Healthy Taxes?
What are these healthy taxes? Healthy for the government because they bring in money? Most taxpayers would not readily speak of a healthy tax. No, I am talking here about taxes that could be good for human health. In other words, taxes that penalize unhealthy living habits. Such taxes have been around for a long time, think of tobacco excise and alcohol excise. They have the characteristic that if they are effective, their revenue decreases. Such taxes also inherently have a maximum revenue related to the rate: above a certain rate, the revenue for the government decreases. This type of tax has a strong instrumentalist character. The question is whether there are no other – non-fiscal – instruments to achieve the same effect. An excellent example is the greening of the car fleet. The lawmaker could try to effectuate this by fiscally facilitating green cars, but you can also force suppliers to simply cap the emission of harmful substances, especially CO2, that a car is allowed to emit. That is currently the approach that the EU applies, and it seems quite effective.
Regularly, ideas for other types of steering taxes crop up. Recently, there has been attention in various countries, including the Netherlands, for meat taxes and sugar taxes. The production of meat significantly contributes to environmental pollution, for example in the form of nitrogen emissions. Such a tax could reduce nitrogen emissions. Moreover, such a tax also serves to charge the so-called real costs of the environmental damage to the consumer. This is what we call the internalization of social costs, in this case, of the nitrogen emissions from meat production. The consumer thus pays not only for the meat but also for the harmful environmental effects. Another tax that is supposed to work this way is a tax on air travel. I have previously suggested doing the same for cruise ships. In Curaçao, they probably won't find that such a good idea, but that aside. However, it is not always easy to levy such taxes. For example, how should a meat tax be designed, and who should it be levied upon: the farmer, the slaughterhouse, the retailer? These are very thorny issues.
Another tax that deserves more serious consideration is the so-called sugar tax. Humans cannot avoid consuming sugars. There are, of course, various types and sizes of sugar. An important characteristic of sugar is that it makes people fat and is often a major cause of obesity. It goes without saying that this is bad and increases the cost of healthcare. It is a global phenomenon. In the Netherlands, no less than half of adults are overweight and 13% of children. Based on research, it is assumed that this overweight will increase to over 60% by 2040 in adults. I fear that the percentages in Curaçao are even higher. The tax legislator wants to do something about this, namely by taxing sugary drinks more heavily. The first question is whether this is a sensible approach. I believe for now that it is not. It seems much more effective to impose a ceiling on the amount of sugar content in soft drinks, etc., to producers and importing businesses, and possibly other products. This can be done in a similar manner as I outlined earlier concerning the CO2 emissions from new cars capped by the EU. With steering taxes, the question is whether and to what extent the consumer is influenced and in which direction the steering goes. This problem does not occur with a legal cap. However, such a legal maximum would have to be applied on a larger scale, for example within the EU or the
OECD.
The Netherlands does not opt for such a legal maximum. It intends to tax sugar more heavily and has recently launched an internet consultation for this purpose. Apart from my preference not to tackle this via a tax but through legal capping, this Dutch intention is also interesting for Curaçao and many other countries. However, the manner and degree of sugar consumption between countries may be a reason for a difference in approach.
The internet consultation reveals an interesting point: in general, the primary thought behind a tax like this is that the consumer consumes less as a result of a higher tax, or in other words, buys less sugary drink. However, research shows that with a sugar tax or an increase thereof, producers are particularly inclined to reduce the amount of sugar in their product, allowing the price to remain the same or only increase slightly. Depending on the form chosen by the Netherlands, this could even lead to a reduction of almost 20%. In the United Kingdom, the announcement of the introduction of a heavier sugar tax has already led to a substantial adjustment of the range of sugary drinks on offer in advance.
The design and implementation of a sugar tax, however, still give rise to various points of discussion. Not least with regard to the rate. Here it concerns both the height of the rate and a possible progression related to the amount of sugar. Another important issue is whether such a levy should also apply to natural sugars. In general, the latter is the case, on the one hand, because these also lead to undesirable consequences such as overweight, and on the other hand, because otherwise, distortions can easily occur.
In conclusion: although I am generally not such a proponent of steering taxes, research indicates that they can be quite effective in the case of sugar taxes. Nevertheless, it remains wise to consider whether the problem of overweight cannot be better regulated by simply capping the sugar content in products. In
any case, it is advisable for countries to take action now as overweight is a global problem.
Peter Kavelaars is Professor of Fiscal Economics at Erasmus University Rotterdam and Of Counsel at Deloitte Dutch Caribbean.
