IN 2015 Berkeley, California, became the first American municipality to implement a tax on sugary beverages to cut consumption. Set at about a rand a regular-sized can, the impost seems to have worked. But before the Treasury gets too excited, let’s note that the operative word here is "seems".
In November 2014, Berkeley and nearby San Francisco voted on identical proposals to tax non-diet Coke and its ilk. The former said yes, the latter no. University of California researchers reckoned this had the makings of "a perfect natural experiment" to compare consumption patterns. They did before-and-after street interviews.
Before Berkeley’s tax went into effect, residents of both communities admitted to drinking an average of 1.25 sugared cool drinks a day. A year later, Berkeleyites were down to just one a day, while untaxed San Franciscans guzzled at the old pace.
Self-reported consumption data is always problematic. Note, too, that the full cost of Berkeley’s tax was not passed on to consumers. The price signal suggesting they quench their thirst in healthier ways was therefore muted. A more likely reason for the drop in consumption was the high-profile campaign to get the tax adopted. If the experiment points to any conclusion at this stage it is that public awareness may be more effective than taxation in persuading people to regulate their sugar intake.
This is borne out by national trends. The connection between obesity and massive doses of soda hasn’t exactly been a secret. US consumption of branded sugar water fell 20% between 2007 and 2013, even as the industry successfully defeated tax initiatives all over the country. When Gallup polled Americans on their consumption habits in 2002, 41% said they avoided sugared cool drinks. By 2014, it was 63%.
Which is not to say taxation may not have a legitimate role here. Fans of John Maynard Keynes’ great Cambridge mentor, Arthur Pigou (I am one), would justify taxing sugared drinks to offset their externalities — econospeak for the price everyone, including abstainers, has to pay for the metabolic havoc wrought by constant infusions of Coke.
Chronic illness related to obesity and excess intake of sugar — diabetes, heart disease, stroke and cancer — is expensive to treat. The overall US bill for such treatments in 2010, by one estimate, was $315bn. SA’s entire GDP was $365bn that year.
Though nobody likes to say this too loudly, bad dietary habits — including drinking too much Pepsi and Mountain Dew — correlate with income and class. You do not encounter morbidly obese people sucking on litre jugs of Dr Pepper in the Whole Foods Market in Potomac, Washington’s Hyde Park. They are, on the other hand, a tragically frequent sight in the Dollar Generals and Wal-Marts of Martinsburg, West Virginia. The subsidised cost of their care is shared by all through higher health insurance premiums and deductibles and the diversion of public funds from other, more productive uses such as schools.
From a Pigouvian point of view, those who profit from the sale of sugar water should be taxed to recoup the true costs to the economy of their business. This would oblige them to consider those costs and reduce them, which they could do by several means. They could develop and market less harmful products (and, to be fair, they are already doing that). They could be truthful instead of (as we now know happened) suborning Harvard scientists to cook data about the sugar’s health effects.
Sadly for Pigouvians, there are in the real world things called politicians. Politicians love taxes because they can use the revenues at best to keep needed constituencies happy, at worst to feather their own nests. Even in a well-run democracy, it is optimistic to believe that the proceeds of a tax on sugary drinks could be ring-fenced to offset the externalities of these beverages, let alone in the current South African context.
Another difficulty with a Pigouvian tax, from a revenue perspective, is that it would incentivise Coca-Cola and co to develop and market products with fewer taxable externalities. The public would probably be healthier. But the finance minister would have to find some means of making up for the revenue lost as companies found ways to avoid the tax by ceasing to poison people.
Of course, not poisoning people has externalities too. Shortening people’s lives with excess sugar may be less costly than stopping Coke from killing them. The longer they live, the more actuarially inconvenient they become. If there’s a simple answer to the sugar tax debate, I can’t find it, even with Pigou’s help.
• Barber is a freelance journalist based in Washington