Could a Sugar Tax Sweeten the Innovation Climate in Australia?

April 18th, 2016

Undeniably, sugar consumption is emerging as a major health issue to be faced by governments around the world, including in Australia. Correspondingly, debate on a sugar tax in Australia has now become a key topic of conversation since the British Government decided to proceed with a tax on soft drinks last month.

In research published by PLOS ONE, the impact of such a tax in Australia has been modelled. Over 25 years, a 20 per cent rise in the price of soft drinks and flavoured mineral waters would save 1,600 lives. It would also prevent 4,400 heart attacks and 1,100 strokes. Overall, the savings to the health-care system would add up to A$609 million.

With these figures in mind, the immediate question that emerges is should Australia follow the UK’s lead?

To elaborate, the tax in the UK will come into effect in two years’ time and be in two bands — one for total sugar more than five grams per 100ml and one for drinks with more eight grams per 100ml. Pure fruit juices and milk drinks will remain exempt.  The result is a slightly more complicated tax structure, but one that might provide some incentives for beverage makers to offer healthier products.

Overall, fizzy drinks have been in slight decline in recent years, with sales in 2014 down 3.3 per cent from a high in 2011. Consumers have been moving to mid-calorie, low-calorie and zero-calorie options and less than half of all carbonated drinks sales now going to full sugar variants. Britain’s sugar tax may just accelerate this trend – however, it is anticipated that it will also spark a new wave of soft drink innovation as well.

Certainly, innovation in sweeteners has been a disruptive force over the past few years for sugars; however it has not unseated sugar’s dominance. Could a tax on sugary soda’s change this and act as a catalyst for innovation in this field?  Indeed, several view the tiered tax as an incentive for soda makers to innovate, research and develop more low-sugar or sugar-free options. Nonetheless, the soda companies, naturally, oppose soda taxes. But a tax like the British one might give them more of a window to develop and sell these newer and improved products.  In the Fast Moving Consumer Goods (FMCG) industry, food and beverage innovation is fundamentally one of the critical factors of success. In addition; the expenditure incurred to bring these innovations to market is potentially available for a tax rebate of up to 43.5 per cent. The Australian Government offers an R&D Tax Incentive which assists in offsetting the costs of R&D and improving a company’s cash flow. The incentive scheme offers a refundable 43.5% tax offset for companies with an aggregated turnover of less than $20 million per annum, as well as a non-refundable 38.5% tax offset for other eligible companies.

Ultimately, consumer attitudes towards sugar are shifting as they did towards tobacco and this supports a rethink of everything from global growth rates to investment strategies in the food, beverage and drug industries. However, in truth, according to SMH, a sugar tax remains premature in Australia and Australians will be better off if they cut intake of added sugar. In the end, consumers must remain responsible for their own choices.  Yet, that’s not to say that the UK move is not a step worthy of very close examination.

Just as Australia road-tested plain packaging of cigarettes in a move that other countries have since implemented due to its decisive success, the UK and others are somewhat trialling a sugar tax for us. Since Australia announced plain packaging, its success has started to impact legislation around the world including in the UK, Ireland and France. With this in mind, the government should monitor the evidence from the UK sugar tax and consider the facts before deciding its next move. Thus, Australia should not act with undue urgency before the proof is in; in the meantime, however, the choice ultimately remains with the individual.

What do you think, could a sugar tax benefit Australia and soft drink innovation?