Question

The Australian Medical Association has proposed a national tax on sugar. A consumer advocacy group “Choice & Protection” is considering the position it should take on the tax proposal, and has commissioned you to prepare a report. Your terms of reference are: “Provide a brief background on the rationale for the tax proposal and assess likely implications of a tax on sugar, including on: Sugar consumption; Consumer wellbeing (utility); Potential impacts for different income groups; Sugar production and the production and price of goods for which sugar is an input. Based on the assessment, provide a recommendation on whether Choice & Protection should support or oppose the tax proposal.”

Answer 1

Sugar tax is also known as the fat tax. It is aimed at encouraging healthy practices in society but it has both pros and cons.

Sugar consumption; imposition of tax on sugar products would lead to rise in prices. Price rise would cause drop in consumption of sugar related products. In other words, people are likely to reduce intake of sugar products.

Consumer wellbeing (utility); sugar has strong negative implications for well being of consumers. Excessive intake may result into various undesirable health consequences for consumers. Hence, it intake should be reduced to make consumers healthy and active.

Potential impacts for different income groups; It is estimated that lower income group is likely to suffer more from such tax. Lower income group people spend large portion of their income in consumer goods. Hence, marginal utility of money is higher for such people. Conversely, rich class would not feel pinch of rise in price of sugar products.

Sugar production: Fall in demand for sugar product will definitely cause drop in production of sugar production and it may not be denied that some people may lose their jobs in this sector.

price of goods for which sugar is an input: such goods also will witness rise in their prices and demand for such good would drop down.

Sugar tax has both positives as well as negatives. But its positive outweighs its negatives. Government can reduce consumption of unhealthy goods and firms also would be incentivized to produce healthy products. Tax would help to equate price with social cost of production. Revenue collected through tax can be utilized for improving health of public.

We should support such initiatives.