The skinny on fat taxes

Tax fatty foods and people won’t get fat. Could it really be as simple as that? Of course not, but it’s a start. Two thirds of Australians are overweight or obese, making us one of the fattest nations on earth. We’re not alone.

As the global obesity epidemic grows, public policy makers are increasingly wondering what the government can do to shrink the world’s waistband. From next week [this article appeared October 8], the Danish government will impose a tax of about $3 for every kilogram of saturated fat in all foods containing more than 2.3 per cent saturated fat, including butter, milk, cheese, oils, meats and pre-cooked and processed foods.

By increasing the price of fatty foods, the tax is designed to discourage consumption and production of those foods, helping to curb obesity, which is caused when people consume more calories a day than they expend, leading the body to store the resulting energy surplus as fat.

There is little doubt higher prices will reduce demand for such foods. By how much depends largely on consumer’s responsiveness to price changes which, in turn, depends on the availability of cheaper, healthy substitutes, like low-fat milk and healthy pre-cooked meals.

Opponents of a fat tax – the food industry is the most vocal among them – argue a fat tax is unfair because it penalises low-income people the most. But this targeting is quite deliberate, because obesity is more prevalent among low-income populations.

What matters for fairness is whether these people are able to change their eating patterns to avoid the tax – which is the goal, after all. While our demand for food, as a whole, is largely price inelastic – we have to eat, no matter the cost – we do, in theory, have a greater choice about what foods we eat. For example, when the price of bananas rises, we switch to apples or other foods. If we are concerned about alternatives, revenue from a fat tax could be used to subsidise healthier options like fruit and vegetables.

But do people consume fatty foods because they are too cheap, or because we have lost the knowledge and ability to cook fresh, healthy meals? If it is the cheapness of these foods that leads to over-consumption, we can expect a fat tax to curb it.

But if it is a lack of awareness and knowledge that leads to over-consumption of these goods, other measures will be needed. Complementary measures to reduce demand for fatty foods include better food and nutrition labelling, more education on dietary needs and bans on advertising junk food. By lowering demand, such measures also reduce the quantity consumed.

Clearly, calories consumed are only part of the reason for increasing obesity. We are also expending fewer calories a day through a more sedentary lifestyle. A clever economist could, perhaps, also design a tax on people who do not not meet the minimum recommended exercise levels each day. In fact, the only reason the government should be concerned about obesity is because, through higher public health costs and lost productivity, it imposes a cost on society that is not borne entirely by the obese person (a ”negative externality”, in the lingo).

Again, a harsh economist might point out it is fat people, not fatty foods, that are the real target here, and suggest overweight people be directly taxed at a higher rate. Or obese people could be excluded from subsidised healthcare for weight-related diseases, such as diabetes and heart disease.

Economists have plenty of blunt instruments at hand to curb obesity. A tax on fatty foods is one of the more palatable options.

This entry was posted in Fitness, Health, Irvine Index, Tax. Bookmark the permalink.

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