Sin taxes – the over-reach of doing good

Trying for a healthier citizenry by discouraging the use of legal products like sugar, tobacco and alcohol, can have negative consequences of their own. Not least is a growing appetite among regulators to override individual liberty in the name of some or other worthy cause.

South Africa’s sugar industry is warning of job losses that it blames on last year’s sugar tax. Formally the “health promotion levy”, this surcharge on sugar-sweetened drinks is supposed to fight obesity.

Industry frustration is understandable; even the World Health Organisation’s diseases panel is unconvinced by sugar taxes, leading the WHO to remove taxes on food and drink from its list of formal recommendations.

It came along the same time as proposals for heavy restrictions on alcohol advertising, including its banning between 06:00 and 22:00, and with additional blackouts on the packaging and marketing of tobacco.

These public health initiatives go beyond the Exchequer’s annual “sin taxes” placed on smokers and drinkers, a thing of increasing state revenue. Reducing alcohol and tobacco consumption have been Department of Health goals for a long time, and the reasons are fairly obvious.

The American Cancer Association reported a year ago that about 6,3 million SA adults (15 years and older), and 55 000 children, smoke daily. A March 2019 report commissioned by the DG Murray Trust quotes the World Health Organisation (WHO) as ranking South Africans as among the most harmful drinkers in the world, at almost Russian levels.

The report’s UCT authors propose significant tax increases on some alcoholic products, to discourage binge drinking and to offset related health costs incurred by the taxpayer. They quote the WHO as putting these, and other socio-economic costs, at about 12% of GDP. Buttressing their argument, they point to tobacco, where taxes on cigarettes jumped fivefold between 1990 and 2018. They suggest that the reduction in the proportion of SA smokers, from one-in-three adults in the early Nineties to less than one-in-five today, has been one outcome.

Indeed, tobacco has come under intense governmental pressure these last three decades in particular, starting with the Tobacco Products Control Act of 1993, then with the country signing up to the WHO Framework Convention on Tobacco Control in 2005, and on to the Draft Tobacco Bill of May 2018 – with a raft of regulations along the way.

Smoking is restricted in public spaces, whether privately or publicly-owned, and tobacco sponsorships of events, causes and things are allowed in only a few instances, but publicity about them is not. Point-of-sale displays of tobacco products are restricted; prominent health warnings are required on packaging; and some labelling (like “light” and “low tar”) is outlawed.

The draft Bill suggests draconian restrictions on what this industry can do to sell its (legal) products, and on what consumers may do with them.

It would abolish indoor smoking areas everywhere, and ban outdoor smoking in some public places. People wouldn’t be allowed to smoke in their own cars if transporting minors. Cigarette packs would be plain packaged with brands and trademarks removed showing product names and health warnings in standardised format, while retailers would be forbidden to display them.

Smokers breaking the rules would face fines or imprisonment of up to three months, while manufacturers and importers of non-compliant tobacco products could be jailed for 10 years.

Whether such measures could change consumer behaviour in ways the Department of Health would like, must remain moot. Even if they did, we might also ask what unintended, negative, consequences could also arise?

Australia, the only country where long-term data exists on policy effectiveness, recently held a public review on its tobacco control approach. Australia pioneered plain packaging in December 2012 and latest Government data there shows that the long-term decline in smoking rates has stalled.

Policy-makers around the world should be watching with interest as this parliamentary consultation comes to a close in the wake of an investigation by the Australian Criminal Intelligence Commission, which found that plain packaging has failed to reduce smoking. Incredibly, more Australians smoke today than in 2013.

Already, says the Tobacco Institute of SA, illegal cigarettes are the most smuggled legal product worldwide, feeding 12% of global consumption. In SA, illegal, non-taxed, cigarettes hold a quarter of market share, with an estimated R27bn tax revenue having thus been lost since 2010.  An “illicit brand” is now reckoned to be the most bought cigarette in South Africa.

Job losses are another obvious side-effect, from associated agriculture to manufacturing, in an economy where one-in-three adults is already unemployed. 

No-one properly knows the economic cost-benefits one way or the other, and there are things perhaps more important than the government’s desires and budget, to consider.

For its part, Euromonitor has suggested that, since consumers are less able to differentiate between products, plain packaging “contributes to purchasing decisions motivated largely or exclusively by price”. This negatively impacts normal market dynamics.

The Free Market Foundation says that severe brand and marketing restrictions constitute a form of property confiscation and argue that it’s illegal. But the FMF goes further, pointing to less-noticed encroachments on liberty that come with the sorts of restrictions proposed by the Department of Health: “The principled argument for unequal treatment (of some legal products) is that special measures are necessary to protect people from harming themselves. The problem is that if this principle is accepted, then virtually all freedom is implicated… Proposals for the far-reaching extension of the tobacco principle to other aspects of life are under consideration and cannot logically be opposed if condoned in the tobacco context”.

And therein lies the rub, as with many other forms of rights limitations for a perceived common good. What seems on the surface to be a slam-dunk case for acting practically to curb bad habits, can quickly involve a slicing away, bit by bit, of the freedoms of adult citizens.

When this is done with rectitude and a transactional view of liberty, then watch for a dirigiste appetite without end. It’s the one obesity not on our health-check.

  • Paul Pereira, WHAM! Media. This article first appeared in Moneyweb on 14 May 2019.

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