With regard to the proposed tax on sugar-sweetened beverages, I went through the exercise of trying to form an educated opinion, trawling through reports, articles and international case studies.
It’s difficult to separate fact from fiction - especially when most articles in South Africa’s leading print media are written by, or are based on those written by - representatives of the Coca-Cola Company, the Beverage Association of South Africa (BevSA) and the bottling operation of Coca-Cola and SABMiller. The government has been weak in providing substantial evidence to bring clarity to the matter.
The SA Revenue Service (Sars) has proposed to place a tax on sugar-sweetened beverages from April 1. It wants to apply a levy of 2.29 cents per gram of sugar, which results in an effective 20 percent tax. The stated objective is to improve health: 40 percent of men and 70 percent of women in South Africa are overweight.
BevSA - using a study done by Oxford Economics - claims the tax will cost the economy R14 billion, or 0.4 percent of gross domestic product (GDP), possibly pushing the economy into recession. They predict that up to 15 000 informal stores could close down and that between 62 000 and 72 000 jobs will be lost. Coca-Cola Beverages Africa - the bottling joint venture between Coca-Cola and SABMiller - claims that its volumes will drop 25 percent and its profits by more than half.
Intuitively these numbers seem ridiculous and speak more of a lack of adaptability and creativity of beverage suppliers than the irresponsibility of a sugar tax. In total, agriculture contributes 2.2 percent of South Africa’s GDP - it is unlikely that a mere 20-percent tax on soft drinks could cost the economy nearly a fifth of that.
The industry predictions take an all-or-nothing approach and do not communicate the possibility of adaptation of production or supply. The tax is cleverly applied on a per gram basis, incentivising producers to innovate and create soft drinks less reliant on sugar or expand the sales of their other product lines. Informal stores are likely to adapt accordingly.
Adaptation
But as narrow and short-sighted as the industry claims are, policies should not be supported or opposed based on intuitions and assumptions, and more rigorous study of the economic and behavioural impact of a sugar tax is needed.
Independent studies that are available focus mostly on the impact on obesity. Frans Cronje, the chief executive of the SA Institute for Race Relations, concludes that the tax would make a negligible difference to obesity. Sugar-sweetened drinks only contribute 3 percent of the total calorie intake of South Africans and calorie-related health problems arise mostly from poor eating habits.
A study done by KPMG confirms that sugar taxes do not result in significant decreases in obesity. However, it does mention other health benefits.
Diabetes is the fifth highest cause of natural deaths in South Africa and KPMG estimates that a 20 percent tax on sugary beverages will save the health system R10bn in type 2 diabetes-related costs over the next 10 years.
The report estimates that Sars will be able to collect a maximum of R2.17bn and not the R11bn it claims. KPMG also warns that as poor households spend a higher proportion of their income on consumer goods, the tax will hurt them more than wealthier households.
Trade and Industrial Policy Strategies (TIPS) - a research organisation that facilitates policy development - counters this, saying that the poor will quickly substitute for other goods and that they will benefit most from reduced health problems.
TIPS claims that the increased demand for substitutes, such as water or fruit juice, will offset job losses in sugar-sweetened beverages. But again, this is exaggerated speculation. A one-for-one substitution is near impossible, as some consumers will choose to spend on other goods - such as sweets, food or airtime - or they may simply choose not to spend at all. The behavioural outcome is not yet known.
In the melee of biased information and subjective studies, even informed opinions are dubious. The only thing we can do as consumers and voters is to not play second fiddle to the voice that shouts the loudest and ask for proper reference before equating claims to facts.
* Pierre Heistein is the instructor of UCT’s Applied Economics for Smart Decision Making course. Follow him on Twitter @PierreHeistein.
* The views expressed here do not necessarily reflect those of Independent Media.
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