Health and taxes

Posted at 10/22/2012 12:01 AM

I have always considered taxes bad for my health. It used to be that my blood pressure rises around the middle of April when after much procrastination, I have to finally sit down, compute, fill up that form, file and pay my income tax.

Now that I am retired and no longer on fixed income, what I earn writing columns is subject to VAT and I have to file every month. What used to be a yearly reckoning with taxes that raises my blood pressure now happens every month. I tell you, in addition to the usual health hazards senior citizens face, one is tax-related. The tax man or in our case, woman, may yet kill this goose laying those golden tax eggs.

Headlines over the past week on so called sin taxes and the drama that surrounded the resignation of Sen Ralph Recto of the tax making Senate committee on ways and means highlighted the close relationship of health and taxes. Was the proposed bill more about health or more about taxes?

The Administration says it wanted to raise taxes on tobacco and alcohol, so called “sin” products, to partly cover the health costs of consuming those products. Sen Recto was seen as protecting the tobacco industry by proposing a tax bite much less than the proposal of the tax people.

Recto chided the administration for “policy incoherence in calling sin products cancer-causing and yet demand a higher cut from their sales and justify that share as an anti-cancer tax.” The senator was of course being dramatic and using the rhetorical devise of arguing to absurdity to justify his position.

Of course, the senator knew it was not possible to totally ban tobacco immediately and the prohibition era proved it is futile to try to ban alcohol. Government can only mitigate the impact of the negative consequences of consuming “sin” products by using the price mechanism to discourage purchase.

Indeed, raising taxes on tobacco and alcohol is a legitimate exercise of social authority to discourage consumption and also help raise funds to finance the public health consequences of using these products. Elsewhere in the world, it isn’t just about tobacco and alcohol.

A “fat tax” is also now considered as a way of addressing a serious problem of obesity. Taxes have been proposed on the sale of soft drinks and juicy greasy burger sandwiches in many states in the US as well as some European countries.

While it is easy to see a cigarette stick or a bottle of scotch as inherently evil, it is somewhat more difficult to see a can of Coke or Pepsi or a Big Mac as anything other than innocent fun. The soft drinks and fast food industries have also so indoctrinated generations of consumers with heavy advertising making it difficult for “fat tax” proposals to prosper.
But the health experts are undaunted. The Daily Mail, a British newspaper with an on-line edition, recently reported that Oxford University experts have determined that “slapping a 20 per cent ‘fat tax’ on soft drinks would cut consumption and help curb rising levels of obesity in the UK.” Dr Oliver Mytton and Dr Mike Rayner of the Department of Public Health at Oxford said such a “fat tax” could lead to a drop in obesity-related diseases particularly heart disease.

A tax on sugary drinks is not going to cure obesity by itself, Dr Rayner admits, but he asserts that “A tax on sugary drinks is one measure that is a sure, safe bet that would change how many calories people consume across the nation and have a significant effect on obesity levels.

Research published in the British Journal of Nutrition last year said a 10 per cent ‘fat tax’ would drive down sales of sugary drinks and encourage consumers to swap to healthier alternatives. The Oxford team claim government intervention such as taxation can be justified when the market fails to provide the ‘optimum’ good for society’s well-being, as with the duties on alcohol and tobacco, for example.

In the US, obesity is supposedly entailing a “staggering” financial cost, according to the Center for Disease Control or CDC. Everything from treatments for diabetes to lost work by obese employees cost Americans about $147 billion in 2008, according to one estimate cited by the agency.

That is why Dr Rayner believes a tax on sugary soft drinks is the best option. Even if people moved to diet drinks instead, it would still be beneficial for health. This was revealed in a study published in the Journal of Public Economics on the effects of soft drink taxes on child and adolescent consumption and weight outcomes.

The study led by a public health expert from Yale University found out that “there is emerging evidence that small net changes in caloric consumption can lead to substantial changes in the prevalence of obesity over time.”

According to these experts, reducing energy intake by only 100 cal per day, which is less than one fewer can of soda per day, could prevent weight gain in over 90% of the population. “Thus, it may be possible to effectively reduce weight by targeting a single food item.”

The Oxford experts also think “a tax on unhealthy foods would act as an incentive to encourage manufacturers to change what goes into their products and make them healthier over time.”

That’s supposedly what Pepsi is doing. Pepsi is now embarking on a new strategy of acknowledging a fast growing trend towards a healthier life style. People are now going regularly to the gym. They have also embraced drastic dietary changes that cut on carbohydrates and fats and many have become vegetarians. Pepsi also noted the steady decline in the consumption of carbonated soft drinks over the past decade.

Rather than buck the trend, Pepsi CEO Indra Nooyi decided to refocus Pepsi. “Lifestyles have changed,” she notes, “And we have to modify our products.” In that spirit, she’s focusing the company more on water, juices, teas and sports drinks.

Indeed, arch rival Coke, even as it continues to aggressively market its traditional soft drink brands, has also developed new non-carbonated beverages, the strategy Pepsi said it is emphasizing now. That’s also why they have rediscovered coconut water or buko juice to us Pinoys, a development that could energize our coconut industry as well.

A paper comparing how Coke and Pepsi managed their product mix by Edgardo Donovan noted that “The sharp 35% rise in profits owed little to the company's 4 core brands: Coke, Diet Coke, Sprite, and Fanta. Instead, Coke got a jolt from the non-carbonated brands that were once treated as orphans by its colacentric management.

“It’s the first good news Coke has had for some time in its battle to make up precious ground against PepsiCo Inc in the beverage industry's most competitive rivalry. Getting the noncarb business right will be a top priority… Coke was long reluctant to diversify into any beverages that it feared couldn't match the lucrative margins of soft drinks."

I imagine that the number of smokers worldwide must have also seen drastic falls in recent years as part of this new health consciousness. I understand that developing countries like the Philippines now constitute the remaining strongholds of smokers, and that explains why Big Tobacco is fighting hard.

Th Philippines is also important for the soft drinks people. Even as malnutrition and poverty are everywhere in this country, dirty, barefoot kids can be seen sipping soft drinks retailed through plastic bags from the neighborhood sari-sari store. Not only do these kids end up getting empty calories, they also could have used the little money they have on more nutritious snacks.

The thing is, the market trend going against smoking and sugary beverages is clear and the businesses behind these products know it too. What taxation does is accelerate the trend to benefit our health outcomes and raise public funds for health care in the process. Going cold turkey, as Sen Recto suggested, is out of the question.

It is also time for product change for the tobacco companies. They are reported to be using all the scientific research they have to find a way of giving smokers their nicotine lift without exposing them to cancerous tar. The soft drinks people, like Pepsi and Coke, are long term looking at other drinks without the obesity causing sugar-rich formula of their flagship products.

Right now, the soft drinks industry is just waging a battle to buy time. But they too know, as Pepsi acknowledged, there is this undeniable trend for healthy food and beverage choices. And like what happened with tobacco, there is also a growing stigma against sugary drinks, fueled by scientific findings that sugar can be addictive and triggers cancer.

Indeed, sooner than later, the taxman will have the soft drink industry in his cross hairs as one more source of revenues for the National Treasury citing the same health reason they cited for tobacco. Who can really argue against health?