Tax on Sugary Drinks Will Reduce Consumption

March 3, 2015 Taxation in Australia

CANBERRA – New research from Australia shows that taxing sugar sweetened beverages based on quantity is more effective at reducing consumption than a sales tax based on the price of the drink.

On March 2nd the international journal Health Economics released the results of new research showing that excise taxes levied on sugar sweetened beverages are more effective than a sales tax set at a similar rate, especially among heavy consumers.

The study involved the modelling of the impact of a 20 percent sales tax charged on the sale of soft drinks, against the impact of an AUD 0.20 per liter excise tax, especially among moderate to high drinkers of sugar sweetened beverages.

The researchers found that the excise tax will have a much more significant impact on the consumption of heavy drinkers, as such consumers are more likely to buy larger quantities of sweetened drinks, thereby taking on a greater tax burden than consumers who only purchase such drinks infrequently.

It was noted that even though consumers who drink large quantities of soft drinks have inelastic demand profiles for such products, they are still ultimately constrained by their own budgets, and the implementation of an excise tax will eventually force them to reduce their consumption.

It was also noted that an excise tax will have minimal impact on occasional consumers, while still resulting in flow-on health benefits for high consumers.

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