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Treasury says there’s sloppy analysis on sin taxes. We agree.

Last week The New Zealand Initiative released The Health of the State, our report on public health and lifestyle regulations. You may have caught some of the media coverage on it.

While the report has a bunch of key messages that I think are important, here’s the one I found most valuable during the course of this research: don’t rely on media coverage or press releases alone. Read the report. And even then, read the whole report, not just the abstract and conclusion. It’s amazing, and incredibly rewarding, discovering studies – evenly highly regarded studies – aren’t all that they seem.

Outcomes from the panel discussion

To launch the report, we held a panel discussion where I spoke alongside The Treasury’s Chief Economist and Deputy Secretary Dr Girol Karacaoglu, Maori Party co-leader Marama Fox, and Institute for Economic Affairs Fellow Jamie Whyte. You can watch the full panel discussion here.

What did we learn?

First, we are on the same page as Treasury in concluding that there is little convincing evidence supporting a sugar tax yet. Actually, I’m sugar-coating things (not an intentional pun, but I’m keeping it), here’s what Girol said:

I strongly support evidence-informed policy making and agree with all the warnings in the report regarding arguments based on sloppy evidence around the effectiveness of sin taxes. In that part, certainly, the report is brilliant. There is a lot of self-serving, very sloppy analysis which doesn’t support the introduction of the kind of taxes we’re talking about.

So, the Chief Economist at Treasury is saying there’s a lot of sloppy evidence on this issue. The next quote from Girol is a bit more technical, but may be of use to the policy wonks out there:

Even if the price increase would reduce consumption, it doesn’t flow through and have the ultimate consequence we are talking about which is about changing behaviours on a sustainable basis. Broadly speaking, the empirical analysis seems to suggest that there will be a decrease in consumption in response to a reasonably significant price increase. However, work with the New Zealand Expenditure data tends to confirm international evidence that such a tax could be regressive. Furthermore, low income consumers have a lower elasticity of demand for SSBs, which may accentuate the regressivity of the tax and reduce the effectiveness of the tax in changing consumption behaviour, which is ultimately what we are talking about. Another concern is the potential for consumers to substitute unhealthy but non-taxed products for SSBs leading to negligible health improvements. Weak targeting of high-risk population groups is yet another concern.

Short story? 1)  Simply reducing consumption of the taxed product doesn’t mean the tax will have a sustainable effect on behaviour. 2) Taxes may decrease consumption, but they need to be of high magnitude. 3) Low income people may be less likely to change their behaviour, increasing the risk of regressivity (taxes could hurth the the poor the most). 4) The substitution effect: people could just switch to untaxed, but equally unhealthy products. 5) Taxes are a blunt instrument (they are not targeted to those most in need).

Our report argues much the same.

Other notable areas of overlap from the night: the Maori Party’s support for easing regulation on e-cigarettes (including making nicotine e-liquids available for sale domestically). I put that last statement in bold because I only learnt that on the night, so others may find it surprising too (around 3 mins into this).

And Jamie Whyte, giving a most entertaining and wonderful ode to liberty, even if it was totally politically incorrect.

Some other notes:

  • I think it’s a great so many critics have rubbished the report simply because it’s funded by industry. It makes me think that nobody yet has found significant holes in the actual economic analysis of the report (knock on wood. We’re pretty transparent about who our members are, they’re available on our webpage. Perhaps those who have made the effort to dig up this ‘damning evidence’ will note that our membership is diverse. Some members may agree with the report, others may not. While trawling our website, perhaps these detectives may even discover the founding principles of this think tank. The report is very much in line with those priciples, regardless of who are members are.
  • The report’s argument is that people should be free to make choices about their own health and wellbeing. Obesity and diabetes have terrible consequences for both the individual and their families. But that shouldn’t form the basis of universal, ill-targeted interventions. The case for intervention is even weaker if people knowingly take on risk, by continuing unhealthy activities, even when they’re aware of the consequences. Health is important. But happiness is important too. And governments can’t predict what makes individuals happy.
  • Some notable health authorities have come out in favour of a sugar tax (the World Health Organisation, for example). Here’s the major problem I’ve found with the evidence they’ve cited: They rely on a body of evidence that mixes the good studies with the bad, thus skewing the final conclusions. Our report points out the flaws to look out for in such studies, and finds that some of the studies WHO cites indeed repeat such flaws.
  • Even then, few public health authorities (like WHO) are advocating for sugar taxes alone. Often they are recommended as part of a suite of regulations or initiatives. But if that’s the case, I think that package of interventions needs to be debated as a whole. There’s no point having a national conversation on sugar taxes if even its advocates admit that such regulations will need to be complemented by other policies.
About Jenesa Jeram (23 Articles)
I'm a researcher at the Initiative, currently working on social issues and public health. I have Twitter but I'm not very good at it: @JenesaJeram (I'm also super creative).

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