How Much Tax Can a Tax Man Tax if a Tax Man Can Tax Fat?

It’s been a big week here in the UK. This week George Osborne dropped the UK’s federal budget. It’s got some interesting points. And one headline (and vote) grabbing new measure.

If the UK budget is anything to go by — and it is — then the Aussie Budget in a couple of months’ time could be just as big.

Whatever happens in the upcoming Aussie Budget, my take is they’ll follow suit with the UK’s most talked about new tax — the ‘sugar tax’

First things first, let’s quickly recap why the ‘sugar tax’ is even a thing.

The World Health Organisation (WHO) regards childhood obesity as one of the most serious and significant global challenges of the 21st century.

Their concerns are just. In the UK the National Child Measurement Program (NCMP) measures the height and weight of around one million schoolkids every year.

Their 2014/15 results were truly shocking. Approximately 19.1% of children aged 10–11 were obese. Around 14.2% were overweight. For kids aged 4–5, 9.1% were obese and 12.8% overweight.

In the UK around one in three kids are obese or overweight. The Australian Institute of Health and Welfare report that 25% of Australian children are obese or overweight. They rate it as a higher burden of disease than smoking.

This is a problem everywhere.

Who do you blame? The food industry?

My view on the childhood obesity epidemic is pretty black and white — and sometimes unpopular. If you underfeed your kid it’s child abuse. If you overfeed them it’s the same. There’s no two ways about it. As parents, you are responsible for the health and safety of your kids.

There’s no question that childhood obesity is a global problem. Long term it’s a significant issue for government, welfare and healthcare systems.

The University of Maryland Medical Centre lists the side effects of obesity.

  • Type 2 Diabetes,
  • High Blood Pressure,
  • Coronary Artery Disease,
  • High Cholesterol,
  • High levels of fat in the blood,
  • Heart Failure,
  • Respiratory problems.

Now imagine a whole generation of kids living with this in life. It will result in death far earlier than necessary. It will also result in incredible strain on healthcare systems.

The Independent reports that, ‘in the UK, the bill for obesity-related illnesses reaches £5.1bn a year.’

The Journal of Occupational and Environmental Medicine highlights,

Compared to nonsmokers, average health costs were $1,275 higher for smokers. The incremental costs associated with obesity were even higher: $1,850 more than for normal-weight individuals. For those with morbid obesity, the excess costs were up to $5,500 per year.’

It’s all just as bad in Australia. The National Health and Medical Research Council states,

A 2009 report by the Organisation for Economic Co-operation and Development (OECD) predicts that there will be continued increases in overweight and obesity levels across all age groups during the next decade in Australia, to around 66% of the population.’

They go on to explain that,

Data from the Australian Diabetes, Obesity and Lifestyle (AusDiab) study indicate that the total direct cost for overweight and obesity in 2005 was $21 billion ($6.5 billion for overweight and $14.5 billion for obesity). The same study estimated indirect costs of $35.6 billion per year, resulting in an overall total annual cost of $56.6 billion (Colagiuri et al. 2010).

The world is getting fat. Kids are getting fat. Parents are getting fat. This fat epidemic is killing us and killing economies. Someone needs to put a stop to it. But who? Who do you blame? Who’s the scapegoat here? Where’s the easy out?

Taking the easy route

Arguments are this is an industry problem. If food and beverage industries didn’t pack so much sugar into food and drink the problem wouldn’t be as bad.

This line of argument has led the British government to a world first ‘sugar tax’. The tax will come in from 2018. And any soft drink with more than five grams of sugar per 100ml is in trouble.

The BBC reports that,

The Office for Budgetary Responsibility suggests the levy will add 18p [AU$0.34] or 24p [AU$0.45] per litre, or about 6p [AU$0.11] or 8p [AU$0.15] to a standard 330ml can.’

That means for a Red Bull, Pepsi or Coke around 11p [AU$0.20] per can will be added to the price.

This is a serious tax generation policy for the UK. Estimates are it will raise £550 million [AU$1.042 billion] per year in extra revenue. The aim is it will go towards promoting and developing sports in schools. If that’s true — well we’ll see how it plays out.

Taxing parents doesn’t win an election

The UK has set a bar that I believe other countries around the world will now follow. And I think that Australia will be next. The timing is perfect. Precedence has been set. All Scott Morrison needs to do is just follow suit.

Imagine if this rolls out worldwide. In 2015 Red Bull sold 5.957 billion cans of Red Bull. Do the maths…

If every Red Bull had 20-cent tax added, it would raise $1.19 billion. And that’s just Red Bull. Add it to Coke, Pepsi, Mountain Dew, Monster and RockStar. It would mean billions around the world in tax revenue.

I think this ‘sugar tax’ is all posturing. It reeks of political vote grabbing. When you boil it down, a sugar tax won’t really reduce the occurrence of obesity. But it will take a good decade or so to see that. Meanwhile, it will raise billions for the government while making what looks like a ‘socially responsible’ move.

Britvic Plc. [LON:BVIC], a drinks maker, plunged from £7.09 to £6.76 within 24 hours of the announcement. A.G Barr Plc. [LON:BAG] — who make the popular Irn-Bru — is down over 6% since Wednesday.

Sure soft drinks are high in sugar. But so is chocolate, chips, white bread, pasta sauce, tomato sauce, cake, fruit juice, and a whole range of other foods that are just as bad for kids.

The buck really stops with parents. The best and only way to tackle childhood obesity is through parents. You want to tax something to tackle obesity? Increase the income tax on parents with obese kids. See how well that goes down with voters.

The sugar tax in the UK will stay. It will continue to be a vote grab with little substance. You’ll probably see it in Australia, and possibly other countries around the world. It will cost soft drink companies’ big time. Companies like Britvic, A.G Barr and Coca-Cola Amatil [ASX:CCA] in Australia.

With the UK setting things in motion, now might be a good time to think about exiting soft drink maker stocks.

This tax is another example of the government taking the easy road out. It looks good on the surface, but doesn’t tackle the real problem. The real problem is poor choices. But taking aim at irresponsible parents doesn’t win an election; a ‘sugar tax’ does.

Regards,

Sam


Sam Volkering is an Editor for Money Morning and is small-cap, cryptocurrency and technology expert.

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