Sin taxes hurt our poorest the most: IEA report

A recent report from the London-based Institute for Economic Affairs (IEA) has found that ‘sin taxes’ like those on sugar are regressive in the short-term and over one’s life-cycle. A tax is regressive if it takes a larger percentage of income from the poor than from the rich.

The findings from the report call into question calls made by The Australian Greens to implement a whopping 20% tax on sugar amidst an Australian Senate inquiry into obesity. The Greens believe that punitive taxes will reduce obesity rates by discouraging Australians from consuming sugar-sweetened beverages and foods. They believe that their tax will result in a 12% drop in consumption, with a view to reduce obesity rates by more than 1% nationwide.

Yet the IEA report discloses early empirical evidence casting considerable doubt about whether sugary drink taxes do in fact have the ‘progressive’ health benefits purported by advocates of the tax. The report reveals that sugar taxes have never been shown to reduce the overall calorie intake or obesity of individuals in any of the places where they have been tried. It concludes that the impact of these taxes on overall calorie consumption is usually trivial, and tends to be weaker among low-income groups.

Key findings

  • Low-income consumers tend to be disproportionately burdened by sin taxes compared to middle to higher-income consumers, taking a larger chunk out of their household budgets.

  • In Britain, the poorest fifth of households typically spend twice as much of their income on indirect taxes than the richest fifth. 

  • Low-income consumers do not have a particularly elastic demand for sugary drinks. They would suffer a net loss to their welfare as a result, confirming that the tax is regressive.

  • A 20 percent tax on sugar-sweetened beverages would take three times as much from lower-income households than from higher-income households, as a percentage of disposable income.

  • Sugary drink consumption by the poor tend to be higher not just in relative terms but also in absolute terms, making any ‘sin tax’ on these products doubly regressive.

The full IEA report can be read here.

The Australian Taxpayers’ Alliance (ATA) submission to the Australian government obesity inquiry (which canvasses the evidence on sugar taxes) can be read here.

Anjali Nadaradjane is a Research Associate with the Australian Taxpayers’ Alliance.

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