Fat tax?

Researchers at Massey University suggested that the government shouldsubsidise fruit and vegetables, in order to increase household’s consumption ofthese ‘healthy’ foods

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

Many people would be uncomfortable with theidea 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 argumentand what I am putting forward is the fact that the policy is not about gettingpeople to eat better, but to make sure that people pay the full social cost ofconsuming these foods.   The clearest social cost from the consumption ofunhealthy food is the associated health care bill, which is paid partially byeveryone through income taxes.

According to the Ministry of Health obesityaccounted for $303m of our national health budget in 2003.   Adjusting forinflation the current cost of obesity would come in at $341m.   Using some backof the envelope calculations, this implies that we would need a tax of around6-7% on the appropriate food types.   This tax would raise the funds requiredfor healthcare from the user of it and/or would decrease the consumption ofunhealthy foods, reducing the amount that would need to be spent on thissection of healthcare.

However people will have several issueswith 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 needto be identified and system of tax collection would need to be created,implying that there would be some additional compliance and administrationcosts 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 aresult IRD would have to monitor it.  

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

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

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

By putting this money straight back intohealth care we ensure that we have a user-pays type scheme, where peopleconsuming unhealthy food now are paying for their future health requirementswhile doing it.

If society feels that people on lowerincomes will be forced into a situation where they cannot afford to have ahealthy diet, then this type of user pays scheme may seem inappropriate, and wemay have to use some of the revenues associated with the tax to help correctfor this.   Some methods of doing this are providing food stamps, increasingbenefits, or subsidising ‘healthy’ foods.   As long as the ‘fat tax’ is inplace, individual are taking on the full burden of their consumption ofunhealthy foods, which is what we are after.

Although the idea of a ‘fat tax’ may seemcoarse, it is both more equitable and less demeaning than current governmentpolicy which aims to make individuals feel guilty about their life choice as ameans to improve social outcomes.

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

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

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