Comment - Soft Drinks Tax to go Global?
While confirmation last week of the French parliament's backing of a soft drinks tax follows the implementation by Denmark of a similar tax on food this month, it begs the question, are we now likely to witness the implementation of the so-called 'fat tax' around the world?
On Friday (18 October), France's General Assembly voted in favour of a tax hike on added sugar soft drinks and a lesser rise on drinks containing sweeteners. The industry initially heard about the tax, which is designed to plug a hole in national finances as well as tackle obesity rates, in July. Ministers had said at the time that the VAT was expected to generate additional annual revenue of EUR120m (US$173m) for France's social security services. However, on Friday, the French Government confirmed that the tax of EUR0.02 per 33cl can is now expected to raise double this amount.
The proposal has been met with fierce opposition from the soft drinks industry in the country, led by the Union of European Soft Drinks Associations, which has labelled the tax as unfair and likely to have an impact on the purchasing power of the French consumer. In addition, on news of the tax proposal, Coca Cola France suspended plans for a EUR17m (US$24m) investment in the country last month. The company however, reinstated it just 24 hours later, amid a backlash from senior politicians.
Stifel Nicolaus analyst Mark Swartzberg has said that the inclusion of artificially sweetened drinks for the tax has "come as a surprise". For Coca-Cola Enterprises (CCE) in particular, the tax will affect virtually all of its France sales and around 30% of its total sales, the analyst said. This is versus an estimated 18% on a sugar-only basis.
"Assuming the tax is fully passed on at retail, we estimate an added 3% to 4% increase in the average retail selling price of soft drinks in France and a 2% to 3% adverse impact to the larger CCE's 2012 earnings," Swartzberg said.
France however, isn't the only country to consider the implementation of a tax in order to tackle the problem of rising obesity rates. Last month, a spokesperson for the Health Ministry of Ireland told just-drinks that the Government is in discussions about the possibility of implementing such a tax on in its country. The news drew concern from Food and Drink Industry Ireland, which said the imposition of any discriminatory tax on food and beverage products would be "most unwelcome".
The US has also widely discussed the possibility of 'fat tax' for some time. New York City mayor Michael Bloomberg in particular is a strong supporter of implementing a tax, claiming that "half the residents of New York city and 40% of its public school population are overweight".
Earlier this month, the Danish government also introduced a tax on food high in saturated fat in a bid to encourage people to eat more healthily.
Of course, the idea of a 'fat tax' is not without its supporters. While this is strongest within health groups, which believe the tax will discourage consumers from purchasing drinks high in sugar, or be invested in healthcare, US agricultural economists have also shown their support for a possible tax.
In a 'Policy Issues' article in US publication Choices last week, economists Carlisle Ford Runge, Justin Johnson, and Carlisle Piehl Runge, said they see excise taxes for soft drinks as "good policy". "Taxing soda will reduce its consumption and raise revenue; by one recent estimate a $0.01 cent/oz national US excise tax would cut soda calorie consumption 8% to 10% and raise $15bn per year," the economists said. "Wide adoption of such excise taxes appears to be good policy."
While France's legislative body is yet to fully approve and implement the tax, which is expected to take effect from 1 January, the country is one step closer to adoption. A final resolution is expected as soon as mid-November, after which, it appears likely that we will see a flood of Governments, beyond Europe, following suit.
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