The idea of taxing foods according to their nutritional value as a means of tackling diet-related health problems and in particular rising obesity has been an increasingly discussed issue over the past few years. 

The recent implementation of such taxes in Denmark, France and Hungary and discussion about the possible future introduction of such measures in Ireland, the UK and Canada, among other countries, has focused even more attention on the issue. There is also a live debate around the issue in the US where more state and some city authorities are eyeing the introduction of soda taxes, while the food industry actively lobbies against them.

At the same time, a number of papers and reports have been published by health academics and medical organisations assessing and in some cases advocating the introduction of fat or sugar taxes.

This briefing (which is spread over four parts) examines the issue in the context of current debates in a number of European countries, Canada, the US and elsewhere, with reference to recently published research, the advocacy of such measures by health organisations and the response from groups representing the food industry.

As governments across so many countries look for solutions to rising obesity and health-related illness, the imposition of higher taxes on foods viewed as particularly problematic, such as sweetened soft drinks and those high in saturated fat, has become an increasingly discussed – and in some instances implemented – policy option.

While taxes on unhealthy foods have already been introduced in Denmark, Hungary and France, the feasibility of similar measures is being examined and discussed in a diverse range of countries including Peru, Australia and New Zealand, South Africa, the UK and most recently in Canada and Ireland.

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By GlobalData

From a policy perspective, the actual implementation of taxes in France, Hungary and Denmark has been particularly significant. 

Last October, Denmark introduced a tax on meat, dairy products, animal fats and oils with a saturated fat content of more than 2.3%. While there were plans to extend this policy to products high in added sugar, it now appears more or less certain that the tax will be scrapped, though a precise date on the repeal of the legislation has not yet been confirmed. The implications of this decision are discussed more fully in the third section of this briefing.

Hungary also introduced a tax on foods high in sugar, fat or salt and sweetened beverages last year, while France introduced a soft drinks tax earlier this year.

The governmental agenda in this area in many countries is both reflected in and influenced by the policy direction of the World Health Organization (WHO), which has included fiscal measures as a means of tackling obesity and improving diet-related health within its overall strategy to reduce non-communicable diseases (NCDs).

The reduction of obesity and diet-related illness will bring long-term economic benefits in terms of lower health costs but there is a shorter-term economic advantage that has clearly influenced thinking in some governments. With large budget deficits facing so many countries in the wake of the global economic downturn, it is not just health departments but also finance ministries that have been taking a serious look at fat taxes. This has added some weight to suggestions by industry advocates that such moves are no more than thinly veiled ‘tax grabs’.

However, while the current straightened times may have tempted some governments to consider fat taxes as a revenue-raising initiative, the contemporary concept of the ‘fat tax’ is one which is levied on unhealthy foods fundamentally as a preventive health measure to lower consumption of less desirable nutrients. 

Indeed, direct linkage to related preventive health interventions is often envisaged. The taxes would either form part of an integrated strategy to improve diet and health, which could include public education and actively encouraging the consumption of healthier foods, or through hypothecation, actually be used to fund such complementary measures.

It is in the context of the heightened debate over fat taxes that a team of UK-based academics, led by Dr Oliver Mytton, Academic Clinical Fellow in Public Health at Oxford University, examined the issue in a paper published in the British Medical Journal (BMJ) in May

Particularly because of its overall conclusion that in order to achieve the desired positive health outcomes, a nutrient tax would have to be set at 20% or higher, this paper attracted a lot of attention and sparked much debate.

The paper pointed out that, while the recent Hungarian and Danish taxes were explicit in their linkage to desired health outcomes, small excise taxes on unhealthy foods are not a new phenomenon, citing examples in the US, Norway, Samoa, Australia, French Polynesia and Finland. 

The paper pointed out evidence regarding the effectiveness of such taxes as a health measure was scant. This is one reason why the effects of the recently enacted taxes in Europe are being so keenly watched. Observing what happens when actual taxes are introduced in a country or a region – natural experiments – are one of three ways that the effectiveness of such measures can be assessed, according to the Mytton et al. paper, the other two being controlled trials in closed environments or by modelling. 

Natural experiments can potentially yield the most informative and tangible results but this means of exploration is clearly is restricted by the limited number of actual instances where such taxes have been introduced. Only two studies have attempted to measure the actual health impacts of nutrient taxes, both of which were in the US, where as many as a dozen states have imposed relatively small excise taxes on carbonated soft drinks (CSDs). The Mytton paper observes neither study showed an impact on obesity levels but adds that the levels of taxation, which typically range from 1% to 8%, are too low to be effective in this regard. A study of a soft drinks tax implemented in Ireland in the 1980s found there was a decrease in consumption but did not measure health impacts.

Randomised control trials in closed environments, for example where the price of a certain food might be raised in a staff canteen and the changes in purchasing behaviour measured, have also been attempted. These have shown changes in purchasing patterns but their usefulness is limited as compensatory behaviour may occur outside the controlled environment and, as Mytton et al. point out, it is unclear how accurately such artificial environments can reflect real consumer life choices.

This leaves modelling as the primary research tool for assessing fat taxes, and while for some this provides a compelling case for the imposition of such taxes others argue that this is essentially theoretical. Indeed, this is an observation often made by industry representatives in countries where nutrient taxes are being considered by policymakers.

Another criticism of nutrient taxes is that they are regressive. Because poorer families spend a higher proportion of their income on food, any increase in the price of food will have a greater effect on them than on families with higher incomes. While the Mytton paper concedes that fat taxes are regressive, it suggests they can be “progressive” in health terms and lead to a narrowing of health inequalities between rich and poor.

This speaks to one of the conundrums for policymakers at the heart of this debate. In developed economies at least, lower-income families eat more unhealthy foods and have more diet-related health problems. Taxing such foods and making them less affordable for at-risk consumers, in theory at least, could lead to positive health impacts for those consumers. However, taxing the poor to better health is not an easy sell for politicians or public health advocates. 

The Mytton paper concludes nutrient taxes could improve health but would need to be set at a high level – at least 20% – to be effective in terms of reducing obesity and cardiovascular disease. It also concludes that while taxing a wide range of unhealthy foods or nutrients is likely to result in greater health benefits, the strongest evidence base is for a tax on sugar-sweetened beverages. The paper also suggests any tax on unhealthy foods should ideally be complemented with subsidies on more healthy food products such as fruit and vegetables.

The arguments for and against such legislation and the practicalities of introducing such measures are arguably best viewed in the context of actual debates occurring today in various countries. In the following section of this briefing, the nutrient tax debate is discussed in the context of recent developments in Ireland.