Taxing, yes, but taxing well

A tax on sugary drinks is effective in reducing consumption, provided it is clearly visible when purchased, say researchers from the Research Chair in Taxation and Public Finance at the University of Sherbrooke

We have been talking about taxing sugary drinks in Quebec for a very long time. So long that several countries and territories have in the meantime implemented such measures. In Canada, Newfoundland and Labrador is the first province to impose such a tax since 1^er last September.

Others do…

Since the mid-2010s, the states that have imposed a tax on sugary drinks have added up. Hungary was the forerunner and its tax measure seems to be bearing fruit. “The tax was associated with a 10% reduction in demand for soft drinks and a 4% decrease in demand for juice with added sugar, between 2011 and 2013 », we learn from the study published on Monday, the aim of which was to synthesize the economic research carried out following these international initiatives.

In France, there is talk of a reduction of more than 15% in the consumption of soft drinks since the introduction of a 9.7% contribution on sugary non-alcoholic drinks in 2012. Mexico, Chile, the Kingdom United Kingdom and several other territories have also opted for a system of taxation of sugary drinks in the last decade.

In particular, the authors wanted to see how, fiscally speaking, the imposition of such a tax could be possible in the Canadian context. “How could it be here?” asks Antoine Genest-Grégoire, doctoral candidate at Carleton University, co-author of the research, who reminds us that Canada now has an example to observe.

Residents of Newfoundland and Labrador have had to pay a tax of $0.20 per liter for their sugary drinks for three months.

Does it works ?

It is therefore too early to draw conclusions from this first Canadian experience.

The Quebec researchers conclude, however, that a tax on sugary drinks is effective, because the other experiments in progress show that people buy less of them. “It’s in line with what we expect, specifies Antoine Genest-Grégoire.

Interesting fact: in the United States, Cook County, Illinois, imposed its tax on “sodas” in 2017 with an added cent per ounce of sugary drink, which corresponds to an increase of almost 29%. The measure only remained in effect for four months, before being abolished, but during this short period of time, there was “a 25.7% drop in the volumes of targeted drinks purchased”.

When the tax was lifted, consumption returned to what it was four months earlier.

Show purchase price

For consumers to decide not to choose soda or other artificially sweetened juices, they must see the total price, including tax, when buying the product, insists Tommy Gagné-Dubé, researcher at the Research Chair in taxation and public finance. It is not only the amount of the tax that is important, he explains, the way it is designed too. “It has to show when the customer makes his choice,” says this professor at the University of Sherbrooke. If it’s like the QST at the checkout, the effect won’t be there at all. »

“The way it’s designed in Newfoundland, and as it would be if the provinces do it, it has to be the consumer who pays,” continues Professor Gagné-Dubé. It is provided for in the law, otherwise it would become an indirect tax and only the federal government can impose it under the Constitution. »

Movement within the industry

The big sugary drink manufacturers are unlikely to applaud the imposition of a tax on their products. On the other hand, they could emphasize their products which escape the tax, because less or not artificially sweetened.

According to the researchers, that is also part of the objectives: to change the behavior of taxpayers, certainly, but also that of manufacturers so that they focus on products that are less harmful to health. Large manufacturers could also reformulate some of their drinks to avoid the tax.

A provincial responsibility

As this tax has public health objectives, it is therefore the provinces that must impose it, specifies the study.

The principle is not so much to collect revenue, but to change behavior, also specifies Luc Godbout, professor at the University of Sherbrooke and principal researcher in public finance at the Research Chair in Taxation and Public Finance. Luc Godbout looked into the matter in 2014-2015 when he chaired the Québec Taxation Review Committee. Already at the time, the idea of ​​reinvesting the revenue from the tax in sectors to directly fight against obesity was mentioned.

“Revenue from a tax aimed at changing behavior can be used directly to finance public expenditure also linked to the objective of such a tax. The payment of amounts drawn from the Quebec carbon market into a fund used to finance the electrification of transportation and the fight against [contre les] climate change responds to this logic, as does the fact that the sums raised by the taxation of cannabis are dedicated to a fund for the prevention of the harmful consequences of the consumption of this product, ”we can read in this new report.

The authors have adopted the INSPQ definition of “sweetened drink” which therefore includes “non-alcoholic beverages, whether carbonated or not, containing added sugars. More specifically, they mainly include soft drinks, fruit drinks, tea and coffee (ready-to-serve) as well as sports drinks and energy drinks that contain added sugar”.