The problems with the sugar tax

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This year’s budget speech saw the expected increases of so-called ‘sin taxes’; these being an easy way for government to bring a bit extra into the kitty. It seems as though the sugar tax is fast becoming another easy money-making measure, but these tax increases have a much wider effect on the economy, according to experts.

The sugar tax idea, championed by health minister Aaron Motsoaledi, was implemented in April 2018. It was introduced to dampen consumption of sugary beverages, ostensibly with the aim of improving the health of South Africans. By end-December the tax, which was fixed at 2.1c/g of sugar content exceeding 4g/100ml, had raised R2.3-billion in revenue for the fiscus. 

Industry experts say the impact of the tax on health issues such as obesity has been minimal at best, and that it is putting extra pressure on an already strained industry. SA Cane Growers’ Association chair Graeme Stainbank says that the sugar tax has dealt a huge blow to an industry struggling with the impact of drought, plunging sugar prices and weak protection against cheap imports.

He notes that the sugar industry repeatedly warned the government about diminishing revenue and job losses should the sugary beverages tax be introduced. There is little evidence that the tax has had any discernible impact on public health, he says.

“We believe the impact of the sugar tax on the obesity epidemic has been minimal. This is because obesity is a multifaceted problem with many causes, including increasingly sedentary lifestyles and a growing reliance on cheap and highly calorific junk food. The sugar tax’s positive impact on obesity is questionable, but its negative impact on the economy and jobs is certain. And while it may bring in tax revenue, this comes at a huge cost to the industry and those employed by it,” Stainbank says.

Martin van Staden, legal researcher at the Free Market Foundation, agrees. “The Free Market Foundation (FMF) noted in 2017 that, for a change, trade unions and the FMF were of one mind about something: that the sugar tax posed a threat to the employment of several thousand people across South Africa. We hoped this alone would be an indication to government – when organised labour and the free market lobby both disagree with a policy – that it must abandon the introduction of the tax. In its usual, unresponsive fashion, government pressed ahead,” he wrote in a column.

The Sunday Tribune reports that as many as 350 000 jobs are at stake in the industries reliant on sugar. Coca-Cola South Africa says it may need to shed up to 1 000 employees. To a greater or lesser extent, the sugar tax that government instituted, is fingered as a culprit in this tragedy, van Staden says.

He adds that at the same time as the tax was implemented, the brands associated with Coca-Cola reduced the size of their offerings from 330 ml to 300 ml with no real reduction in price. This, he says, has led to a lower demand for these products, leading to an even greater likelihood of job losses at the company.

He argues that not only is taxing sugar and other so-called ‘sinful products’ all about government’s appetite to raise revenue by any means possible, but is also “blatant elitist discrimination against the poor who are being effectively prohibited from having a sweet tooth”. In simple terms, poor people who earn only R3 500 per month pay more, relative to their income, in sugar taxes on a can of Coke, than do those who earn R20 000 per month,” van Staden says.

While the industry has once again called for the tax to be abolished, Finance Minister Tito Mboweni’s latest budget proves that the revenue generated from it is worth far too much for this to be an easy decision for government. Whether it was really introduced with the health of South Africans in mind or not, the sugar tax has become a vital revenue stream government will not soon let go of.