Health benefits of proposed sugar tax outweighed by impact on consumers, jobs, study finds

A proposed sugar tax that would extend to drinks using sugar substitutes could impose far greater economic costs than health benefits, a recent Seoul National University study found.

The annual benefits from reducing obesity and other diseases were estimated at 4.4 billion won to 10.4 billion won ($3.25 million to $7.7 million), while the negative impact on related industries could be as much as 126.1 billion won. Consumer benefits could also fall by as much as 195.4 billion won due to higher prices.

The findings come from a report the JoongAng Ilbo obtained on Tuesday from a research team led by Hong Sok-chul, an economics professor at Seoul National University.

A sugar tax emerged as a policy issue after President Lee Jae Myung raised the idea on social media in January. The proposal spilled over to zero-sugar beverages that contain substitutes.

The report, commissioned at the request of the Asia Pacific Regional Group under the International Council of Beverages Associations, is the first to quantify potential health benefits against the costs to consumers, businesses and jobs.

The study compared the expected costs and benefits of three proposals: two sugar tax bills currently pending in the National Assembly that were introduced by Rebuilding Korea Party Rep. Kim Sun-min and Democratic Party (DP) Rep. Lee Soo-jin, and a third proposal presented at a forum hosted by DP Rep. Kim Yoon in June. DP Rep. Kim also proposed a sugar tax on drinks with sugar substitutes.

The health payoff would be relatively small. Assuming a moderate policy effect, the study estimated annual health benefits at 4.4 billion won to 10.4 billion won, or just 4.3 percent to 7.2 percent of the tax revenue expected from the levy.

The researchers used national health data from the Korea Disease Control and Prevention Agency to put a value on the potential gains from drinking fewer sugary beverages. Their estimates captured not only medical savings from lower rates of obesity, diabetes and other diseases, but also indirect benefits, such as productivity gains and reduced costs from premature deaths and caregiving.

Even under the most optimistic assumptions, annual health benefits reached only 20.5 billion won to 33 billion won.

“Sugar intake from sugar-sweetened beverages has declined in recent years, while adult obesity rates have risen over the same period,” Hong said. “We found that the health benefits would be limited because the levy is unlikely to reduce sugar consumption substantially and there is weak statistical evidence that sugar-sweetened beverages significantly increase the risk of obesity and diabetes.”

By contrast, the economic costs were more pronounced. If the levy reduces the consumption of sugar-sweetened beverages, the impact on related industries could amount to a decrease of 60.4 billion won to 126.1 billion won, while employment could decline by 889 to 1,854 jobs.

The levy could push beverage prices up by 1.07 percent to 5.58 percent, depending on the product. The estimate assumes producers pass 82 percent of the tax on to consumers, based on overseas cases.

The price increases could cost consumers 50.7 billion won to 195.4 billion won a year in lost “consumer surplus,” an economic measure that combines the extra amount consumers pay as prices rise and the benefits they lose when higher prices lead them to forgo purchases.

The researchers put the ratio of health benefits-to-social and economic costs at just 0.04 to 0.09, which effectively concluded that the levy had little economic justification. For every 100 won in costs from higher prices, job losses and other effects, the public would gain only 4 won to 9 won in health benefits.

The researchers also accounted for the possibility that consumers would replace sugar-sweetened beverages with other sugary products to avoid higher prices. This substitution effect could cut the projected health benefits by as much as 56 percent. If 60 percent of sugar-sweetened beverage consumption shifts to other high-sugar products, annual health benefits would shrink from 10.4 billion won to 4.5 billion won as sugar consumption increases again.

Given that consumption of sugar-sweetened beverages has been falling even without a levy, the researchers said policymakers should emphasize alternatives that do not rely on price increases. These could include research and development support for companies that voluntarily develop lower-sugar products, more detailed nutrition labels that let consumers compare sugar content as well as greater assistance for vulnerable groups to buy fresh food.

BY NAM SOO-HYOUN [[email protected]]