This report was requested by a based group called Economic Think Tank in New Zealand. The aim is to analyze the effectiveness of implementing a junk food tax. This report examines the benefits and challenges of a junk food tax and provides recommendations for this tax surplus. It will also discuss the appropriate levels of funding for the food industry.
Today, 32 per cent of New Zealand people are obese. According to Alasdair (2016), excess consumption of junk food is a major reason to New Zealand’s high rate of obesity and other health issues, such as type two diabetes, heart diseases, and dental caries. Junk food is high in saturated fats, salt, and sugar, which can lead to high blood pressure and obesity. Because of New Zealand’s high rate of obesity, many scientists have proposed that taxing all junk food except whole food like milk and meat (Alasdair, 2016). Tax on junk food is rapidly growing in popularity and political acceptance in New Zealand. Many countries have implemented health-related tax to encourage people to replace junk food with healthy substitutes.
The government plays an important role in combating health issues such as obesity. The main objective of increasing junk food tax is to address the health problems and create public health awareness in New Zealand. At the same time, governments can also use tax revenues to subsidize health programs.
- Effectiveness of the junk food tax
The junk food tax plays an important role in reducing high obesity rates in New Zealand. It could reduce the risk of many diseases and bring about better health outcomes. From the perspective of the economy, it generates revenue which could be used to improve the health care system and subsidy health food. An increasing number of healthy labour would increase the productivity and efficiency of all industries in New Zealand.
2.1 benefits to people health
New Zealand faces a serious health problem because a large number of children and adults are overweight. It increases the risk of diseases, including cancer, diabetes, heart disease and stroke. The junk food tax is one of the most effective ways to reduce the disease burden which results from unhealthy food and drink consumption in New Zealand (Cobiac, Tam, Veerman & Blakely, 2017). Research in other countries indicates the health benefits of increased taxation of junk food. For instance, 20 per cent of junk food tax would reduce the number of obese people by approximately one per cent in the UK and two per cent in South Africa. The World Health Organizations has strongly recommended that governments should tax junk food to reduce consumption and so reduce obesity rates (Ketchell, 2017). Research shows that junk food tax could reduce the consumption of junk food and energy-rich foods. Moreover, 20 per cent of junk food tax means about 400,000 fewer obese people in New Zealand. This is because reducing the consumption of junk food would result in a reduction in energy intake, which leads to lower physiological risk factors. It brings about better health outcomes. Therefore, the junk food tax helps tackle obesity and diabetes crisis.
2.2 benefits to society
The junk food tax would deliver about over two billion dollars in economic benefits, including indirect economic benefits and health care savings (Cobiac et al., 2017). Research shows that obese workers need more sick leaves in all employees. The junk food tax would lead to fewer obese workers, which means the healthy workforce would increase. Because of an increasing number of healthy people, the productivity and efficiency of all industries would be greatly improved in New Zealand (Ketchell, 2017). These indirect economic advantages of increased labour force employment outweigh the savings in health care costs.
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Although the consumption of junk food would decrease, the revenue collected from the junk food tax could be used to put towards health promotion activities and subsidise healthy foods. According to ‘US junk food tax’ (2018), subsidies that reduce the prices of fresh fruits or vegetables has a positive impact in reducing obesity and all-cause mortality. The revenue can also be spent on efforts to improve health care systems and build capacity for effective tax administration.
- Implantation of the junk food tax
Compared with high-income people, junk food tax is unfair to poor people. It affects consumers’ spending pattern because high prices could result in low demand. The other issue is that the scope of junk food also needs to be discussed clearly. The junk food tax affects the buying pattern of consumers and the profits of the fast food industry. It could lead to the unemployment rate increase. The junk food tax increases the risk of economic imbalances.
3.1 challenges to people
Junk food has positive health effects, but not necessarily greater for low-income groups. Some scientists argue that it is a regressive tax, and it takes more in taxes from lower-income people (Pettinger, 2017). The poor people already spend a large proportion of their income on food and paying more junk food tax could force to them to spend less on nutritious food. Research shows that lower-income people intend to absorb nutrition from fast food (Ketchell, 2017). The US ‘fat tax’ imposes more than four times burden on the lowest-income people than on the highest earners (Marrons, 2015).
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Another potential problem is the substitution of unhealthy products. While junk food tax can target certain unhealthy food in the market, people can also become obese by eating other unhealthy food. If the government increases the tax on junk food, the highly price-sensitive consumers are more likely to switch to untaxed alternatives, or to cheaper but equally unhealthy taxed products (Alasdair, 2017). Junk food tax cannot solve the core problem. The problem of obesity is based more on incentives and habits, and any legislation or taxation could not change.
In addition, the food which is taxed is subjective. There is too much debate about what kind of food need to be taxed. For instance, salmon and avocados, which are high in fat, are rarely discussed in fast food debate.
3.2 challenges to market
According to Alasdair (2016), Denman have eliminated its “fat tax” because of unintended adverse consequence, such as increased food costs, high administrative burden, and tax evasion. The other reason was that their government attempted to enhance the competitiveness of firms and recoup jobs lost. In fact, the only potential loser is the fast food industry because higher prices lead to a fall in demand and consumption (Pettinger, 2017). Buying pattern would be affected when the junk food tax implemented. An increase in junk food tax is not fully reflected on retail prices, as businesses need to accept costs would increase (Wilison & Hogan, 2017). This means the fewer profit of the product being taxed, which could place jobs in jeopardy of being removed (Lombardo, 2015). It is likely that some decline in market share and job losses. According to Marrons (2015), the economic losses to the fast food industry may be devastating and reduce profits in a reverse trickle-down effective.
- Junk food tax could prevent obesity and diabetes, and lead to a reduction in the consumption of junk food. Junk food tax reduces energy intake and improves health outcome.
- Junk food tax is an effective intervention to save health care costs and bring about economic benefits indirectly. Revenues raised from junk food tax can be used to promote health care fund or education about healthy eating.
- A sugar tax creates an incentive for food manufacturers to supply alternatives which are healthier.
- Higher fast food price results in the fall in demand. The market share of the fast food industry would decline. Junk food tax increases the burden of low-income people.
- Junk food tax increases the financial burden of poor people. It cannot solve the root issues of obesity. People can still eat unhealthy food without taxes. How to define junk food is also an issue.
- Junk food tax imposes costs to the fast food industry and workers may lose their jobs. Although the fast food tax policy could be effective in reducing the consumption of fast food, it could not reduce the socio-economic inequalities related to diet-related health.
- The government should cultivate people’s awareness of a healthy diet and let them know junk food is harmful to their health, encourage people to replace junk food with healthier substitutes.
- The government should supervise food manufacturers to add fewer additives, sugar or salt. The government should award food manufacturers who produce whole food.
- The government should use the revenue from the tax on junk food to subsidize healthy food and reduce the financial burden on disadvantaged people.
- Before the implementation of the junk food tax, it must be clear what kind of food need to be included in the tax. The government could set up a special institution to classify the junk food.
- The junk food tax is not the only solution to health issues. The government should advocate people do regular exercise and keep adequate sleep.
- Alasdair, G. (2016). Implications of a sugar tax in New Zealand: Incidence and effectiveness. Retrieved from https://treasury.govt.nz/sites/default/files/2017-01/twp16-09.pdf
- Cobiac, L. J., Tam, K., Veerman, L., & Blakely, T. (2017). Taxes and Subsidies for improving diet and population health in Australia: A cost-effectiveness modelling study. https://doi.org/10.1371/journal.pmed.1002232
- Ketchell, M. (2017). Taxing sugary drinks would boost productivity, not just health. Retrieved from https://theconversation.com/taxing-sugary-drinks-would-boost-productivity-not-just-health-79410
- Lombardo, C. (2015). Pros and cons of fat tax. Retrieved from http://visionlaunch.com/pros-and-cons-of-fat-tax/
- Marron, D. (2015). Should governments tax unhealthy foods and drinks. Retrieved from https://www.forbes.com/sites/beltway/2015/12/14/should-governments-tax-unhealthy-foods-and-drinks/#30a87d6326fb
- US junk food tax is feasible. (2018). Consumer Health, 36(4), 1-2.
- Pettinger, T. (2017). Sugar tax debate. Retrieved from https://www.economicshelp.org/blog/14884/economics/sugar-tax-debate/
- Wilson, P., & Hogan, S. (2017). Sugar taxes: A review of the evidence. Retrieved from https://nzier.org.nz/static/media/filer_public/f4/21/f421971a-27e8-4cb0-a8fc-95bc30ceda4e/sugar_tax_report.pdf
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