05 Apr 2018 --- Taxes on soft drinks, alcohol and tobacco – widely dubbed “sin taxes” – are a powerful response to rising rates of non-communicable diseases (NCDs) worldwide, according to a comprehensive analysis of evidence on expenditure, behavior and socio-economic status, published in The Lancet. Based on data from across the globe, the analysis presents strong evidence that taxes on unhealthy products can produce major health gains among the poorest in society – often disproportionately affected by NCDs.
The analysis comes just days before the implementation of a long-awaited sugar tax in the UK, which will push up the price of sugar-sweetened soft drinks. And according to the authors, the study helps counter fears that such taxes will necessarily disproportionately harm the poor.
Non-communicable diseases such as stroke, heart disease, diabetes, chronic respiratory disease and cancer are responsible for 38 million deaths each year. The Sustainable Development Goal NCD target (SGD 3.4) is to reduce deaths from NCDs by a third by 2030 and promote mental health. Evidence from 283 international studies including data from India, China and Brazil, shows that low socio economic status is consistently associated with higher rates of non-communicable disease in low and middle-income countries.
Can taxes produce major health gains for poorest in society?
By analyzing consumption patterns, expenditure and responsiveness to price changes across different income groups, the Taskforce provides a comprehensive analysis of existing data to help governments understand the potential impact of taxes, and inform whether their use is justified. The analysis is based on available data from 13 countries (Chile, Guatemala, Panama, Nicaragua, Albania, Poland, Turkey, Tajikistan, Tanzania, Niger, Nigeria, India and Timor-Leste).
Firstly, evidence shows that high-income households generally consume more, and spend more, on alcohol, soft drinks and snacks, compared to low-income households. Patterns for tobacco are less consistent. In India, for instance, wealthier households spent seven times more on alcohol and three times more on soft drinks and snacks compared to poorer.
Increased taxes on unhealthy products will, therefore, affect a larger number of high-income households than low-income households, meaning that the revenues generated by taxes will come disproportionately from high-income households, the authors say.
Tax policies can also be designed to influence this effect. Since high-income consumers are more likely to buy more expensive beverages, especially alcohol, an alcohol policy based on unit price may be less of a burden on low-income household, compared to a policy based on volume.
Secondly, as a proportion of total household expenditure, low-income households tend to be more greatly affected by price changes compared to high-income households, although the effect varies. The analysis also shows that low-income households respond to price changes more readily than higher income households.
In the UK, the response to the possible introduction of a minimum price for alcohol was estimated to be 7.6 times larger in the poorest households, compared to the wealthiest. In Mexico, the introduction of a soft drinks tax resulted in an average of 4.2L less of soft drinks purchased per person, with a 17 percent decrease in purchases among lower income groups, and almost no change in higher income groups.
Indeed, the authors model the consequences of a 50 percent increase in the price of cigarettes in Lebanon, and estimate that twice as many smokers in the poorest households would quit compared to the richest (20200 vs. 11300), with a third (31 percent) of the increased tax revenue borne by the richest group and 7 percent by the poorest.
The authors point to examples of pro-poor programs in Mexico where part of the revenue from the soft drinks tax is used to provide drinking water for children in public schools. In Thailand and the Philippines alcohol and tobacco tax revenues are ear-marked specifically for public health programs.
“Non-communicable diseases are a major cause and consequence of poverty worldwide,” says Dr. Rachel Nugent, RTI International (Seattle, USA) and Chair of The Lancet Taskforce on NCDs and economics. “Responding to this challenge means big investments to improve healthcare systems worldwide, but there are immediate and effective tools at our disposal. Taxes on unhealthy products can produce major health gains, and the evidence shows these can be implemented fairly, without disproportionately harming the poorest in society.”
In a linked Comment, US economist Larry Summers says the analysis “helps clear the air over one of the most common obstacles to taxing the consumption of goods that kill us — namely, the argument that such taxes are regressive.”
By Lucy Gunn