Why the government should tax unhealthy foods and subsidise nutritious ones

In an Australian study published today, we show that if the government were to combine taxes and subsidies on a range of foods and beverages, it could substantially improve the health of Australians and potentially free up billions in health care spending.

In the past five years, no fewer than 13 countries have announced new taxes on sugary drinks or unhealthy foods to address the enormous and growing burden of obesity and its associated chronic diseases.

So far, the Australian government has remained steadfastly quiet, so we thought we might help with some facts.

We spend A$4 billion every year on health care associated with obesity in Australia. Successive federal governments have invested in programs to motivate people to shape up and eat better, such as “Get Moving” and “Go for 2 and 5”. But rising obesity rates suggest this is not enough. Especially in the face of powerful food industry marketing and an environment where unhealthy foods are widely and cheaply available.

By tweaking the prices of foods and drinks, to make healthy options more affordable relative to the less healthy products, we can influence what people will buy.

Will it work?

There are precedents. In Australia we have raised the price of cigarettes and smoking has gone down, and we have raised the price of alcoholic drinks and consumption has gone down.

Mexico’s sales of unhealthy foods have fallen a year after introducing an 8% tax on these foods, compared with no change in sales of un-taxed foods.

By taxing unhealthy food components (saturated fats, excess salt, sugars) and subsidising healthy foods (fruits and vegetables) we aim to tip the pricing structure in favour of choosing healthier options. It can also provide an incentive to processed food manufacturers to improve the nutritional profile of their products.

Eating foods high in saturated fats, salt and sugar can lead to high blood pressure and obesity, which puts people at risk of diseases such as heart disease, type 2 diabetes and cancer.

How would Australia benefit?

In our study we modelled the effects of adding a tax to foods based on saturated fat, salt and sugar content, adding a tax on sugar-sweetened beverages, and placing a subsidy on fruits and vegetables. The policies were designed to have less than a 1% impact on average household food and drink expenditure.

We found over the lifetime of our Australian population of 22 million (that’s how many there were at the start of our simulations in 2010), we would gain an estimated 470,000 disability-adjusted life years (DALYs; meaning an extra year of life in perfect health) with the combination of taxes and subsidy.

That is a gain of 2.1 years of healthy life for every 100 Australians alive in 2010. Few other public health interventions could deliver such health gains on average across the whole population.

Taxing sugar produced the largest benefits (270,000 DALYs) followed by the salt tax (130,000 DALYs), saturated fat tax (97,000 DALYs) and sugar-sweetened beverage tax (12,000 DALYs). The subsidy on fruits and vegetables provided additional health benefits (6000 DALYs) when added to the combination of taxes, but did not show a clear benefit when implemented on its own.

Our simulations suggested the combination of taxes and subsidy could avert A$3.4 billion in healthcare spending over the population’s lifetime. And the benefits would be even greater if the food industry responded by reformulating products to have healthier levels of fats, salt and sugars.

Simulation studies, such as ours, do have uncertainty. For example, we are reliant on other research estimating the responsiveness of the public to changes in food prices. But simulation modelling is the only way to explore what might happen to the population in the medium to long term with the policy choices we make today.

This study adds to a growing body of evidence showing large health benefits and cost-effectiveness of using taxes and regulations to influence consumption of healthy foods.

What next?

Many Australians want to lose weight, eat better and move more. And we want our children to grow into healthy adults.

But we need policies that will support people to sustain their behaviour changes. Over recent decades, Australians have become far more responsible around smoking, drinking and driving, safe sex and sun exposure, because the environment has been changed to make those healthier choices easier.

Australia knows how to support people in taking personal responsibility, and we can do it for the biggest health problem we are currently facing - unhealthy diets. We need policies in place to address the environment that fuels the obesity epidemic.

The Medical Colleges of Australia have taken the government to task for inaction on obesity, and called for a six-point action plan – including a sugary drinks tax. Our study adds impetus to this call. And while this is implemented, we need research and planning around a wider system of taxes and subsidies.

Linda Cobiac has received funding from the National Health and Medical Research Council, the Health Research Council of New Zealand, VicHealth, the Queensland Government, the Richmond Group of Charities (UK) and Department for Environment, Food and Rural Affairs (UK)

Lennert Veerman has received funding from the National Health and Medical Research Council, the Australian Research Council, the Cancer Council Victoria, the World Bank, and various universities and governmental sources.

Tony Blakely has received funding from the Health Research Council of New Zealand, New Zealand Ministry of Business, Innovation and Employment and the New Zealand Ministry of Health.