CHARLEBOIS: The bitter truth of a sugar tax

Taxation for the sake of taxation can open the door to government abuse

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In today’s world, there is an undeniable push to introduce sugar taxes.

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A study published in June by the Journal of the American Medical Association shed light on this issue, revealing the existence of 118 sugar taxes worldwide, including 105 national taxes and 13 subnational taxes, affecting 51% of the world’s population. It is worth noting that this approach receives significant support from the World Health Organization (WHO).

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Many citizens are already subject to this “sin tax” policy, which is primarily aimed at discouraging the consumption of foods high in sugar. In recent years, some Canadian provinces have decided to follow suit.

Take British Columbia, for example, which introduced a 7% provincial sales tax on sugary drinks in April 2021. The main aim of this measure was to discourage consumers from purchasing foods rich in sugar. However, the British Columbia government has provided little substantive communication on the tangible results of this tax, even after two years of implementation. There are no reports or comprehensive assessments of the impact of this tax on the consumption of affected products.

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Newfoundland and Labrador also introduced a sugar tax on drinks last year. However, unlike BC, Newfoundland opted for a more subtle approach by levying this tax at the manufacturer level rather than the retail level. This tax came into effect on September 1, 2022 and has not yet undergone a thorough evaluation.

A year after it was introduced, the provincial finance ministry said the tax generated $11 million in revenue last year, 22% more than expected. At the same time, however, it is noticeable that the state government is still unable to confirm whether the tax has actually achieved its intended goals. Data on consumption or sales simply remains unavailable.

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The province claims these funds will be used to support initiatives such as a continuous glucose monitoring pilot program, a physical activity tax credit and the development of recreation, physical activity and sport. While these intentions are certainly laudable, it remains uncertain whether these funds will actually be used to implement these initiatives.

Academic studies show that local governments that have adopted such taxes, particularly in the United States, have been more successful in meeting their sugar tax spending obligations than other levels of government. Oakland, Philadelphia and Berkeley serve as good examples. However, some provinces or states may be influenced by other political priorities and the funds raised could get caught up in the intricacies of public finances.

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Ultimately, it appears that Newfoundland and Labrador’s sugar tax had little impact on consumer habits. Only a fraction of the sugar tax imposed on manufacturers is passed on to consumers, according to a University of California study published in October. Retail prices change little because most of the tax is absorbed by the supply chain. Furthermore, the available scientific evidence does not conclusively demonstrate that the tax on sugary drinks has either encouraged the purchase of healthier drinks or led to an overall decrease in the consumption of sugary drinks.

Essentially, the Newfoundland and Labrador government appears to have introduced this tax for the sake of taxation itself – an ill-conceived idea. For agri-food companies, dealing with a moralizing state poses a significant risk as they could fear becoming the target of punitive measures in the future, which would discourage private sector investment. Newfoundland and Labrador desperately needs investment.

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Taxing food in grocery stores is a complex undertaking regardless of the method chosen. The most effective tools for reducing sugar consumption are education and labeling. According to IBISWorld, education has already contributed to a decline in soft drink consumption in Canada since 1998, when per capita consumption was 117.4 liters. Consumption was already declining before the sugar tax was introduced. Today consumption is 48.4 liters per person – a remarkable difference.

Additionally, new nutrition labeling rules that come into effect in 2026 will require manufacturers to label products high in sugar, fat or sodium. This provides consumers with relevant information to make healthier choices.

Taxation for the sake of taxation can open the door to government abuse. It is important to look for balanced and evidence-based approaches to promote healthier eating.

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