A sweet escape

Losing their fizz: Had the proposed sugar tax gone ahead, soft drinks would now cost shoppers 20c more per bottle

Making a splash: Shoppers spent €7.7 million more on soft drinks as they made the most of the summer holidays, Kantar reports

Although Budget 2013 thankfully excluded a ‘sugar tax' on soft drinks, the issue remains "under review". Gillian Hamill looks at the potential consequences of adopting discriminatory taxation measures

News

18 December 2012

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A taxing question: The facts and figures

• Had the new sugar tax made it into Budget 2013, the measure was expected to take the form of a 10% hike in excise duty
• A 10% excise increase would have raised the price of soft drinks by up to 20c a bottle
• Sugary soft drinks already carry a VAT rate of 23%, while bottled water and milk do not attract any VAT rate
• The Danish government has agreed to abolish its fat tax and cancel the planned sugar tax
• Obesity levels in Ireland are rising, with one in four Irish adults now classified as obese
• Over the past ten years, the sale of regular soft drinks has declined by 19%. However the sales of ‘low-cal’ and ‘no-cal’ have increased by 36% and the sales of bottled water have increased by 46%
• The Danish government now has a €170 million gap in its budget for next year following the withdrawal of the fat tax, according to Shane Dempsey, head of consumer foods at IBEC’s Food and Drink Industry Ireland (FDII)
• Regular soft drinks account for 3.6% of caloric intake for the 40% of the population who consume these products
• 60% of the Irish population do not consume regular soft drinks
• 3,655 people are directly employed in the non-alcoholic-beverages sector, while 3,045 jobs provide indirect employment*
• The soft-drinks industry spends €106.5 million every year on the purchase of Irish goods and services. Its annual expenditure on capital investment amounts to €32.5 million, with payroll costs of €106.8 million*
*(Source: 2010 survey of Beverage Council of Ireland members)

While Budget 2013 delivered several causes for concern amongst the nation’s retailers, one area which allowed them to breathe a sigh of relief, was that the ‘sugar tax’ proposed by the Department of Health failed to materialise. According to Minister for Health James Reilly, Finance Minister Michael Noonan refused to sanction the tax.

This is despite the fact that Dr Reilly told the Seanad last year he believed a sugar tax on sweetened drinks could raise an extra €50 million for the Exchequer annually and help combat the country’s rising obesity epidemic.

23% VAT rate already applies

Yet in what could be viewed as a veritable coup for common sense, Noonan ruled out the move on the grounds that sugary drinks already carried a VAT rate of 23%, while neither bottled water nor milk attract any VAT. Importantly however, it would be a mistake to think that the possibility of a sugar tax has now been completely taken off the table. Dr Reilly added that the use of a sugar tax would be kept under review.

The plan originally proposed by Dr Reilly, as set out in a report by the Institute of Public Health, would have had significant ramifications for retailers. The tax, had it made the cut into the Finance Minister’s foreboding Budget speech, would have added a 10% hike in excise duty on to soft drinks, causing them to rise in price by up to 20 cents a bottle. Accordingly, a bottle of lemonade costing €2 without tax, presently already costs €2.46 once the 23% VAT rate is added on. A further 10% in excise would add another 20c to the cost at the till, meaning shoppers would have ended up paying €2.66 for the same bottle. Due to customers increasingly searching for value as a result of their straightened finances, there were fears in some quarters that retailers could end up absorbing this extra tax which would obviously have exerted a major impact on margins.

Losing their fizz: Had the proposed sugar tax gone ahead, soft drinks would now cost shoppers 20c more per bottle

Disputing the soft drinks link

The wisdom of singling out soft drinks in the fight against the country’s rising obesity levels has also been questioned. Declan Jackson, head of communications at the Beverage Council of Ireland (BCI), told ShelfLife: "Obesity is caused by a myriad of factors and I think there is absolute consensus both nationally and internationally in relation to that. We would dispute the cause and effect link between soft drinks and rising obesity.

"To support this view, we would actually cite our own industry data. Over the last ten years, the rise in rates of obesity has been quite marked in Ireland, yet the sale of regular soft drinks has declined by 19%. The sales of ‘low-cal’ and ‘no-cal’ have increased by 36% and the sales of bottled water have increased by 46%."

Even the secretary of the Irish Dental Association (IDA), Michael Crowe, disputed the merits of sugar taxation. The organisation said that because 60% of the population does not consume soft drinks, any measure aimed at taxing them would target a minority group. Such a tax would also have a disproportionate effect on lower income households, it claimed. Unsurprisingly however, if the tax had gone ahead, the IDA did say that some of the money raised should have been used to improve oral healthcare.

Obesity a multi-factorial problem

According to Jackson, a more holistic approach should be taken in regards to the country’s obesity epidemic, whereby one in four Irish adults are currently classified as obese. "We have to look at obesity in relation to energy that’s taken in and energy that is burnt and particularly in that respect, it’s an amazing statistic that more secondary school girls drive themselves to school than actually cycle to school so I think we have to look at changing lifestyles and rather than looking at individual products, we have to look at lifestyles in general, we have to look at education. We have to drive towards a balanced diet. As Professor John Crown said at the Joint Oireachtas Committee, no food is safe when taken in excess and no food is dangerous when taken in moderation so I think a balanced diet is very important."

This is a view shared by the IBEC group’s Food and Drink Industry Ireland (FDII) director, Paul Kelly, who said: "The Irish food and drink industry is fully committed to playing its role in helping to tackle obesity and other relevant public health issues. However, the obesity issue will not be resolved by taxation or other forms of discriminatory legislation aimed at individual food categories. An evidence based holistic approach is necessary, which should include measures such as reformulation, consumer awareness, the promotion of physical activity, and workplace and school well-being programmes."

ShelfLife also spoke to Dr Catherine Logan, nutrition manager with the National Dairy Council (NDC) who held a similar view. "Obesity has no one cause so there’s no one solution. It’s a multi-factorial problem and a lot of these factors are created by the environment which we live in so what we have to do is identify what these reasons are and address them appropriately…Food intake is one side of the equation, let’s look and see how we can increase energy expenditure, increase choices for the consumers, education, clear labelling on food products so the consumer knows what products they’re choosing; it will definitely involve a societal change."

Danish fat tax failure

The experience of other countries in their efforts to solve rising obesity levels could provide useful guidance for Ireland. France has led the way with a sugar tax, and has applied higher rates to drinks and fruit juices with added sugar. However in a world first, the Danish government has announced that it will scrap the fat tax it introduced a little over a year ago. The prime reasons behind the move were that not only had the tax proved costly, it had also resolutely failed to change people’s eating habits.

In a statement, the Danish Tax Ministry said: "The fat tax and the extension of the chocolate tax – the so-called sugar tax – has been criticised for increasing prices for the public, increasing companies’ administrative costs and putting Danish jobs at risk.
"At the same time it is believed that the fat tax has, to a lesser extent, contributed to Danes travelling across the border to make purchases.

"Against this background, the government and the Red Green Party have agreed to abolish the fat tax and cancel the planned sugar tax."

Learning lessons from Denmark

Jackson believes many of the difficulties experienced in Denmark are also pertinent within an Irish context. "If you look at the issues in relation to Denmark, for example cross-border trade, and the substitution of products, these issues hold true here in Ireland and they are issues that we should be very mindful of. We also think that taxation is too narrow a measure to bring about substantive change in relation to this problem."

Dr Logan likewise agrees that we should learn from the experiences of Denmark and elsewhere. "Discriminatory taxes are a relatively new phenomenon and it’s important to learn from the successes and failures and evaluate their relevance to our country. When you look at some of the issues that were reported in Denmark, they certainly are relevant to Ireland. For example, some of the reasons why the fat tax was scrapped and the sugar tax was abandoned were because of the increasing prices, increasing costs of companies, job risks, and cross-border shopping, so these issues are hugely relevant to Ireland, given the current economic situation.

"In addition to that, the aim of a tax in Ireland has been cited to address obesity and to raise revenue, so if you look at the first point, addressing obesity, in Denmark they’ve also reported that the tax failed to have an impact on people’s eating behaviours so we’ve also got to bear that in mind. I’d be very much in favour of actually looking at what other countries have done, their experience of what’s worked, why it’s worked, is that relevant to Ireland and then we can take on board those points."

A particularly worrying aspect of any mooted sugar or fat tax would be its potential impact on jobs. "In terms of projected sales, if you actually look at what happened across Denmark, it had amazing effects, unforeseen effects in how it drove patterns of behaviour so we think that you have to be very careful before intervening in a market," adds Jackson.

Fully utilising our research resources

Now that the immediate threat of a sugar tax has passed though, it appears that the best way forward would be for Ireland to fully utilise the research that we have already collected to help develop the best possible solution to the obesity epidemic. "I think what we have to do is use the evidence that we have here in Ireland," says Dr Logan. "We do have a lot of well-respected research, a lot of databases and we have to see whether or not fat, sugar, saturated fat, fizzy drinks, are actually contributing to obesity, and what else is contributing to this obesity epidemic that we’re seeing. We then have to implement the appropriate intervention to tackle the problem."

While for the moment, the possibility of a sugar and/or fat tax has been placed on the backburner, it is clear that potent arguments against the measure in favour of a more rounded approach, would leave a sour taste in industry’s mouth, were the idea to ever be resurrected.

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