Australia: it’s time for a sugary drinks tax.
Sugary drinks are the biggest single source of sugar in our diets, and they increase people’s risk of developing obesity and type 2 diabetes.
While Australian health experts have been calling for a tax on sugary drinks for many years, our new report Sickly sweet: It’s time for a sugary drinks tax, outlines why now and why Australia is lagging behind our international peers.
In this podcast, report authors Peter Breadon and Jessica Geraghty discuss how a sugary drinks tax can improve Australians’ health, with host Kat Clay.
Transcript
Kat Clay: You’d be hard pressed to find someone who hasn’t enjoyed a cold soft drink from time to time. But what you might not know is that many of them contain more sugar than you should consume in a single day.
Obesity has tripled in Australia since 1980 and diabetes has nearly tripled since 2000. One of the reasons we have such high rates of obesity and type 2 diabetes is that we consume far too much sugar. And it might surprise you that sugary drinks are the biggest source of sugar in our diets. While Australian health experts have been calling for a tax on sugary drinks for many years, our new report Sickly Sweet: It’s Time for a Sugary Drinks Tax, outlines why now and why Australia is lagging behind our international peers. With me today are report authors and health experts, Peter Breadon and Jessica Geraghty. But before we start, it is coming towards the end of the financial year. We are a not-for-profit organization, and if you would like to support our work, we would really appreciate if you go to grattan.edu.au/donate. I’ll, also leave a link in the show notes. Peter, let’s get into some definitions first, because I want to know what actually constitutes a sugary drink. What is it?
Peter Breadon: When we talk about sugary drinks, we’re talking about water-based drinks, so not juices, that have added sugar. So, sugar is added to them by the manufacturers. And so, to give a few examples you might look at a bottle of Gatorade, a can of Coke a Red Bull. These are the kinds of sugary drinks we’re talking about.
And as you mentioned, they can have a huge amount of sugar. So, for example, a 600ml bottle of Gatorade, 9 teaspoons of sugar. A bottle of Coke, 600ml again, 16 teaspoons of sugar. And if you just visualize taking in that much sugar in a short amount of time can see how these drinks can be really harmful.
Kat Clay: So, Peter, what is actually the daily limit for people in terms of sugar intake?
Peter Breadon: Well, the maximum recommended daily sugar intake for an adult is 12 and a half teaspoons. So, you can see many of these drinks just with one drink, you’ve gone through your entire daily maximum sugar budget. And of course, a lot of kids are drinking these drinks too, so it’s a real concern.
Kat Clay: I, mentioned in the introduction that sugary drinks are the biggest source of sugar in our diets. Can you talk a little bit through why they’re so bad for us and how this is a growing problem?
Peter Breadon: Well, we’ve talked about how we have too much sugar in our diets overall, and this is a big cause of many of these chronic diseases that cause so much healthcare expenditure, so much pain, so much suffering and early death. But this is a particularly bad way to get your sugar, because sugary drinks compared to getting your sugar through foods, for example, it makes you feel less full, so you’re more likely to consume more sugar and calories later on.
It also leads to quicker absorption into the body, so you get these sharper spikes of sugar in your blood. So, for all these reasons, taking sugar in this way is actually worse than taking it other ways, as well as the point I mentioned that you could just have heaps and heaps of sugar in these drinks.
So, there’s lots of studies that show that drinking sugar sweetened drinks increases your risk of gaining weight. It increases your risk of developing type two diabetes. And the more you drink in a day, it increases that risk further. So, there’s very strong evidence that these drinks on the whole are not good for you.
Kat Clay: So, Jess, I do want to get into the sugary drinks tax. We know obviously our health is suffering as a result of consuming too much sugar and sugary drinks are partly to blame for that. How will a sugary drinks tax help here?
Jessica Geraghty: So, a sugary drinks tax would help us improve our health and reduce some of the damage from these drinks in two main ways. So firstly, we would buy less because they’d be more expensive and so we’d drink less. And importantly, the tax would encourage manufacturers to cut out some of the sugar in the drinks and make the drinks healthier.
And so, a core feature of our tax is that it penalizes those really sugary drinks the most. So, they pay the most tax and less sugary drinks, they pay less tax or even no tax, depending on how much sugar they have in them. And so, the idea is that with this tax, manufacturers cut the sugar and they make our drinks healthier, people buy less, and as a result, we’re drinking less sugar, we’re more healthy, and we’re reducing our risk of chronic disease.
Kat Clay: And we’ll get into some case studies in a minute, but this isn’t the first report Grattan has done on a sugary drinks tax. We did one in 2016. I wanted to know, are the recommendations in this report different to that 2016 report and, how the landscape has changed since then?
Jessica Geraghty: In our new report, we are again proposing a sugary drinks tax, but we’re proposing a slightly different model. And so, we’re proposing a tiered tax, as I said, where those really sugary drinks. They pay more tax than less sugary drinks. And that decision has really been guided by the evidence that’s been coming out around the world on the impact that these tiered taxes are having on the sugar content of drinks and manufacturer behaviour in different countries around the world.
Kat Clay: One of the things that’s really interesting in this report is that Australia is very far behind its international peers in terms of sugary drinks tax. But that means we can look overseas and see what has been effective there. How many countries actually do have a sugary drinks tax and, has it been effective?
Jessica Geraghty: There’s 117 countries around the world that have a national sugary drinks tax in place. So, Australia is actually in the minority of countries when it comes to taxing these drinks or not taxing them, I should say. The exact design of these taxes varies in different countries, but what’s common across a lot of them is that most of them are in place for public health reasons, so expressly there to make people healthier. And most of them have been introduced in the last 10 years.
Because of that, we’ve seen that over the last five or so years, there’s really been an increase in the evidence on these taxes and what impact they’re having on drinks and people’s health. We see that sugary drink taxes, they make prices go up as you would expect. So, one of those studies found that a 10 percent tax increases prices by 8. 2%. And the reason it’s not one for one is that sometimes manufacturers choose not to pass the tax through to consumers and to pay for some of it themselves. As prices go up, purchases go down and studies estimate that a 10 percent tax reduces purchases of sugary drinks by about 10 to 15%, which is quite significant.
Peter Breadon: Yes Jess, as you mentioned, these taxes are so widespread. I like to say there’s only two continents in the world where you can’t find a sugar tax. That’s Antarctica and Australia. So, we really are in the minority, but the good news, as you were getting at Kat, is we’ve seen so much evidence emerge with the introduction of these taxes.
But what’s really exciting is in recent years, we’ve just started to see some evidence emerging about the health gains.
Now you would expect these are going to take a long time. The effect of drinking less sugary drinks and that flowing through into your weight, into development of type 2 diabetes and other chronic diseases. That takes time, but we’ve already seen, despite the fact that these taxes have been introduced mostly in the last 10 years or so, some health gains.
In the UK, we’ve seen obesity amongst girls aged 10 to 11 has fallen by 8 per cent. And we’ve seen declines in obesity among girls in Mexico as well. There’s been lots of evidence about dental health improving from different countries. For example, the number of kids turning up to hospitals in the UK to get their teeth taken out, a pretty terrible outcome, that has fallen by 12%.
And we’ve seen declines in dental decay in the UK as well as the U. S. and Mexico. And in the U. S. there’s been a really interesting study that suggested a big decline in gestational diabetes by very significant amount.
We see very strong evidence that these drinks are bad for you in the first place, but that the tax helps reduce consumption, make drinks healthier. And increasingly, we’re seeing the evidence. It’s making people healthier too.
Kat Clay: Well, that sounds like a triple win with the sugary drinks tax. So, it’s surprising that we don’t have one yet in Australia. So, the tax you’re proposing will ideally reduce our consumption and make the drinks less sugary. Can you elaborate Jess on what you expect the effects of the tax will be?
Jessica Geraghty: So, when we run our model, what we see is that, as we expect, consumption goes down because prices go up. So, on average, prices of those really sugary drinks go up by about 12%. But it does vary depending on how much the product costs now and also what tier, what tax tier it will fall under. So, whether it gets the highest tax, a lower tax or no tax at all.
It is worth pointing out that the low sugar drinks or no sugar drinks, the prices of those don’t change at all because they don’t pay any tax. And we see that consumption of those drinks with five grams of sugar or more. So those drinks that are taxed, that falls by 275 million litres, which is equivalent to 110 Olympic swimming pools.
That’s over 10 litres each.
Kat Clay: As someone who doesn’t drink soft drinks, then someone can have my 10 litres.
Jessica Geraghty: Yeah, someone will reduce theirs by 20 litres. It’s beautiful. We actually expect that consumption of those lower or no sugar drinks will increase a little bit and part of that is because people will switch to those drinks, but also because as Peter said, some of those drinks, the recipes will be changed, manufacturers will adjust the products so they are less sugary and so they don’t pay the tax. So, we expect that consumption of those drinks will increase a little. So, what that means is that each of us will be drinking nearly 700 grams less sugar per year, which is great. So, our tax is all about health, not revenue, but it does still raise nearly 500 million dollars for the government. We expect that number would come down in future years as manufacturers cut more and more sugar out of the products and people switch to different alternatives. But lower revenue means greater health benefits.
Kat Clay: One of the big questions at the front of mind, whenever you’re talking about introducing a tax given the cost-of-living crisis, will soft drinks begin to cost a lot more and how much do you see the prices going up by?
Peter Breadon: Yeah, Kat, obviously the worst thing about this policy is that it’s a tax, and most people don’t like paying more tax. So, it’s a concern, but that’s why we’ve made our tax relatively modest in line with those that have been introduced elsewhere and significantly lower than the 20 percent that’s recommended by the World Health Organization.
And so, we think the cost increase is modest. So, for 250 ml a can of coke that would increase by 15 cents. A two-litre bottle would increase by a dollar twenty. And for the average household, we estimate the cost being at about 73 cents a week. It’s, got to be meaningful in order to change the incentives on manufacturers to make drinks healthier, in order to discourage people from drinking to much of these unhealthy drinks, but we think that cost is manageable for most people. But even more importantly, there are going to be many options to avoid that tax altogether. This is one of the reasons we propose the tiered tax, where drinks that have zero to five grams of sugar per hundred mils will have no tax applied at all.
So that’s giving people lots of options to avoid the tax. Even if they have to pay the tax, we don’t think it’s too high. And there is this revenue for government, and if the governments very concerned about the cost increases, particularly for disadvantaged people who do, on average, drink more of these sugary drinks, then there is some revenue to offset those costs.
But overall, we think it’s the right thing, even for those more disadvantaged groups, because they will be much better off even if they continue to drink these drinks, but less of them because there’ll be healthier, and the costs of obesity and diabetes and dental care is very high. So that’s why we think even though it’s a tax and it is an impost, it’s clearly the right move, which is why so many other countries have made it.
Kat Clay: And I think you making it very clear that you have a choice to avoid paying the tax. It’s about choosing healthier beverages there. We’ve talked about how the tax will affect individuals and at the supermarket checkout. But what about the industry? Would the tax have as much of an impact on soft drink manufacturers or sugar farmers?
Jessica Geraghty: So, we actually think that the impact on manufacturers and sugar farmers would be pretty small. And so, the overseas experience suggests that if we give enough notice ahead of the tax then that gives the manufacturers time to change their recipes and cut out some sugar. And in doing so, they can reduce the tax that they have to pay or completely eliminate it.
And so, the impact on them tends to be pretty small. In the UK, for example, they gave two years notice between when the tax was announced and when it was implemented. And studies showed that the impact on manufacturers there was pretty minimal. So, we think that here in Australia, a few years later, we could probably give manufacturers about one year’s notice of the tax and the impact on them would not be large and it would not be lasting. For sugar farmers, about 85 percent of Australian sugar is actually exported overseas. And so, the reduction in sugar demand that would come about from our tax we estimate that would be only half a percent of total sugar produced in Australia. And so that could quite easily be absorbed into the global market. We think that the impact on sugar farmers and soft drink manufacturers will be pretty small as well.
Kat Clay: Jess, the industry currently has a sugar reduction pledge. Why isn’t this working and why is this tax a better alternative?
Jessica Geraghty: In 2018, the industry announced a sugar reduction pledge and they committed to reducing sugar by 20 percent by 2025. And they later upgraded this goal to 25%. So, the problem with the pledge is that it’s weak and it’s not having as much of an impact on our drinks as we’d like. For starters, only four manufacturers actually committed to the pledge, and they started counting gains made from three years before the pledge was announced. So, by the time the pledge came into play in 2018, they were already one third of the way there, and all they needed to do was continue on with the same trend, and they would achieve their goal.
So even putting that aside in the seven years to 2022, the industry reduced the sugar in their drinks by 18%. But in just five years to 2022 with a sugar tax in place in the UK, manufacturers reduced the sugar content by 46%. So, what we’re seeing really is that the sugar reduction pledge, it’s not strong enough and it’s not having the kind of impact that it needs to have.
Peter Breadon: And I’ve got to say, this is only one of many examples where letting industry set the rules is really just delaying real action. It’s more of a smoke screen than a real effort to make foods and make people healthier. We did a report last year on the salt in manufactured foods, and you saw the same pattern.
This was an industry scheme that they had worked out collaboratively with the government. The executive body that runs the scheme, you had the industry participants outnumbering government representatives and public health experts. Like with the sugar reduction pledge, you saw weak targets and you saw low participation.
So only about three quarters of the food products covered actually participated. An even smaller amount, only 4 percent actually saw their salt reduced. And in the end we estimated salt reduction about going down by about the weight of two grains of sand per person per day. So completely laughably negligible.
And it’s not just salt. It’s not just sugar. We’ve seen this in junk food advertising where there were calls years ago to set up a scheme to limit children’s exposure to junk food advertising. So the industry quickly cooked up its own scheme. But we know from around the world, there’s strong evidence that self regulatory schemes for advertising restrictions for junk food simply don’t work, and they haven’t worked here either.
Again and again with food policy, we see that putting industry in charge is not a solution. Was
Kat Clay: So it’s clear that tackling obesity and diabetes are complex challenges with multiple causes, not just sugar consumption. How many of these challenges would a sugar tax solve?
Peter Breadon: A sugar tax is cheap, easy to implement. The evidence is strong and it’s been adopted right around the world. So it clearly has to be part of the solution. But you’re right, Kat, it is definitely not the silver bullet, and unfortunately there is no silver bullet. Otherwise, we would have solved these complex problems long ago.
So, there’s many things the government needs to do. This is just one of them. But you can take inspiration from the example of tobacco policy. Now, over decades, more and more policies that made incremental gains were added over time through things like taxation, but also labeling and regulation about where people could smoke and who and how people would sell cigarettes and then advertising and programs to help people quit smoking.
And the list goes on and on. And that is the same kind of multidimensional sustained intense effort that we really need to improve what people eat in Australia because it’s such a big determinant of our health and we are getting more and more of these chronic diseases linked to a poor diet. So, we’re definitely not pretending this will solve everything.
It’s clearly a step that should be taken, but it needs to be part of a much bigger and more ambitious agenda on making food and diets healthier.
Kat Clay: Thank you, Peter and Jess. I think what’s really fascinating to me is looking at that evidence base from overseas and really seeing the impacts that this could potentially have in Australia. If you would like to dig more into that data and research, please you can find our report for free online at our website grattan.edu.Au. We’d love to hear from you about this report and all our other research on our social media channels at Grattan Institute. And please do take care and thanks so much for listening.