Read our waistlines: No new soda taxes

The Northwest Territories plans to fight obesity and other health issues with a tax on sugary drinks. It won't work.

Cott Corp. stock is beating its North American peers including Coca-Cola Co. and PepsiCo Inc. as the Canadian beverage maker diversifies away from sugary soft drinks to cater to health-conscious consumers. Toronto, June 26, 2015. (Andrew Francis Wallace/Toronto Star/Getty Images)

The Northwest Territories is planning to go where no Canadian government has gone before—slap a tax on soda to fight obesity.

“Our intention is to introduce a sugary drink tax in 2018-19,” NWT Finance Minister Robert C. McLeod said in his budget speech this past February. The tax will be “a price incentive to discourage the consumption of sugary drinks that are linked to health issues such as obesity and diabetes.” The territory will thus be the first jurisdiction in Canada to put its residents on a fiscal-based diet.

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But will a tax really make us thinner?

Soda taxes have been widely promoted in recent years as a public health panacea. A Senate report last year recommended the federal government investigate “taxation levers” on sugar-sweetened beverages as the means to fight rising rates of obesity. And prior to the 2017 federal budget, the Heart & Stroke Foundation released a lengthy study claiming a Canada-wide tax of 20 per cent on all sugary drinks—including fruit juice and chocolate milk as well as pop—would save 13,000 lives and avoid 200,000 cases of diabetes, 60,000 cases of heart disease and 20,000 cases of cancer over the next 25 years. In addition to this long list of health benefits, it would also raise $1.7 billion a year in new revenue for Ottawa.

While NWT’s plan marks the first attempt at such a policy in Canada, plenty of other places, including France, Hungary and the city of Berkeley, Calif., have already imposed soda taxes. In 2014, the Mexican government introduced a ‘peso per litre’ tax on soft drinks nation-wide, roughly equivalent of a tax rate of 10 per cent. The size of Mexico’s soft drink market, its proximity to the U.S. and Canada and the growing clamour for governments to something about obesity have made Mexico a closely-watched soda tax laboratory.

A widely-cited recent study by researchers from the National Institute for Public Health in Cuernavaca, Mexico, and the University of North Carolina (UNC) claims Mexico’s soda tax has been a notable success. In its first year, soda demand fell nearly six per cent; this accelerated to nearly 10 per cent the following year. “Over time, people seem to get more weaned away from the sugary beverages,” co-author Barry Popkin of UNC boasted to The New York Times. The Heart & Stroke Foundation study makes prominent mention of Mexico’s apparent success in demanding a similar strategy for Canada.

Yet Popkin’s study adjusts the raw Mexican data in unusual ways, producing results that appear at odds with what other observers are seeing. “It’s been three full years now,” says Mark Strobel, senior drinks analyst with Euromonitor International, a market research firm. “And while Mexico’s soda tax is certainly getting a lot of attention, to be honest the impact has been pretty underwhelming.”

Strobel’s numbers, gathered from various industry sources, tell a different story. “On a per capita basis, we definitely saw a decline in the first year of the tax,” he says. The immediate impact was a four per cent drop, from approximately 73 litres per person to 70 litres, for regular cola, the dominant, trend-setting category in Mexico. In the second year, Strobel’s figures show a much smaller decline—down just 1 per cent to 69 litres per person. And this year, per capita sales bounced back to 70 litres a person. It’s a significant deviation from Popkin’s claims of a free-fall in demand.

To settle the question of whether Mexican soda sales are rising or falling, Strobel suggests looking at what the tax is actually earning. “Government tax revenue was well above initial projections in the first year,” he says. “And then in the second year, it was significantly higher than the first.” While complete figures are not yet available for 2016, Strobel says the monthly data reveals continued and ever-stronger growth in the tax take.  “Consumption is not declining” he concludes, despite what soda tax advocates may claim.

All this suggests good reason to take a closer, and more skeptical, look at Canadian proposals.

Consider the Heart & Stroke Foundation’s impressively long list of health benefits. These are based on projections that a 20 per cent tax on soft drinks, chocolate milk and juice will cut the average Canadian’s daily beverage consumption by 25 calories per day. Assuming consumers don’t compensate by adding extra calories from elsewhere in their diet, this change is supposed to significantly reduce diabetes, heart disease and cancer, as well as lead to a noticeable decline in national obesity rates. After decades of steady growth in Canada’s Body Mass Index (BMI: a measure of weight gain and obesity), the Heart & Stroke Foundation claims a soda tax will actually lower BMI for men and women by about 1.5 per cent.

But we don’t need to look into the future to appreciate the effect a decline in soda consumption can have on our health and weight. For reasons unrelated to new taxes, Canadians have been cutting back on soft drinks for more than a decade. According to Euromonitor, demand for regular cola has fallen by 22 per cent in Canada since 2004 as we’ve become more health conscious. Statistics Canada says total per capita soft drink consumption is down by nearly a third over this time. Even accounting for small increases in energy drinks, juice and other drinkable innovations, overall sugary drink consumption has fallen by approximately 28 calories per person. And what’s happened to Canadian obesity rates over this time? National BMI figures have maintained their steady upward trajectory.

Canada has already lived through a decline in soft drink consumption that’s greater than the predicted impact of a 20 per cent soda tax. And during this time obesity rates have risen. Soda down. Obesity up. It seems rather obvious the amount of pop we drink has no real connection to the health or weight of Canadians.

A tax will certainly make soft drinks more expensive. And raise billions in new revenue for Ottawa. But it won’t make any difference to your waistline.