Singapore’s obesity rates are rising, but imposing a sugar tax alone will not combat the problem.
Money Mysteries is a column by Ryan Ong that explores the odd world of money. Where does it all go when you give it to a bank? Why does a potato sometimes cost S$200, or shipping a sofa sometimes cost S$1.99? Why is art so expensive, and how do people (legally) rip off casinos? Every week we unveil a new Money Mystery.
There’s been a lot of talk about Singapore’s obesity rate lately, and one of the ideas to improve things that got bounced around was a “sugar tax”.
The use of taxation as discouragement is an old one – we do it for almost any kind of vice, from tobacco to alcohol. But will raising the price of sugar for consumers work the same way? It’s hard to be sure.
A Sugar Tax Works, Unless it Does Not
Mexico has one of the best records with its sugar tax right now, with soda consumption steadily falling since the introduction of the tax. Consumption of sodas have fallen six per cent since the introduction of the tax (although it isn’t free of disputes and arguments).
On the other hand, countries like Denmark have also tried to control dietary habits via taxation; but their fat tax (which is more or less similar in principle and function to a sugar tax) proved ineffective.
As it turns out, the success or failure of this taxation strategy is still up in the air.
Consumers Must be Denied Cross-border Alternatives
If the Singapore government raises the tax on petrol or cigarettes, what’s one of the first ways we respond? That’s right, we head across the Causeway to buy.
This was the same problem that afflicted Berkley, in California, when the state attempted to impose a sugar tax (it also happened with the aforementioned fat tax in Denmark). Local retailers were too worried about losing business, if consumers were to just buy elsewhere; this caused them to simply absorb the tax, and raise the actual prices by a minimal amount.
This sort of business response is a worst case scenario. Businesses that absorb the tax are faced with higher costs, which impedes the economy while not changing our dietary habits (there’s no rise in cost to the consumer, so it’s as if there’s no tax for us).
Businesses that don’t absorb the tax could see their customers buy from across the border. That would mean a tax policy that results in money flowing out of Singapore, and toward foreign businesses. You can probably guess that a few tempers will flare, in the local industries.
It also risks creating black markets, where people buy the cheaper untaxed products outside the state, and then attempt to sell it for profit in Singapore. While that can be regulated against, it means spending time and money on enforcement.
Blanket Taxing Sugar Will Severely Inflate Food Prices
A sugar tax is easier said than done. What kind of sugar will be taxed? Shall we tax only refined sugar? Or should we tax all sugars? What about natural sugars that occur in 100 per cent pure fruit juices? And shall we tax something specific, such as sodas, or all foods with sugars?
In terms of health benefits, only taxing refined sugars really wouldn’t work to make us thinner. A fruit smoothie that uses only natural sugars can be every bit as fattening as a glass of soda. And if we choose to target only a specific type of food, sugar junkies will simply replace one sweet food with a cheaper alternative.
For example, if we levy a sugar tax just on sweet drinks, a sugar junkie will just shrug, and drink water with his 10 glazed doughnuts. That wouldn’t help us get thinner.
But if the government decides to simplify and impose a blanket tax on all sugars, we can only be certain of one result: food prices will inflate. We don’t know who will bear the brunt of that inflation at first (possibly business owners), but sooner or later it will hit all of us in the pocket.
Also, some medical professionals might balk at the idea of raising a tax on fruit (remember fruits can be high in sugar); because they make up one part of a balanced diet.
It’s Unclear if it’s Tax or Education that Works
In countries like the United States and Mexico, which are seeing a decline in soda consumption, it’s unclear if the tax is the main cause.
Soda lobbyists (advocates for companies that push their sugary garbage) often succeed in convincing various American states not to impose a sugar tax. But soda consumption falls anyway, just because fewer people these days are willing to drink huge bottles of them.
Better education has led to a preference for healthier foods and drinks; that could be the reason for the decline in soda consumption, not the tax. If that’s the case, it means the government is better off funding public education campaigns, than trying to impose a difficult and convoluted tax system.
Still, We Shouldn’t Let ‘Big Sugar’ Walk All Over Us
Excessive sugar causes obesity and diabetes, both of which are expensive conditions, that ruin lives and cost our country millions in taxpayer dollars every day.
They also (indirectly) drive up insurance premiums, and affect the most vulnerable (the poor are more likely to eat cheap food, made palatable by large doses of sugar).
If a tax is used, it would only work as one part of a much larger, overall plan. Simply hiking the price of sugar alone is not likely to work.
Read This Next:
By Ryan Ong
Ryan has been writing about finance for the last 10 years. He also has his fingers in a lot of other pies, having written for publications such as Men’s Health, Her World, Esquire, and Yahoo! Finance.