Elsevier

Health Policy

Volume 121, Issue 6, June 2017, Pages 715-725
Health Policy

The impact on productivity of a hypothetical tax on sugar-sweetened beverages

https://doi.org/10.1016/j.healthpol.2017.04.001Get rights and content

Highlights

  • A 20% tax on sugared sweetened drinks results in large productivity benefits.

  • Productivity gains reached 1.9% of total annual health expenditure in 2010.

  • Lifetime productivity gains in the paid sector amount to AU$751 million.

  • Lifetime productivity gains in the unpaid sector amounted to AU$1172 million.

  • We used an adapted multi-state lifetable Markov model.

Abstract

Objectives

To quantify the potential impact of an additional 20% tax on sugar-sweetened beverages (SSBs) on productivity in Australia.

Methods

We used a multi-state lifetable Markov model to examine the potential impact of an additional 20% tax on SSBs on total lifetime productivity in the paid and unpaid sectors of the economy. The study population consisted of Australians aged 20 years or older in 2010, whose health and other relevant outcomes were modelled over their remaining lifetime.

Results

The SSBs tax was estimated to reduce the number of people with obesity by 1.96% of the entire population (437,000 fewer persons with obesity), and reduce the number of employees with obesity by 317,000 persons. These effects translated into productivity gains in the paid sector of AU$751 million for the working-age population (95% confidence interval: AU$565 million to AU$954 million), using the human capital approach. In the unpaid sector, the potential productivity gains amounted to AU$1172 million (AU$929 million to AU$1435 million) using the replacement cost method. These productivity benefits are in addition to the health benefits of 35,000 life years gained and a reduction in healthcare costs of AU$425 million.

Conclusions

An additional 20% tax on SSBs not only improves health outcomes and reduces healthcare costs, but provides productivity gains in both the paid and unpaid sectors of the economy.

Introduction

Globally, the prevalence of obesity (body mass index (BMI) ≥30 kg/m2) in adults has increased from 3.2% to 10.8% in men and from 6.4% to 14.9% in women over the period from 1975 to 2014 [1]. The combined number of individuals with overweight (BMI ≥25–<30 kg/m2) and obesity has more than doubled over the last 20 years, from 857 million in 1980 to 2.1 billion in 2013 globally [2]. Overweight and obesity increase the risk of many chronic diseases such as type 2 diabetes, stroke, ischemic heart disease, hypertensive heart disease, osteoarthritis and cancers of the breast, colon, endometrium and kidney [3]. Overweight and obesity also increase mortality from various diseases [4]. According to the Global Burden of Disease Study [5], 4.9% of disability-adjusted life years (DALYs) lost worldwide in 2015 were attributable to overweight and obesity.

Given that individual-level interventions have not been able to dampen or reverse the rise in body mass, more ‘upstream’ interventions at the national-level have been put forward [6], [7]. Several leading public health authorities suggest implementing health policies that influence the individual consumer’s choices to help reduce overweight and obesity at the population-level. For example, the World Health Organization (WHO) has recommended the use of fiscal policy levers to encourage healthy lifestyles, i.e., taxation of unhealthy products [8]. Fiscal policies to influence consumer choices and thus obesity have been implemented in Mexico, where a modest tax (approximately 10%) on sugar-sweetened beverages (SSBs) has reduced the amount purchased by 6% in the first year [9]. Denmark, Finland, France and Hungary have also implemented additional taxes on SSBs to address the obesity epidemic [10].

The prevalence of high BMI (overweight and obesity) is also a major public health concern in Australia where the combined prevalence of overweight and obesity in adults rose by 4 percentage points from 57% in 1995 to 61% in 2012, and the prevalence of obesity in adults increased significantly from 19% to 27% over the same period [11], [12] The social and economic losses due to people being overweight and obese are tremendous. For example, Colagiuri et al. [13] estimated that the total direct healthcare expenses of overweight and obesity were AU$10.2 billion in 2005. However, in order to establish the cost of overweight and obesity from a societal perspective, the indirect costs (mainly productivity losses) also need to be considered. Indirect costs have been described as wealth losses to society resulting from diseases and reduced productivity [14]. As a component of indirect costs, the productivity losses are classified either as productivity losses due to premature death or reduced productivity due to people living with disease. Cadilhac et al. [15] estimated that (paid) productivity losses due to high BMI (overweight and obesity) in Australia were approximately AU$877 million over the lifetime. However, overweight and obesity is not only associated with losses in paid work but also in unpaid work. A substantial proportion of human necessities (such as caring, housework, and meal preparation) are satisfied through unpaid labour [16]. In 2006, the Australian Bureau of Statistics (ABS) reported the value of total unpaid household work to be 39.2% of Gross Domestic Product (GDP) and the value of total volunteer and community work to be 4.3% of GDP [17]. These types of unpaid economic activities are important to include when calculating the ‘true’ costs of diseases from the societal perspective because they represent real welfare losses to citizens, even if they are not directly participating in the paid sector of the economy.

Numerous international studies have highlighted the substantial productivity losses due to obesity. In the United States (US), the total indirect costs of obesity were approximately US$37 billion in 2007 [18]. For the European Union, estimates were around € 33 billion (or US$32 billion) for the annual direct and indirect costs due to obesity in 2002 [19]. In Asia, several studies have measured productivity changes due to obesity. The cost of productivity losses due to obesity was estimated to be approximately 7 billion Baht (US$390 million) in Thailand in 2009 [20]. In New Zealand, the productivity losses due to obesity were equivalent to 1.6% of the total healthcare expenditure in 2005 [21].

The aim of this study is to estimate the gains in productivity (paid and unpaid work) that would result from an additional 20% tax on SSBs in Australia.

Section snippets

Methods

In this section, we describe the theoretical framework for the study. Following this, we describe the epidemiological model and methods used in this study, including data and analytical approach.

To quantify the far-reaching impacts of the policy, we took a societal perspective where both the paid and unpaid sectors of the economy were considered. The societal perspective is the most inclusive perspective and generally favoured by economists because it enables societal decision-making

Results

In the following sections, we present the potential productivity gains, health gains, and healthcare costs (savings) due to the additional 20% tax on SSBs. As previously mentioned, the potential health gains and healthcare costs are consistent with the previous study [24]. The novel contributions in our study are estimates of the productivity gains due to the tax.

Discussion

This study has demonstrated that a hypothetical 20% tax on SSBs leads to potential economic benefits of AU$751 million in productivity gains in the paid sector and AU$1172 million in the unpaid sector over the lifetime of the 2010 population of adult Australians. In 2010, Australia’s health expenditure totaled AU$121.4 billion, which was 9.4% of GDP [39]. The total productivity gain over the lifetime due to the modeled SSB tax was equal to 1.9% of total annual health expenditure or 0.2% of GDP

Conclusions

Developing effective health policy to reduce obesity and improve labour participation is a major concern for policymakers in Australia and elsewhere, because of the need to avoid unnecessary economic losses as the population ages. This study added a productivity component to an existing multi-state lifetable Markov model to provide information about the potential productivity impacts of an additional 20% tax on SSBs in Australia, and found that it could generate a significant benefit to society

Conflict of interest

The authors have declared that no competing interests exist.

Acknowledgements

Dr Veerman is supported by funding from the NHMRC Centre for Research Excellence in Obesity Policy and Food Systems (APP1041020).

References (66)

  • W.P. James et al.

    Overweight and obesity (high body mass index)

    (2005)
  • Institute for Health Metrics and Evaluation (IHME)

    GBD Compare Data Visualization

    (2016)
  • M.A. Flynn et al.

    Reducing obesity and related chronic disease risk in children and youth: a synthesis of evidence with ‘best practice’ recommendations

    Obesity Reviews: an Official Journal of the International Association for the Study of Obesity

    (2006)
  • G. Sacks et al.

    Obesity Policy Action framework and analysis grids for a comprehensive policy approach to reducing obesity

    Obesity Reviews: an Official Journal of the International Association for the Study of Obesity

    (2009)
  • World Health Organization(WHO)

    2008–2013 action plan for the global strategy for the prevention and control of noncommunicable diseases

    (2008)
  • M.A. Colchero et al.

    Beverage purchases from stores in Mexico under the excise tax on sugar sweetened beverages: observational study

    BMJ

    (2016)
  • Organisation for Economic Coopera-tion and Development (OECD)

    OECD Obesity Update 2014

    (2015)
  • Australian Institute of Health and Welfare (AIHW)

    Risk factor trends: age patterns in key health risk factors over time. Cat. No. PHE 166

    (2012)
  • Australian Bureau of Statistics (ABS)

    Australian Health Survey: updated results, 2011–2012. ABS Cat. No. 4364.0.55.003

    (2013)
  • S. Colagiuri et al.

    The cost of overweight and obesity in Australia

    Medical Journal of Australia

    (2010)
  • M.A. Koopmanschap et al.

    A practical guide for calculating indirect costs of disease

    Pharmacoeconomics

    (1996)
  • D. Cadilhac et al.

    The health and economic benefits of reducing disease risk factors

    (2009)
  • J. Swiebe

    Unpaid Work and Policy-Making Towards a Broader Perspective of Work and Employment

    (1999)
  • Australian Bureau of Statistics (ABS)

    Spotlight on National Accounts: Unpaid work and the Australian Economy, Cat No. 5202.0

    (2014)
  • J.G. Trogdon et al.

    Indirect costs of obesity: a review of the current literature

    Obesity Reviews: an Official Journal of the International Association for the Study of Obesity

    (2008)
  • J. Fry et al.

    The prevalence and costs of obesity in the EU

    The Proceedings of the Nutrition Society

    (2005)
  • P. Pitayatienanan et al.

    Economic costs of obesity in Thailand: a retrospective cost-of-illness study

    BMC Health Services Research

    (2014)
  • M. Drummond et al.

    Oxford

    Methods for the economic evaluation of health care programmes

    (2005)
  • M. Gold et al.

    Cost-Effectiveness in Health and Medicine

    (1996)
  • J.L. Veerman et al.

    The impact of a tax on sugar-Sweetened beverages on health and health care costs: a modelling study

    PLoS One

    (2016)
  • A.D.M. Briggs et al.

    Overall and income specific effect on prevalence of overweight and obesity of 20% sugar sweetened drink tax in UK: econometric and comparative risk assessment modelling study

    BMJ

    (2013)
  • M. Manyema et al.

    The potential impact of a 20% tax on sugar-sweetened beverages on obesity in South African adults: a mathematical model

    PLoS One

    (2014)
  • J. Bhattacharya et al.

    Health economics

    (2014)
  • Cited by (27)

    • The impact of the Philadelphia beverage tax on employment: A synthetic control analysis

      2021, Economics and Human Biology
      Citation Excerpt :

      Further, consumers may not correctly internalize the costs of their consumption if they are unaware of adverse health consequences or they place greater value on their current satisfaction over future well-being (i.e., time-inconsistent preferences) (Allcott et al., 2019). Modeling studies have shown that SSB taxes can be effective at reducing consumption of SSBs (Thow et al., 2014), as well as provide economic benefits from health-care cost savings (Wilde et al., 2019; Long et al., 2015) and increased productivity (Nomaguchi et al., 2017) by improving health outcomes. Empirical evaluations of sweetened beverage taxes worldwide have shown evidence of decreased sales, purchases, and consumption (Cawley et al., 2019a); in addition, evidence shows net reductions in taxed beverage sales even after accounting for cross-border shopping in local-level jurisdictions (Roberto et al., 2019; Powell and Leider, 2020; Powell et al., 2020).

    • The ethics of excise taxes on sugar-sweetened beverages

      2020, Physiology and Behavior
      Citation Excerpt :

      Lastly, the programs funded by SSB tax revenues may have positive psychosocial outcomes by expanding opportunities for health and education (e.g., nutrition education, universal prekindergarten, parks and recreation opportunities, water availability). Modeling studies predict that SSB taxation will result in sizeable health care cost savings [3,4] and increased productivity by reducing chronic disease. [56] However, public announcements from business owners and industry-sponsored reports have claimed negative economic impacts of the tax, particularly job loss.

    • Explaining resistance to regulatory interventions to prevent obesity and improve nutrition: A case-study of a sugar-sweetened beverages tax in Australia

      2020, Food Policy
      Citation Excerpt :

      Australian modelling of a 20% tax reported reductions in health care expenditure of AUD $609 million and revenue raised in excess of AUD $400 million (Veerman, 2016), while modelling by The Grattan Institute and the Parliamentary Budget Office indicates revenue generation of over $500 million (Duckett et al., 2016; Parliamentary Budget Office, 2016). Total productivity gains in the working-age population have been estimated at AUD $751 million, with potential productivity gains of AUD $1,172 million (Nomaguchi, 2017). Research in Mexico, one of the leading global producers of sugarcane, indicates no significant changes in national unemployment rates post-SSB tax implementation (Guerrero-López et al., 2017).

    View all citing articles on Scopus
    1

    Present address: 1 Jordan Drive off Freetown Road, Freetown, Sierra Leone.

    View full text