Health Economics 1, 2019: The Economic Impact of Sugar Tax on Obesity

This essay examines the health economic implications of a sugar tax in Australia, focusing on the obesity problem and its associated costs. It explores the economic theories behind obesity, including market failures and demand-side issues. The assignment justifies the implementation of a sugar-sweetened beverage (SSB) tax, arguing that it addresses market failures and targets foods contributing to obesity. It analyzes the potential revenue generation from the tax, its regressiveness, and the benefits of implementation, including improved health outcomes and reduced healthcare costs. The essay also recommends how the revenue generated from the SSB tax should be allocated to subsidize healthier food options and address the negative externalities associated with obesity. The analysis considers the effectiveness of taxation in curbing consumption and its impact on government intervention in the market to correct market failures. The essay uses data and reports to support the arguments and recommendations.

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Introduction
According to the Biennial report card, the rate of obesity in Australia is among the worst
globally. Specifically, 70% of Australia’s male population is overweight /obese whereas 56 %
of the female population is considered obese (Dow 2018). Overall, 28% of the Australian
population is considered obese. Based on the Organization for economic cooperation and
development, the Australian obesity level is 8.5 % higher than the organization’s average. It has
been decided that obesity is some of the cause for twenty-two diseases such as cancer,
gallbladder gout, and back pain among others. In addressing the obesity pandemic in Australia,
the government established the national obesity summit in the year 2018 to research and make
recommendations on the overweight problem. Some of the implemented health policies include
dietary guidelines, health star rating, healthy food partnership, physical activity, and sedentary
behavior guidelines, clinical practice, healthy weight guide among others (The Department of
health 2019). Overall, obesity is a serious problem that ought to be addressed through taxation.
According to Australian diabetes and obesity lifestyle study, data 2011-12 suggest that
obese patients annual costs amount to 2501 $ per individual while that individual with normal
weight do spend 1998 $ annually hence the assertion that obese patients spend more on health
care than normal-weight persons( Lee et.al 2018). Noteworthy, obesity costs impact the
community and third parties through high taxes to cover government expenditure on welfare and
health. According to Gratton institute survey, community ‘third party costs amount to 5.3bn
Australian dollars in the year 201-15. Additionally, owing to the overweight nature of obese
people, there is a high chance that employers will shun away from seeking their labor services
thus imposing high welfare costs on the government (Duckett & Wiltshire 2016). The treatment
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cost for obesity-related diseases on government hospitals is quite costly thus increasing
government expenditure. In an effort to curb rising health costs for conditions such as obesity,
the government could encourage the consumption of healthier food options through food market
regulation and subsidizing the costs of healthier food alternatives.
Economic theories seeking to explain why obesity exists.
Arguably, market failure is responsible for the rising cases of obesity. Is believed
that an unregulated market leaves no room for personal choice as the only reason for rising
obesity levels. The author argues that the government ought to provide a healthy environment for
its citizens through regulation, taxes, and subsidies (Veerman 2018). Basically, market failure
defines a situation whereby there is an inefficient distribution of commodities and services. It is
argued that government intervention gives rise to positive consumption externalities. In this case,
lack of government intervention through regulation, and subsidies causes inefficiencies in the
market thus exposing the consumer to unhealthy food choices due to cheaper unhealthy options.
In this case, market regulation by government benefits consumers when healthier food options
are available at cheaper prices. Due to the high cost of healthier foods and drinks, most of the
low and middle-income earners are unable to afford healthier food options thus contributing to
obesity It is important that healthier beverages are affordable for low and middle-income earners.
Essentially, the Australian government failed to regulate the prices of healthier food
options has left consumers with negative externalities such as cheap high calories food
supplements. Additionally, income has contributed to the consumption of unhealthy food options
thus contributing to obesity. Specifically, owing to the high cost of healthier food supplements,
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low-income earners are prone to purchase and consume unhealthy food options (Cawley 2010).
The fact that healthier foodstuffs are costlier than unhealthy foodstuff makes income a factor in
the rising obesity cases in Australia. Also, technological advances have contributed to unhealthy
consumption of foodstuff. This is because technological advances have encouraged massive
preservation of foodstuff and production thus supplying a lot of unhealthy food options for the
Australian population (Cawley 2010). The preservation of mass production of drinks has to lead
to the use of additives that are not healthy hence contributing to the obesity levels among the
Australians.
Also, the availability of unhealthy foodstuffs is on the rise due to the fact that they
are readily available and convenient for many Australians. There are more fast foods and sugar
content beverages establishments as compared to healthier food eating establishment. Most sugar
content b averages are found in most shops as compared to healthier drink alternatives. The fact
that many fast food outlets have provided convenience for most of the Australian population.
Some of the key success factors for fast foods is easy accessibility and proximity to markets
(Ibisworld 2019). In a perfectly competitive market, there is a free flow of information between
consumers and producers. However, perfectly competitive markets are largely theoretical and
hard to actualize. Due to lack of free information flow, consumers are bound to make unhealthy
food choices thus contributing to obesity instances in Australia Also, individual rational
decisions are not applicable to a group of people.consumer ignorance on the content of
sweetened beverages and foodstuff has contributed to the rising levels of obesity.
Additionally, purchasing strategies are responsible for poor eating decisions by most of
the Australian population Impulsive decision-making process in the purchase of unhealthy foods
thus contributing to the rising obesity levels (Cohen & Lesser 2016). From an economic
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standpoint, price influences the demand for goods and consumption rates. Typically, market
forces of demand and supply influence price. Additionally, prices affected the number of goods
consumed. Essentially, decreased prices increase the number of goods demanded. In this case,
the price of processed foods which are the major cause of obesity has contributed to the massive
consumption of processed foods. Unfortunately, foods with high calories content are cheaper in
price as compared to healthier food alternatives (Finkelstein & stronmbtorne 2010). Through the
imposition of the SSB tax, the prices of sugar, sweetened beverage will go up hence reducing the
consumption (Buckett 2018). Increase in price will reduce quantity consumed thus reducing the
chance of obesity and sugar-related illnesses.
Reasons why SSB tax will raise revenue
Following the imposition of the SSB tax, the Australian government is likely to save lives
and at the same time increase, its revenue. Higher taxes mean higher revenue brackets for the
government. According to SBS.Com, the Australian government is likely to raise 400million
dollars in case it imposes the sugar tax. In the event that the Australian government imposes a 20
% SSB tax, it will save 400 million dollars and at the same time reduce obesity, diabetes and
other health risks associated with sugar consumption. In recent years, the Australian budget has
encountered deficits which can be resolved by the SSB tax scheme. Specifically, it is estimated
that the sugartax decreases diabetes 2 infections by eight hundred patients. These figures go to
show that SSB taxes will lead to less health care costs on sugar-related illnesses such as obesity.
Usually, an increase in taxation will read to an increase in prices of unhealthy foodstuff hence
affecting the consumption/demand of sugar and sweetened beverages. Through increased sugar
prices there is increased government revenue.
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Regressiveness of the SSB tax and the benefits of implementing SSB tax
In the short run, taxes are regressive hence the assertion that SSB taxes might not be
effective in curbing consumption of sugar products. It is observed that SSB tax might lead to
equity concerns owing to their regressive nature(Ross & Lorena-Rojas 2018). The imposition of
the SSB tax will reduce the consumption of sugary products thus reducing the likelihood of
sugar-related illnesses such as obesity, diabetes type two and heart disease. This will lead to
better health outcomes due to the fact that sugar intake is reduced by potential obese people. The
reduced consumption of sugar will lower the intake of sugar thus a reduction in obesity
incidences among the Australian economy. Better health outcomes are likely to emanate from
less consumption of sugar product, Low or no sugar intake translates to saved health care costs
and normal weight individual Noteworthy, the SSB tax will curb consumption due to the fact that
it is applied directly on the prices of sugary stuff. The tax is inclusive of the price for sugary
products hence the consumer incurs the costs directly.
Also, the fact that prices are already high makes it easy to implement the tax system.
Besides the direct application of the SSB tax, the effectiveness of the tax is based on the
uniformity of application of the tax on products. The fact that the tax is applied on the sugary
products directly is not discriminatory to all levels of income hence promoting equality and
equity. It means that all high and low-income Australian s are subject to the same measure of
taxation. Also, the SSB tax application will have the backing of the Australian law thus the
assertion that it will have the legal authority hence easier implementation. The legitimacy of
policies makes it easy for implementation.
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SSB Tax revenue Expenditure
It is recommended that the revenue obtained on taxed sugar products be injected to
subsidies healthier food options (Noone 2019). Based on the recommendations of the University
of California, some of the tax revenue might be used to fight the spread of obesity and diabetes
among other related diseases. Through extra income, the Australian government might launch
research into different health problems or engage in other public services that might improve the
overall health welfare of the citizens. According to the California university statistics,52 % of
low-income earners in Berkeley have reduced consumption of sugar drinks following the
imposition of penny ounce excise tax. This goes to show the effectiveness of taxation on the
consumption of sugary foodstuffs (Science daily 2019). Usually, government invention is
necessary for correcting market failure. In this case, the market failure is the availability of
unhealthy food options on the Australian market hence the justification to apply taxation to curb
consumption of unhealthy food alternatives such as sweetened beverages.
In the cases of sweetened beverages, there are negative production externalities to which
taxation (SSB) tax seeks to address (Saez 2019). In this case, consumers are the recipients of the
externality. According to the externality theory, the effects of actions on third parties is what
counts as an externality. Additionally, SSB tax has the capacity to recoup obesity-related
diseases costs(Lal et.al 2017). It has been observed that the SSB Tax has been considered
effective in Mexico hence the assertion that the same can reduce the consumption of sugar-
sweetened beverages. Lack of tax has encouraged the development of obesity-related diseases. It
is estimated that a 20 percent SSB tax will lead to savings in the healthcare sector by 95 percent
(Lal 2017). The fact that healthcare costs will reduce means that the Australian government will
be able to address budgetary deficits. Usually, budgetary deficits are caused by increased
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government expenditure. Due to the high healthcare costs based on sugar-related diseases, there
is likely to be a budgetary deficit which can be reduced by taxation.
In a way, the SSB tax is meant to correct the negative externality which is obesity. By
imposing the tax on sugary stuff, consumers are likely to be charged higher prices for buying
sugary drinks. The higher prices are meant to discourage consumption. In the event that
consumption is reduced, there will be less sugar intake to induce obesity and other health-related
risks. for consumers, higher prices limit the consumption of sugary drinks owing to the high
prices. It is recommended that taxation be imposed to discourage the consumption of sugar-based
drinks. However, the effectiveness of the tax to curb consumption of sugar-based beverages has
not been successful according to some economic perspective. Due to the price elasticity of
demand for sugar-based beverages the effectiveness of tax is questionable. Typically, taxation
has been effective in raising revenue for the government over the years. Also, in some cases,
taxes have reduced the consumption of products such as tobacco and cigarettes hence the
assumption that the same will work in sugar beverages.
Based on the feasibility results conducted on 18-30 years of age Australians conducted
in the year 2017 forty-eight percent of 1793 participants were in support of the SSB tax being
imposed on sugar-sweetened beverages. Fifty-Three percent of the participants agreed to reduce
consumption of sugary beverages in the event that the tax is imposed (Richardson 2018).
Conclusively, most of the Australian youthful participants are in support of the tax imposition as
it will help them reduce their consumption. Additionally, the Australians youth hold the view
that the revenue from the taxation of the sugar-related beverages is invested in physical activity
facilities (Richardson et.al 2018).In this regard, increased prices for sugar products will increase
government revenue which can be implemented in health research and other welfare programs.
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Imperatively, corrective taxes are necessary to effectively serve the purpose for which they are
intended. In this case, the SSB tax ought to be designed in a way that increases the Australian
national welfare. It is important that the SSB tax targets beverages that are sugar based for it to
be effective. (Lloyd & Maclaren 2018).
Worth noting, countries such as France and Ireland have introduced taxes on sugary
fluids/drinks to curb consumption of unhealthy drinks. The fact that high sugar consumption
levels lead to obesity-related diseases such as diabetes type 2.Owing to the low price elasticity
demand for sugary drinks this brings into question the effectiveness of taxes to curb consumption
of sugary drinks. The SSB tax should be designed to address all forms of sugar content products
due to the primary fact that all forms of sugars in excess are prone to cause harmful health
effects. Usually, taxes have been used to increase revenue. This happens because taxes increase
the prices for goods and services thus increasing revenue for the government. In this case, the
imposition of the SSB tax on sugary products will increase the prices for sugary products thus
increased revenue for the Australian government due to the increased prices for sugary stuff
(Pettinger 2017). Due to increased revenue by way of SSB tax, the Australian government public
expenditure will reduce thus allowing the government to avoid budgetary deficits.
In most cases, increased government expenditure as compared to revenue will lead to a
budgetary deficit. However, an increase in the prices of goods and services through taxation will
increase revenue for the government thus a budget surplus.
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Conclusion
Unfortunately, obesity is rampant among the Australian population. Among the reasons
for the spread of obesity is the fact that unhealthy foods are readily available, cheaper and are
convenient for most of the Australian population. Factors that have contributed to overweight
Australians include market failure, personal choice, income and technological revolutions which
have introduced preservatives and mass production. Overall, the costs of treating sugar based
diseases are way higher. In most instances, sugar consumption has contributed to obesity among
the Australian population thereby prompting the proposal to introduce SS tax. The tax is
expected to raise government revenue while reducing consumption of sugar-based beverages for
better health outcomes. It is recommended that the SS tax be implemented into health-based
research and opening public physical exercise centers for the Australian population. Overall,
sugar-based beverages have contributed to the rising obesity levels in the country.
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References
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