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Will Australia introduce a sugar tax?

Background

According to WHO (World Health Organization) worldwide obesity has nearly tripled since 1975. WHO estimates in 2016 globally;

              1.9 billion adults were overweight, 650 million obese

              39% adults are overweight, 13% adults obese

              18% children and adolescents (aged 5 to 19) were overweight vs 4% in 1975

To try to reverse the trend of increasing obesity governments have enacted different types of legislation. For example, since 2018 the UK government has had the SSB (sugar-sweetened beverage) tax, also called Soft Drinks Industry Levy. UK SSB tax taxes soft drinks with more than 5g of sugar per 100ml. Obesity Evidence Hub suggests over 50 countries now have a SSB tax.

Currently Australia has not followed the lead of other nations with a sugar tax. Interestingly Australian Government inquiries such as The Select Committee into the Obesity Epidemic (2018) have recommended a sugar tax and other initiatives (SMH). However, governments, including the previous Morrison government, did not implement a sugar tax.

Australia

ABS (Australian Bureau of Statistics) research highlighted that 67% of Australian adults were overweight or obese in 2017 / 18. Due to research highlighting an obesity issue the Australian government has investigated their options. The Australian government had The Select Committee into the Obesity Epidemic (2018) which made 22 recommendations. Also, The National Obesity Summit (2019) made recommendations including ‘warning labels or taxes/regulations on unhealthy food/drinks’. Other groups, such as the AMA, have also supported a sugar tax (The Guardian).

During the recent election campaign the Liberal party announced the National Obesity Strategy The National Obesity Strategy 2022 – 2032 also detailed actions the government could undertake. For example, ‘consider policy approaches that use price to reduce consumption of sugar-sweetened beverages while minimising impacts on disadvantaged populations’. Similarly, during the election campaign the Labor party (SMH) have said they would consider a crackdown on ‘unhealthy’ products. Previously both major parties have said no to a sugar tax (The Guardian). Now it appears their position is ‘maybe’.

In Australia food and drink manufacturers have voluntarily agreed to government and industry recommendations (not compulsory) to varying degrees. For example, the Health Star Rating was launched in 2014. In 2019 the five year review estimated that 31% of eligible products displayed the Health Star Rating on packs. Industry groups, such as Australian Beverages, have also set targets for healthier products, such as the Sugar Reduction Pledge.

UK Example

If the Australian government was to introduce a sugar tax / legislation to reverse increasing obesity levels they could follow the UK lead.                

Initially the UK government introduced a sugar tax on soft drinks, the SSB tax in 2018. It is a two-tiered tax. Drinks containing more than 8g sugar per 100ml were taxed at £0.24 per litre, 5 – 8g taxed at £0.18 per litre. Research suggests the SSB tax contributed to remove 45 million kg of sugar from soft drinks consumed each year and the amount of sugar in SSBs decreased 43.7% four years after the tax was introduced (Obesity Evidence Hub).  

Today the UK is in the process of implementing legislation to limit the promotion of foods high in fat, sugar and salt (HFSS). The legislation includes banning retailers displaying HFSS products:

within 2 metres of checkouts, including queueing areas and self-serve

near store entrance, end of aisle or in display bins

volume / multibuy promotions such as 2 for $X

Partly due to COVID and increasing costs of doing business the UK government has delayed implementation of this legislation.

Why would the Australian government introduce a sugar tax now?

The following chart highlights that the Australian government recently dramatically increased its net debt. Ironically, this was mainly due to the current health pandemic, COVID.

Australian government net debt

Source: Budget strategy and outlook: budget paper no. 1: 2021–22, Statement 11, p. 365 and 367.

According to AIHW (Australian Institute of Health and Welfare) health spending has been approx. 25% of tax revenue from 2012/13 to 2018. APH (Parliament of Australia) budget analysis highlights health spending in second in dollar terms, after social security and welfare. The National Preventative Health Strategy 2021-2030 reports that $6 billion in health costs could be saved by taking action on tobacco, alcohol and unhealthy foods. (Note unhealthy foods are now grouped with tobacco and alcohol).

The challenge for future governments is to decrease net debt. This could be achieved by raising taxes (unpopular) and/or decreasing spending on services (unpopular). It is more likely that future governments will try to increase revenue whilst minimising unpopular tax increases. As reported by news.com.au the recently elected Albanese government faces ‘ominous economic headwinds‘ to deliver their election promises.

Legislation similar to the UK’s SSB / HFSS could be part of the solution to the governments’ dilemma. Simply put it is more popular for the government to increase taxes on unhealthy products (including alcohol, tobacco and unhealthy foods) than to increase income or corporation tax. The legislation could be widely supported too. For example, Obesity Evidence Hub, reports research estimated 77% of Australians supported a tax on sugary drinks. Also, groups such Obesity Policy Coalition, Tipping the Scales report, was created by 35 leading community, public health, medical and academic groups that could support this type of legislation.

AMA modelling suggests a $0.40 per 100g of sugar added to soft drinks could generate $2.8B of revenue for the government over 4 years. AMA modelling also suggests implementing a SSB tax could result in 16,000 fewer cases of type 2 diabetes, 4,400 fewer cases of heart disease and 1,100 fewer cases of stroke over a 25 year period. If AMA modelling is realistic then SSB legislation may increase revenue whilst decreasing health care expenditure.

IMHO (in my humble opinion) the change in the governments net debt position is a major factor why major political parties are now more likely to consider SSB / HFSS legislation in Australia.

The other major factor is COVID. The National Preventative Health Strategy 2021-2030 outlined 2 key learnings from COVID:

‘prevention is much more cost effective than treatment, both during ordinary times and a pandemic’

‘obesity has presented a novel risk factor for COVID-19, resulting in higher rates of hospitalisation, admittance to intensive care and death’

Should the food and beverage industry support SSB / HFSS legislation?

‘the COVID-19 crisis perceptibly shifted consumer behavior and enlarged the pool of conscientious consumers willing to pay more for healthier, safer, more environmentally and socially conscious products and brands.’

PWC, Beyond compliance: Consumers and employees want business to do more on ESG, 2021

In my blog, ESG in FMCG, I note consumer / shopper demand for ESG products is increasing. With millennials and Gen Z having an increasing % of total sales I predict these demands shall continue and become mainstream. For the FMCG industry this means manufacturers / brands will develop new products that have a positive effect on shoppers’ health. An obvious example was Coca Cola launching Diet Coke that contained no sugar.  

In response to changing shopper demands many businesses now focus on their purpose. For example, Nestle Australia purpose is ‘unlocking the power of food to enhance quality of life for everyone, today and for generations to come.’  To achieve this outcome Nestle is ‘reducing salt, sugars, saturated fats, and adding powerful ingredients like fiber-rich grains or vegetables, and adding micronutrients to fortify thousands of products across the world.‘ Then manufacturers, such as Nestle, should partner with the government as they have a common goal to minimise obesity. This may include supporting SSB / HFSS legislation.

If the food and beverage industry fights the Australian government then there is a significant risk. For many decades tobacco manufacturers have fought anti-tobacco legislation. Australia has some of the strictest legislation controlling packaging, advertising, smoking in public and age limits etc. Recently New Zealand went a step further with plans to eventually phase out smoking (bbc).  

Conclusion

It is inevitable that the Australian government will implement legislation to minimise consumption of unhealthy foods. Due to the governments’ net debt level and key learnings from COVID they will consider SSB / HFSS style taxes. The food and beverage industry needs to partner with the government to minimise obesity levels in Australia. This may include supporting SSB / HFSS taxes.   

The information provided in this blog post was general in nature. If you require more information I offer a free initial consultation by completing a contact us form.