Fat tax?
Fri 7 Dec 2007 by Matt Nolan.

Researchers at Massey University suggested that the government should subsidise fruit and vegetables, in order to increase household’s consumption of these 'healthy’ foods.   However, if we are willing to accept this I would like to take it one step further and suggest that we also place a tax on unhealthy foods (foods with a sufficiently low SSCg3d score for example), a concept economists tactfully term a 'fat tax’.

Many people would be uncomfortable with the idea of higher taxes on junk food, after all it seems like an example of the 'nanny state’ trying to legislate what is good for us and what is bad for us.  However, the difference between the 'big brother knows best’ type of argument and what I am putting forward is the fact that the policy is not about getting people to eat better, but to make sure that people pay the full social cost of consuming these foods.   The clearest social cost from the consumption of unhealthy food is the associated health care bill, which is paid partially by everyone through income taxes.

According to the Ministry of Health obesity accounted for $303m of our national health budget in 2003.   Adjusting for inflation the current cost of obesity would come in at $341m.   Using some back of the envelope calculations, this implies that we would need a tax of around 6-7% on the appropriate food types.   This tax would raise the funds required for healthcare from the user of it and/or would decrease the consumption of unhealthy foods, reducing the amount that would need to be spent on this section of healthcare.

However people will have several issues with the introduction of such a tax:

  1. Compliance and administration costs,
  2. The potentially regressive nature of the tax,
  3. The belief that such a tax is socially inappropriate.

Food items that are going to be taxed need to be identified and system of tax collection would need to be created, implying that there would be some additional compliance and administration costs associated with the tax.   Furthermore, junk food producers would try to 'category hop’ with their products in order to avoid the tax burden, and as a result IRD would have to monitor it.  

It is important to remember that issues such as this exist with any form of tax.   As revenue from an unhealthy food tax would replace some current health care spending there will be scope to lower other taxes, such as PAYE.   Given the inefficiencies associated with income tax, the overall cost associated with this change in the tax mix may not be as significant as they first seem.

Some people would be unhappy with a tax on unhealthy food as they view it as regressive.   People that say this believe that the cost of a healthy diet is outside the reach of the poor, and so they have to eat unhealthy food.   Although this point is debatable, if it was the case, then the tax would disproportionately affect the poor.  

However, saying we should throw out the policy for this reason would be the result of confusing the purposes of a tax with other social goals.   The goal of this tax is to make the price of unhealthy foods equal to the full social cost of their consumption, which in itself is more socially efficient.   

By putting this money straight back into health care we ensure that we have a user-pays type scheme, where people consuming unhealthy food now are paying for their future health requirements while doing it.

If society feels that people on lower incomes will be forced into a situation where they cannot afford to have a healthy diet, then this type of user pays scheme may seem inappropriate, and we may have to use some of the revenues associated with the tax to help correct for this.   Some methods of doing this are providing food stamps, increasing benefits, or subsidising 'healthy’ foods.   As long as the 'fat tax’ is in place, individual are taking on the full burden of their consumption of unhealthy foods, which is what we are after.

Although the idea of a 'fat tax’ may seem coarse, it is both more equitable and less demeaning than current government policy which aims to make individuals feel guilty about their life choice as a means to improve social outcomes.

Not everyone becomes overweight as a result of over-indulgence in junk foods; some people have physical and/or genetic problems which put them into this situation.   As a society we may be willing to pay for the health needs of those that weren’t as lucky with nature’s choice of their genetic makeup.   A tax on junk food charges those who choose to consume this type of food directly, and so will mainly impact on those people who choose to increase their burden on society, rather than those who cannot help it.

Far from being the actions of a nanny state, the introduction of an additional tax on unhealthy foods is just as justifiable as a tax on alcohol or tobacco, if you don’t believe me just ask the World Health Organisation.

Related Articles