthy snack foods, drinks and fast foods and 70 percent of advertising in children’s
viewing times promotes unhealthy food products.
26. Regulations on advertising to children can reduce exposure to, and therefore demand
for, unhealthy foods. International evidence has shown that regulating or banning
television and radio marketing to children can lead to reduced product sales. For
example, a ban on television advertising directed at children in Poland was associated
with reduced soft drinks sales. The NZMA policy briefing also recommends protecting
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children from marketing of unhealthy foods, but argues that the regulatory regime must
address all forms of marketing. Such policies need to avoid unintended consequences,
as shown by the UK experience in which children were still exposed to the same
amount of advertising because they watched television shows outside of the viewing
times targeted by the regulations. This would be an area for further work.
Mandatory front of pack labelling
27. Cabinet agreed in June to implement a voluntary interpretive front of pack labelling
system consistent with the system that has been implemented in Australia. This is a
‘Health Star Rating’ system, which will display the amounts of salt, sugar, saturated fat
and energy in the food product.
28. As well as improving consumers’ ability to interpret the nutritional information on food
products, interpretive front of pack labelling may also have the desirable effect of
encouraging food producers to reformulate their products to reduce the sugar, salt
and/or fat content. This is more likely to occur if the front of pack labelling is a
mandatory requirement for producers. The system Cabinet agreed to in June is
voluntary, so it may not be as effective as intended in influencing product reformulation
and, subsequently, obesity rates. Further work on the policy could consider making the
labelling system mandatory. Any further work on this would need to involve working
with stakeholders to establish an effective system that works for industry and
consumers.
A BPS target could help drive a cross-government approach
29. Reducing obesity will require changes to social factors/behaviours and changes to
environmental conditions to achieve success. There are multiple possible interventions.
Regulatory measures of the kind discussed above alongside educational initiatives may
be worth exploring, as this may be a way to raise the overall level of impact on obesity
rates. A coordinated, evidence-based strategy for obesity is required to coordinate the
various initiatives needed to tackle this multi-faceted problem. The effects of obesity
are not limited to the health sector, so such a strategy should involve government
agencies and NGOs in several sectors, particularly Health, Education, and Sport and
Recreation.
30. We consider that a BPS obesity target could help to encourage cross-government work
and promote the development of a cross-government obesity strategy. Additionally,
given there is a strong connection between poverty and child obesity rates, an obesity
target could be a way to address the practical consequences of deprivation for
children’s longer term outcomes. We consider that an obesity target is more
appropriate than a diabetes target, because it would address the source of the problem
and would reduce the time lag to deliver action and results.
Consultation with the Ministry of Health
31. We have consulted with the Ministry of Health on this report and we have been
informed of the obesity-related work currently happening in the Ministry.
32. The immediate focus for the Ministry of Health will be advice around a possible target
for childhood obesity and assessing the effectiveness of existing obesity initiatives. The
Ministry will also be kicking off a work stream looking at a broader framework and
approach to obesity/non-communicable diseases (NCDs), which is to be developed in
the medium term (approximately next 6-12 months). This should be informed in part by
the results of the WHO Commission on Ending Childhood Obesity.
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THIS IS AN INCOMPLETE DRAFT DOCUMENT
A Conceptual Basis and
Evidence Base for
Health Tax
A overview of conceptual rationales and evidence based
rationales for the imposition of food and drink related
taxes for health reform
Withheld under s9(2)(g)(i)
Tax Strategy
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THIS IS AN INCOMPLETE DRAFT DOCUMENT
NZ TREASURY WORKING
PAPER
A Conceptual Basis and Evidence Base for Health Tax
MONTH/YEAR
February 2015
NZ TREASURY
New Zealand Treasury
PO Box 3724
Wellington 6008
NEW ZEALAND
Email
Telephone
Website
ACKNOWLEDGEMENTS
[email protected]
64-4-472 2733
www.treasury.govt.nz
Withheld under s9(2)(g)(i)
Sian Roguski and Suzy Morrison – Managers
Tax Strategy Team, GPS, Treasury
Health Team, BPS, Treasury
DISCLAIMER
The views, opinions, findings, and conclusions or recommendations
expressed in this Working Paper are strictly those of the author(s).
They do not necessarily reflect the views of the New Zealand Treasury or
the New Zealand Government. The New Zealand Treasury and the New
Zealand Government take no responsibility for any errors or omissions
in, or for the correctness of, the information contained in these working
papers. The paper is presented not as policy, but with a view to inform
and stimulate wider debate.
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Table of Contents
1. Executive Summary
4
2. Introduction
5
3. Problem Definition and Purpose
6
3.1 Obesity in New Zealand
3.2 International Health Reforms through Taxation
4. Conceptual Basis for Health Taxes
7
8
10
4.1 Case for Market Failure
4.2 Rationales for Health Taxes
11
12
5. Evidence Base for Health Taxes
15
5.1 Saturated Fat and Junk Food
5.2 Sugar and Sugar Sweetened Beverage
5.3 Analysis
16
17
18
6. Tax Policy Design Considerations
19
7. Summary of Findings and Final Outcomes
20
8. Conclusion
21
9. References
22
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Executive Summary
Obesity, Diabetes, Heart Attacks have all become increasingly common in the past few
years. The change in lifestyle and shifts in preferences towards; fast processed foods high in
sugar and fat has been a key factor in the.
The project builds evaluates the rationales and the evidence base for such health taxes.
Obesity has risen from 10% of New Zealand in 1977 to 31%. Currently in New Zealand only
Tobacco and Alcohol are taxed on a Health rationale. There have been increasing attention
in the media to the harm of unhealthy food and drink and the excess consumption of fat and
sugar.
There is a global concern about the rise in lifestyle diseases; with Denmark raising a tax on
saturated fat, Mexico imposing taxes on soft drinks and Berkeley California in the US
became the first city in the world to impose a tax on soft drinks per ounce of sugar.
The project has been analysed on two aspects;
Conceptual rationales for a health tax
Evidence base for a health tax.
Conceptual rationales
This evaluated the market failures that would warrant government’s interventions are
evaluated.
The excess consumption of these foods and drinks can impose negative externalities on the
New Zealand economy.
Other rationales:
Information Failures
Behavioural Biases.
o
Addictive Quality
o
Time inconsistent failures
Tax as an instrument for health reform has been widely debated, Tax crude tool whereby
you are effectively forcing people to reduce their consumption. There is also an issue of the
poor targeting of tax here, where you are taxing everyone but only a portion of the
population, [albeit increasing] are the main targets for such policies.
The evidence base for health taxes; evaluated the elasticity’s for these goods and the
relative health outcomes that could be achieved.
The literature is mixed. The elasticity towards these goods was mostly found to be relatively
elastic and overall, a tax imposed will have some form of reduction.
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A rate of 15% or higher would be needed to have the effective reduced rates of
consumption. The high rate would be economically regressive on lower income groups.
The major concern is little understanding we have of people’s substitution patterns after the
imposition of a tax. This may be a cause for concern as some studies has shown worsened
outcomes from substitution to unhealthier but cheaper alternatives.
An example of the harm of substitution effects is; where a tax is raised on soft drinks which
would raise the price of average soft drinks like coke. But even after tax; an 89cent 1.25lt
bottle of cola from the Warehouse would still be relatively cheaper but the higher sugar
content would mean an increased consumption of sugar and a higher rate of lifestyle related
diseases.
In summary the call for a tax to unhealthy foods and drink is getting stronger, especially as
the concern for lifestyle diseases increases. There is definitely an increasing interest in this
area worldwide and it would be interesting to see the dynamics in other countries where
such taxes are in place. There is still a need for greater understanding of the elasticity’s and
substitution patterns especially due to the potential reversed effects that could occur.
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Introduction
It is important when making decisions that affect daily lives; the basic reasons of its
necessity, its outcomes and actions for moving forward. This project looks at the
reasons for why New Zealand would impose a tax on unhealthy foods and drinks
high in sugar and fat and if there is a sufficient supporting evidence for these
rationales.
The project is an exploration into ‘Health Taxes’ - or tax on foods high in sugar, fat
and other unhealthy substances. Both the conceptual insights and evidence base
are analysed to understand and evaluate such a tax. The project has an overlying
tax policy perspective rather than a health perspective, though such considerations
have been made.
The project has insights into what is happening in New Zealand and also considers
the international context, where other countries have implemented health taxes.
The conceptual base looks at the market failures that would warrant government’s
intervention into the market. These failures are the catalyst for less than optimal
decisions made by individuals. Here the decision to consumer regularly unhealthy
food and drink is analysed. Also considered are the rationales for why government
would impose such a tax.
Also the evidence base considers the literature on consumer responses to ‘Health
Taxes’ and the relevant health outcomes that could be achieved.
The alarming rise in lifestyle diseases is a pressing problem on society today and
steps towards finding solutions for such a tricky problem is critical. This project aims
to only act as a building block for further evaluation and analysis on ‘Health Taxes’.
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Problem Definition and Purpose
The global obesity epidemic is gaining increasing attention. Even in New Zealand the
threat of rising obesity rates loom large, with one of the highest obesity rates
compared to other developed nations (Health Commitee, 2013)).
The obesity rate has risen by over 67% since 1977, with 31% now being classified
as obese1. Lal et al, holds an estimates $8 billion to be spent over the next decade
on obesity, $2 billion loss in productivity due to absenteeism and premature death in
business and society and for 2006 their estimated annual cost of obesity to be
$847million and with obesity’s 2% annual rise; this is likely to be higher today.
The problem however is not limited to obesity, as the rate of other lifestyle-related
diseases such as diabetes, rheumatic fever, hypertension, cardiovascular diseases
and kidney diseases have all been increasing in recent years.
These trends have resulted in health professionals, institutions, the public, and
media calling for greater government intervention. Many of the conditions highlighted
above have been linked to the excess consumption of unhealthy foods and drinks,
with attention being focused on products that have large amounts of fat, sugar and
other substances. This issue is especially prevalent in lower income groups, where
these foods and drinks tend to be consumed more regularly due to their inexpensive
nature.
Sugar has become especially topical, with many studies and documentaries linking
the prevalence of sugar in the modern diet to rising health problems in society,
including extensive coverage by the New Zealand media, especially in New Zealand
psychologists Nigel Latta’s expose on sugar. There has been recurring attention in
the media articles or reports being made on an almost weekly basis on the effect of
these products. American journalist Katie Couric’s documentary ‘FedUp’ and Nigel
Latta’s documentary on sugar have increased in the public profile of food and drink
related taxes as a means combating such health problems.
Many other countries like, France, Hungary and Mexico have introduced such taxes
and many others have had policy debates on the introduction of health taxes. In
addition, increasing numbers of health professionals are campaigning for the
imposition of health-related consumption taxes.
As a result, the purpose of this report is to explore the rationales and evidence base
for health-related consumption taxes (hereafter referred to as “health taxes”). New
Zealand is regarded as having one of the most efficient tax systems in the world.
This means that changes to the tax system need to be clearly reasoned and
coherent.
1
[Definition]
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Background
Consumption taxes in New Zealand
In New Zealand, alcoholic beverages and tobacco are currently taxed under the
excise regime, which is levied as a unit tax. That is, tax is levied at a fixed dollar
amount on a predefined unit of consumption. In the case of alcoholic beverages the
unit of taxation is the per liter level of pure alcohol content; whereas for tobacco
products it is the per kilo level of tobacco content.
A key feature of this approach is that the relevant unit of taxation is chosen so as to
be highly correlated with expected the level of harm. This means that we expect the
tax to be ‘well-focused’ in the sense that the burden of the tax is matched to the
harmful aspects of consumption.
Separate to the excise regime, most consumer goods and services in New Zealand
are subject to Goods and Services Tax (GST), which is a proportionate tax
(sometimes referred to as an ad valorem tax) that is currently levied at a flat rate of
15%. New Zealand’s broad GST base means that there are no exemptions for food
and drink related goods. In other words, all food and drink items, whether perceived
to be ‘healthy’ or ‘unhealthy’, are taxed at the 15% rate under the GST regime. This
includes alcohol and tobacco, for which GST is levied after including of the costs of
excise tax.
However, there have been calls to exempt fresh fruit and vegetables from GST.
[Summary of recent Lab party and Green policies].
A snapshot of excise and GST
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International context
Consumption taxes are used worldwide; principally as a means of raising revenue,
but sometimes also to advance specific social policy objectives. Alcohol and tobacco
taxation are the most common example of the latter, with most countries levying
separate taxes on these goods (i.e. separate to the local GST/VAT regime) to help
curb excessive consumption. These are typically implemented as a unit tax through
the excise regime; the same way as in New Zealand. As shown in [Figure 1]
however, rates [vary widely, in accordance with national policy priorities.]
Fig 1: Alcohol and tobacco excise rates [charts will need some work]
Most countries also administer a general consumption tax (often called GST or VAT)
which is similar, at least in principle, to New Zealand’s GST. However the precise
details of these taxes, in particular the breadth of the tax base; vary considerably
from country to country. Few if any countries maintain a tax base as broad as New
Zealand’s.
In terms of food and drink related consumption, a number of countries permit
exemptions or “zero-rating” within their GST/VAT regimes for items such as fresh
fruit and vegetables [and other food/drink items]2. Such countries include […].
Whilst exemptions from GST/VAT are not uncommon, it is less common to see
narrow taxes with a specific policy goal (such as health taxes or environmental
taxes) implemented through the GST/VAT regime. Such taxes are normally collected
through a separate regime (such as excise) or a purpose-built sales tax. The
reasons for this are explored further below.
Recently however, there has been growing global interest in health-motivated food
and drink taxes, such as “soft-drinks taxes”, “fat taxes” and “sugar taxes”. In
particular, a number of countries have begun to experiment with various forms of
“health taxes”. For example, in 2011 Finland introduced excise duty on sweets, ice
cream and soft drinks; Hungary introduced a public health food tax aimed at foods
and drinks that are judged to carry a proven health risk, and Denmark introduced the
world’s first tax on saturated fat in certain foods (although this tax was abolished in
2013) (Jacobson & Brownell, 2000).
France followed in 2012 with a high-profile tax on sugar and non-sugar sweetened
beverages; and Mexico in 2013 with taxes on junk foods (those high in saturated fat,
sugar and salt) and sugary drinks (Jacobson & Brownell, 2000). In the US, Berkeley
California introduced the nation’s first soda tax in 2015 (with a 75% majority of
2
[Quick fn on the difference between exemptions and zero-rating]
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Berkeley voters) (Gargliardi, 2014). A similar measure in neighboring San Francisco
received 54% of the vote, but fell short of the threshold required to pass.
Such taxes have also been proposed and debated in a number of other countries
(including most Ireland, Italy and others), and have received endorsement from a
number of intergovernmental organisations and think tanks. For example, the 2011
UN High-level Meeting on non-communicable diseases noted the role that food taxes
and subsidies could play in health reform; while WHO’s Global NCD Action Plan
(2013-2020) recommends the use of taxes and subsidies which may create incentive
for behaviours associated with improved health and healthier food consumption.
As a result, health-motivated food and drink taxes are gaining considerable policy
attention, and it is important to develop a well-considered position on these issues.
Box summarizing key features of global health taxes (bases, rates and rationales)
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Conceptual Basis for Health Taxes
Taxation alters the prices that individuals face when making choices. In doing so, it
alters or ‘distorts’ the comparisons we make between alternative decisions. Across
the economy as a whole, this influences what is produced and consumed. As such, it
is potentially a very powerful policy instrument. Used incorrectly however, this can
cause major distortions in the allocation of resources.
New Zealand follows a broad-base low-rate (BBLR) approach to tax policy, which
means that on the whole, we try to tax economic decisions as evenly as possible.
This approach is favored because it is considered to minimize the distortions that
taxation introduces when people choose between different goods and services. This
is a key reason, for example, for why we have a flat rate of GST for nearly all goods
and services.
Our commitment to the BBLR approach doesn’t mean that everything has to be
taxed this way, but it does mean that the case for exceptions needs to be very
strong. In other words there needs to be a strong rationale for intervention. This
section develops a framework for assessing the rationale for health taxes.
Allocative Efficiency in Economics
A central insight from economics is that, under certain conditions, free markets (i.e.
the free interaction of buyers and sellers) results in an efficient allocation of
resources. Loosely stated, if:
• markets are competitive (i.e. there are many competing sellers);
• individuals know what they want and are well informed about their possible
choices; and
• there are no market failures;
… then markets are said to be allocatively efficient. That is, only those goods are
produced that are most valued, and they are allocated to those that value them the
most. This is an important insight, and provides much of the basis for our modern
faith in the free market mechanism. As evident from the way it is stated however, it
relies on a number of important conditions.
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Possible Market Failures
Firstly, the efficiency of markets relies on the absence of market failures. As the
name suggests, market failures prevent market processes from optimizing the flow of
resources. Although there are several potential sources of market failure, the most
relevant one from the point of view of health taxes is externalities.
Market transactions are only efficient when all the costs and benefits that arise from
the transaction are borne by the buyer and seller. These costs and benefits are then
said to be internalized. That is, buyers and sellers fully account for the effects of the
transaction.
Externalities arise when some of the costs or benefits arising from the transaction
are borne by participants outside (i.e. external to) the transaction. As these
participants do not have a say in the transaction, the market fails to take some
peoples’ values into account when allocating resources. Examples include economic
decisions that cause pollution or congestion.
In the case of food and drink consumption, it would seem that most of the costs and
benefits from consumption are borne by the consumer. Specifically, consumers bear
the retail cost of the purchase decision (which should fully compensate suppliers for
all production costs), and the health costs (or benefits) of consumption. Offsetting
these costs however, consumers also experience the benefits of consumption – that
is, the satisfaction that arises from consuming products of their choice.
In these terms it would appear that the costs and benefits of food and drink
consumption are fully internalized, and so we should expect the market mechanism
to work well. That is, it should deliver outcomes that people want. In this setting,
people may well choose to consume unhealthy foods in relatively large quantities.
However, this would be the result of conscious decision-making made by wellinformed informed consumers who weigh-up all the costs and benefits of
consumption. Essentially, in this world consumers would prefer to trade-off increased
health risks for the satisfaction of other wants.
However, externalities can arise in economic decisions that have health impacts
because of the provision of free (or publicly subsidized) health care. Specifically, the
government provision of health care means that some of the costs from poor health
are shared across society rather than being borne directly by the consumer. This
creates an externality as some of the costs of food and drink consumption are being
borne by society as a whole, rather than by the individual that makes consumption
decisions.
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Information Failures
While the above health effects are worrying, such information is not relatively
common public knowledge. The reasonable consumer is unlikely to fully appreciate
the links between consumption of these foods and drinks and the relative
consequences. The consumer therefore is likely to make decisions based on
imperfect information. In markets saturated with persuasive ad campaigns for these
food and drinks, consumer decisions are even more skewed.
Behavioral Biases
Addiction biases
Fast food, fizzy drinks and foods high in sugar and fat, are known to have an
addictive quality. When eating something containing sugar the brain releases a large
amount dopamine in an area of the brain called the Nucleus Accumbens which
neutralises damaging effects but on the next large consumptions of sugar, the
dopamine is weakened as there are fewer dopamine receptors left (Lustig, Schmidt,
& Brindis, 2013). Sugar and other junk foods due to their massive effects to the
reward centres of the brain have similar effects to that of cocaine or nicotine,
dominating the brains chemistry to make people crave and be addicted to these
foods (Lustig, Schmidt, & Brindis, 2013). Such effects would result in an inelastic
demand for these products. The addictive nature of these products may impose a
regression effect on tax. This would be due to lower income earners having an
increases tax incidence in comparison to higher income earners.
Time Inconsistent Preferences
Decisions by consumers are influenced by time inconsistent preferences where there
is short term satisfaction but resultant long term detriment. This is especially seen in
children adolescents, who have been found to place higher value on short term
satisfaction without full/or negligent regard for future consequences. This is
especially the concerning in terms of food and drink that can have drastic long term
health effects if consumed heavily.
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Rationales for Health Taxes
There is an alarming rise in obesity and other lifestyle diseases, correlated to the
unhealthy consumption of food and drink heavy in sugar and fat. This has been the
centre of global contention, perpetuating countries to introduce “fat taxes” on the
basis of health concerns, on the consumption of sugar and fat.
The case for the intervention pigovian taxes is usually based on the market failure of
consumers being unable to make healthy choices. This would be enforced with the
following rationales
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Reduce Health effects due to Consumption
Reduce Negative externalities to society through consumption
Raise Revenue
Increase Productivity of Workforce [with resultant economic gain]
Reduce Inequality
Promote Healthy living and Healthy New Zealand Image
1. Reduce Health effects of consumption
Imposing “fat taxes”, may be proactive step to reduce the consumption of foods high
in fat, sugar and other harmful substances. The reduced consumption would help to
stifle consequent negative health effects from overconsumption, such as; obesity,
diabetes, hypertension, hepatitis and other health disorders that are on the rise.
There are differing views if this policy outcome would be achieved. Opposing
research has found that there is differing elasticity’s to different consumers. A rise in
price of sugary/fatty drinks or food would motivate a reduction in consumption from
moderate consumers (with elastic demands) of such products but have little effect on
heavy consumers of such products
2. Reduce Public Health expenditure of consumption
Raised taxes on food and drinks may help to reduce lifestyle epidemics like obesity
and diabetes. This would lead to decreased costs to the public health system as
decreased health issues would result in decreased expenditure on consumption
related health issues.
3. Raise Revenue
Raising taxes of health taxes on would provide relatively efficient tax revenue. As
similar to excise on tobacco and alcohol, sugar and fat have a reasonably inelastic
demand. This would provide an efficient revenue base for collecting tax.
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4. Increase Productivity of Workforce
Introduction of taxes deters buyers from unhealthy foods; therefore people are
healthier; due to reduced consumption of such foods and spend less time on sick
leave or on doctor’s fees. As people are healthier, they are able to work to their full
potential and do work more efficiently.
5. Reduce Inequality
Reduction in health issues may lead to higher gains. Lower socio-economic groups
are likely to have greater elasticity to a given change in price. The reduced
consumption of these foods and drinks may lead to decreased health fatigues like
diabetes, rheumatic fever, cardiovascular diseases, etc. that are widespread in these
groups. Also if there are increases health benefits in these groups, work productivity
may increases leading to wider economic gain in lower socio-economic groups.
Maori and Pasifika are noted to have the most to gain from this policy. Lifestyle
disorders like diabetes and rheumatic fever are rising in these groups, and a reduced
consumption of these unhealthy foods may help to deter such harmful health
consequences.
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Evidence Base for Health Taxes
Evidence based policies has risen to preference overtime. These are policies that
have been scrupulously calculated through the use of trials and data to determine
the most probable outcome(s). The research is supported through analysis of
statistical surveys of people’s preferences or probability of certain outcomes. The
use of such matters helps to give a more realistic insight into the outcomes that
would be achieved.
In consideration of the evidence base, the main points explored were based on;
Consumer Responses to Health Taxes and Health Outcomes to a Health Tax.
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Consumer Response to a Health Tax
Consumer Response here has mainly been reviewed through the use of the price
elasticity of demand of consumers to Health tax. Price Elasticity of Demand
measures the responsiveness of a consumers demand for a good or service, for a
given change in price.
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Health Outcomes from a Health Tax
Health outcomes have been reviewed through the literature from the relationship of a
given consumer response’s impact in the change in a person’s health. Many studies
have been based on the relative reduced consumption of certain foods impact on the
reduction of conditions like obesity, cancer and cardiovascular diseases.
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Saturated Fat and Junk Food
Many studies have evaluated the elasticity of the imposition of a health tax in
concern of fat. Price elasticity’s are greatly varied due to the numerous types of food
which contain fat and resultant differing elasticity’s.
Nnoaham et al, surveyed the impact of a tax on major sources of saturated fat and
unhealth foods. The study analysed four different scenarios; taxation of sources of
saturated fat, taxation of ‘unhealthy foods’, a combination of an unhealthy food tax
and 17.5% fruits and vegetable subisidy and another combination of a 64% subsidy
on fruits. The four scenarios were modelled on the impact to cardiovascular diseases
and cancer.The study worryingly holds that, while the imposition of saturated fats tax
may reduce consumption it is unlikely to reduce cardiovascular diseases and cancer
mortality rates and may even increase likelihoods.
Also the taxing ‘unhealthy foods’, were found to increase rates of cardiovascular
diseases and cancer. The combinations of unhealthy food taxes and fruit and
vegetables subsidies were found to be more effective in reducing the concerned
diseases (Nnoaham, Sacks, Rayner, Mytton, & Gray, 2009). However the
percentage tax needed to be imposed and subsisdiy raised to achieve results would
be economically regressive and have very little positive change on lower income
groups, where the need is more prominent (OECD, Obesity Update , 2012).
Food high in fat is usually assumed to be more elastic, as it may be cheaper. This
assumption does not always hold. An example is low fat ice creams, which may be
considered by consumers to be worth more, (due to being healthier) and are willing
to pay more for the health benefits. Manufacturers may find it expensive to produce
low fat ice cream at the same taste quality and upon imposition of a tax, shift the tax
burden onto consumers. This would then shift consumers to regular ice creams and
cause an increase in fat and sugar consumption; rising levels of obesity (Clark &
Dittrich, 2010)
Taxation to fat and unhealthy foods have varying elasticity’s and reverse effects in
most major studies. Fat taxes therefore are unlikely to achieve any positive health
outcomes and rather may cause negative effects.
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Sugar/Sugar Sweetened Beverages
The Price elasticity of a tax on sugar sweetened beverages is differing and at wide
ranges in many studies but Andreyeva et al, holds it at -0.8 and -1.0. This denotes a
relatively elastic demand for goods. The disparity in the literature is likely due to the
numerous biases that need to be accounted for when considering the elasticity of a
good.
Briggs et al, finds a 20% tax on sugar-sweetened beverage tax would greatly help to
decrease obesity levels, especially among young people. The study holds that a
20% goods and services tax on sugar sweetened drinks will reduce consumption of
concentrated and non-concentrated sugar sweetened beverages. This leads to an
increase in substitutes to such drinks like tea and coffee, milk and fruit juice. These
alternatives help to achieve positive health outcomes like reduced obesity rates. And
other lifestyle related diseases. Also an estimated 18000 people would have reduced
risks of obesity (in the United Kingdom). This shows a very positive health impact
from the imposition of health taxes. The study however may not fully explore the
effect of substitutes and finds no greater effects on lower income groups
Differing studies however, note the weak information on tax elasticity in concern of
soda taxes and the substitution patterns between soft drinks and other beverages
(Fletcher, Frisvold, & Tefft, 2010). This creates an alarming concern about the
unintended consequences that may occur and therefore neutralize the effectiveness
of a tax
Lusk and Schroeter, find taxes on soda to be unlikely to increase consumer welfare.
Another study (Smith, Lin, & Lee, 2010) note that taxes on sugar sweetened
beverages do decrease consumption, but such outcomes are not effective at 1 - 2%
as imposed in other countries like Denmark and Hungary, and rather at 18% and
above. The study’s insights into substitution patterns find individuals to switch from
soft drinks to whole milk and fruit juices. This makes no change in the caloric intake
[therefore no weight changes] into the body as the greater consumption of milk has a
similar magnitude of the effects. This is also held to make little change in obesity in
children and adolescents.
In shift to fruit drinks, while nutrient levels may be increased, the amount of sugar in
these drinks are equal or even greater to soft drinks and aims to curb obesity or
other lifestyle-related diseases would be ineffective or more damaging (Fletcher,
Frisvold, & Tefft, 2010).
There is disparity in the evidence base on health taxes. Consumer response is
difficult to measure as price elasticity has several biases; differing age, gender,
income level, and effect of substitution patterns and the differing values people put
on food per content of fat, sugar, which skew results.
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Analysis of Evidence Base
Generally to achieve conjoint consumer responses and health outcomes a high
percentage of tax (at least at 20%) must be imposed to have the relevant health
outcomes achieved. Because substitution patterns are not fully understood here,
there is cause for weariness of the expected results.
Taxes on soft drinks may deter consumers from drinking well known brands but
supermarket brands that charge $0.89 for a 1.25L bottle of soft drinks are hardly
going to be out of the relative price range at a 20% tax on these goods. These
cheaper alternatives have higher sugar contents and an increase in consumption of
these goods would lead to increased obesity and other lifestyle related diseases
rates.
A tax rate imposed at 20% would also be highly regressive; with the tax incidence
falling harder on lower income groups. An OECD report on ‘Fat Taxes’ found that a
fat tax would need to be well designed, covering all possible bases and substitutes,
to be effective (OECD, Obesity Update, 2012). The benefits would fall
disproportionally, as many of the conceptual arguments have put forward, that lower
income groups the most to gain from such taxes but the substitution and consumer
preference patterns are difficult to gauge and it is most likely to have a greater
negative externality imposed on such groups
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This section is still in progress and will be further
developed after consultation with Tax experts…
Tax Policy Design Considerations
A tax is achieved through a complex methodology of considerations to its
implementation, collection and administration. As you are imposing increased costs
to people, is important that the tax is upheld to the theoretical canons of taxation.
There are certain considerations that need to be made, design wise in the case for
consumption related –‘Health Taxes’. Some of these are:
• Integrity Of Tax
• Boundary Issues
• Substitution and Gaming
• Exemptions on GST
• Difference between proportionate tax and unit tax
Integrity of a ‘Health Tax’
Boundary Issues
Denmark example
Substitution and Gaming
Exemptions on GST
Differences between proportionate tax and unit tax
To be further developed after consultation with Tax team.
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Summary of Findings
A tax on unhealthy food and drink is something that is very topical at the moment
and increasing efforts globally combined with domestic efforts by lobby groups
making it a very persuasive policy to implement.
In analysis of the conceptual basis, there are real rationales that exist. There are
market failures that exist here ;
Information Failures
Behavioral Biases
These are important factors which warrant government intervention as consumers
cannot make optimal decisions.
On the evidence base, the literature is mixed and it is hard to infer a general
direction. However common threads that exist are;
There is a relatively elastic demand to the price of such foods and drinks.
An imposition of a tax on such food and drinks will have at least some
resultant reduction.
The tax is likely to be economically regressive
The substitution patterns are not fully understood and there is a threat of
substitution to unhealthier alternatives, resulting in worsened health
outcomes.
Overall there are disparities in the literature of the consumer response to Health
Taxes and the relative health outcomes achieved.
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Conclusion
The rise in lifestyle diseases is alarming and there is a critical need for government’s
strategy towards such a difficult issue. It is important that we understand the relevant
outcomes and effects of such a problem to discover relevant solutions.
A ‘Health Tax’ or tax on unhealthy food and drink has been implemented in other
countries and it would be interesting to see how these play out in these countries
and relevant data and research that would be gained.
The role of tax as an instrument for health reform has been widely debated. Tax may
perhaps be effective to attempt in reduce consumption but tax is a crude tool
whereby you are effectively forcing people into making a decision. Also there is the
issue of the poor targeting of tax, whereby a tax would impose costs on society as a
whole, while the issue of obesity is limited to a portion of society. These foods and
drink also do not have the same addictive nature or level of harm as tobacco.
Overall there is a great contention worldwide over health taxes and if considered
need to be evaluated carefully. There is generally not enough of a clear direction in
whether a tax would be an effective solution, especially in the substitution patterns.
The lack of understanding of substitution is a critical issue as the substitution to
cheaper unhealthier alternatives may result in worsened outcomes and ineffective
policy. This reversed outcome is worrying and warrants further work into this area.
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