• Mac Mckenna is an economist at the New Zealand Taxpayers' Union.
A sugar tax is supposed to increase the price of soft drinks, reduce consumption and sugar intake, and prevent obesity. If only it were that simple.
You would be mistaken for thinking the sugar tax campaign is based on evidence and proof, given the largest advocates for sugar taxes are doctors and so-called public health "experts". Alas, it is not, and there is a simple reason why: the evidence does not support the crusade.
Denmark implemented a saturated fat tax in 2011 and, after considerable public backlash and a failure to achieve its purpose, abolished it a year later as well as a sugar tax (that had been in place since 1934).
Danes reacted to the fat tax by switching to cheaper brands and sourcing food from over the border. The overall composition of consumption did not change after the tax, and there was no noticeable reduction in fat consumption or obesity. Even worse, there was a loss of retail jobs, and price increases hurt the poor most.
Now Mexico is (somehow) the poster-child for a sugar tax despite it being a complete failure. The tax increased the price of soft drinks by between 9-18 per cent yet reduced daily calorie intake by less than 1 per cent.
Reducing calorie intake by so little is staggering considering that soft drink consumption is such a large component of consumption in Mexico. Like Denmark, the tax hurt the poor the most. Sixty per cent of revenue was from low socio-economic households and 37 per cent from households below the poverty line.
The purpose of the sugar tax is ambitious - to reduce obesity - yet campaigners for New Zealand's version of a sugar tax only want to tax soft drinks. The Danes had a much broader tax yet even they failed to achieve a reduction in obesity. Mexico has much higher soft drink consumption yet they could not achieve a reduction in obesity.
Soft drinks make up less than 4 per cent of beverage consumption in New Zealand and only 6 per cent of our sugar intake is from soft drinks. It is nonsensical to point the finger at a single ingredient of a single product for the global increase in obesity.
To use a rugby analogy, blaming soft drinks for the obesity problem is like blaming a missed penalty for losing 50-0.
The increase in obesity is as much a function of increasing incomes (and therefore food intake) and the shift away from labour intensive jobs, as it is about sugar.
Worse still, the intervention hurts the very people it is meant to help. Soft drink consumption (like tobacco and alcohol) is inelastic. The reason sugar taxes are so effective at raising revenue is because people keep buying the products regardless, so increasing the price does little to deter consumption.
Instead, people tend to sacrifice other areas of their budget by shifting to cheaper brands or forgoing other things. Those who consume the largest quantity of soft drinks are also the least likely to give it up.
Sugar tax advocates often overlook substitution effects. If people give up soft drinks only to substitute that consumption with food or drinks that are as high in calories, the only winners from a sugar tax are the government's books.
There is also an issue of fairness. The sugar tax is regressive. Low earners lose the most from the tax as they consume the largest share of their income.
Many of these advocates acknowledge that a sugar tax won't actually do much (if anything) to reduce obesity. Nevertheless they argue that a tax would "send a message".
Effectively that is saying a harmful intervention is worth it in order to fulfil a sense of moral superiority. These people seem to derive satisfaction in telling others what is "good" for them. Even worse, the key lobby groups pushing these measures are mostly taxpayer funded, despite being politically driven.
There is an abundance of health advocacy and information on what we should and should not be eating and drinking. If people still choose to consume "unhealthy" products in spite of these health warnings then what right does the Government have telling people they are making the wrong choice. I certainly do not want government bureaucrats making health decisions on my behalf.