Knowledge Brief Health, Nutrition and Population Global Practice BUSINESS, EMPLOYMENT, AND PRODUCTIVITY IMPACTS OF SSB TAXES Libby Hattersley, Alan Fuchs, Alberto Gonima, Lynn Silver, Kate Mandeville June 2020 KEY MESSAGES: • Industry-sponsored studies reporting negative effects of SSB taxes on businesses, employment, and economic growth have been used very effectively to support arguments against SSB taxes and influence health-related policy. • These studies tend to be based on questionable assumptions and provide only a partial picture of economic impacts. • Emerging evidence from independent evaluation and modelling studies consistently identifies net positive economic impacts from SSB taxes, including overall employment and productivity gains, and increased government spending. Introduction A common argument against taxes on sugar-sweetened beverages (SSBs)1 is that reduced demand for SSBs will Moreover, these studies do not take account of important harm businesses, lead to job losses, and slow economic effects such as: growth. Most of the limited evidence available on the • substitution effects (increased demand for economic impacts of SSB taxes comes from industry- untaxed products); sponsored reports, which have been used very effectively • reallocation of consumer spending to other goods to support arguments against SSB taxes and influence and services; health-related policy (Fooks et al 2019; Mounsey et al • displacement of economic activity3 to other parts 2020). of the economy; • gains in productivity; and, However, these studies often report only selected • increased government expenditure based on outcomes that provide a partial picture of economic additional tax revenue (Powell et al 2014). impacts within directly-affected sectors2. These studies are also frequently based on questionable assumptions, We reviewed available evidence from independent (i.e. such as the products included in the analysis or the pass- non-industry funded) studies. This brief summarizes the through rate of the tax (Mounsey et al 2010). impact of SSB taxes on business, employment, productivity, and government revenue generation. Page 1 HNP GP Knowledge Brief • Findings services (-0.21%) and accommodation services (-0.04%). The tax would increase the retail price of SSBs by an IMPACTS ON BUSINESS average of 4% and would generate substantial revenue (BR$ 810 million). International experiences with implemented SSB taxes show that reduced demand for SSBs in response to a tax In Australia, modelling of a sugar-based excise tax on tends to be at least partially offset by increased demand SSBs of AU$ 0.40 per 100 grams of sugar (translating to for other packaged beverages, particularly diet drinks4 a 20% increase in retail prices and generating a 15% and bottled water, as consumers switch to these untaxed reduction in consumption) predicted minimal impacts on products. In many countries, the same companies that the country´s sugar industry (Duckett and Swerissen produce SSBs also manufacture bottled water and diet 2016). Between 75-80% of Australian sugar production is drinks (Duckett and Swerissen 2016). Therefore, reduced exported as bulk raw sugar. A 15% reduction in SSB total demand for packaged beverages produced by these consumption in response to the tax would reduce companies is likely to be modest. domestic sugar demand by roughly 50,000 tonnes (1% of all sugar produced in Australia). Any localised transition In addition, companies can (and have) responded to costs associated with diverting this production to export changes in consumer demand by reformulating products, markets could be minimised with a small government renovating portfolios, and adapting marketing strategies. transition package. Interrupted time series analysis of the UK Soft Drinks Industry Levy (SDIL) found evidence of significant IMPACTS ON EMPLOYMENT reformulation (to lower sugar content) and portfolio renovation (replacement of drinks with lower sugar Emerging evaluations of implemented SSB taxes report varieties) in the three years following announcement of no evidence of job losses in the beverage industry or the tax (Scarborough et al 2020). The proportion of SSBs retail sectors, and even gains. with sugar levels above the lower levy threshold (>5g per 100ml) fell by 34 percentage points between September Two years after the introduction of a 1 peso per litre 2015 and February 2019, from an expected level of 49% (approximately 10%) excise tax on SSBs in Mexico in to 15%. There was little change in product sizes or the January 2014, interrupted time series analysis identified number of SSB products available to consumers. no impact on employment levels in the country´s beverage industry (Guerrero-López et al 2017). There Similarly SSB retailers typically sell a range of other food was a very small, but statistically significant, positive trend and beverage products. Therefore, the impact of an SSB in employment in commercial (retail) stores over the first tax on sales revenue is expected to be minimal, or may 12 months post-tax (monthly average increase of 0.3%), and a small, but statistically significant, decreasing trend even be positive as consumers reallocate their spending in the national unemployment rate in the first three years to other food and beverage products. This has been post-tax (average monthly reduction of 2%) (Guerrero- reported in Berkeley, California (where a 1 cent per ounce López et al 2017). tax on SSBs became effective in March 2015), with sales tax revenue in the food sector increasing 15% between Similarly, an early evaluation of the 1.5 cents per ounce July 2014 and December 2016: more than in any other excise tax on SSBs and diet drinks implemented in sector (Silver 2017). Only about 5% of this increase could Philadelphia in January 2017 found no statistically be attributed to sales taxes on the value of the soda tax significant changes in monthly unemployment claim filings passed through to beverage prices. in supermarkets, soft drink manufacturers, all potentially- affected industries (including grocery and other retail Impacts of SSB taxes on other sectors, including inputs stores, and restaurants), or total industries in Philadelphia (particularly sugar cane/beet), transport, and services, are compared to neighbouring counties in the first 14 months likely to be context-specific. Modelling evidence from post-tax (Lawman et al 2019). Brazil and Australia points to minimal or net zero impacts in these countries. In Berkeley, California, employment in the food sector increased 7% between July 2014 and June 2016 (15 In Brazil, modelling of a hypothetical 10% increase in the months post-tax), with a 19% increase in employment in production cost of SSBs due to a tax increase predicted limited service restaurants (Silver 2017). minimal net negative economic impact, with a contraction of 4% in the SSB sector and a decrease of 0.02% in the Modelling of a 10% SSB tax in Brazil predicted a loss of total output of the economy (Balbinotto and Cardoso nearly 15,000 jobs, the majority of which (62%) would be 2016). This study predicted a small drop in production of in the food services sector (Balbinotto and Cardoso other beverages (-0.22%), and small declines in food 2016). Approximately one quarter (23%) of job losses Page 2 HNP GP Knowledge Brief • would be in the SSB manufacturing sector. However, this goods and/or services when borne by individuals study did not account for potential job gains in other (reducing disposable income available to spend on other sectors due to reallocation of consumer spending and goods and/or services) and government budget for other government expenditure of new tax revenue. sectors when borne by the state. SSB taxes can increase employment elsewhere in the While evidence on the longer-term outcomes of SSB economy as consumers reallocate spending, thereby taxes is not as robust as for shorter-term outcome (such increasing demand for goods and services in other as reduced SSB sales and consumption), there are now sectors, and through government spending of new tax numerous studies that have modelled the potential revenue (Powell et al 2014). Modelling of a 20% SSB impacts of SSB taxes on avoidable disease and tax in two US states - Illinois and California - predicted premature death. While not perfect (the strength of that the tax would result in a close to zero net change in evidence from simulation studies is strongly influenced by state-level employment (0.06% increase in jobs in Illinois, the data and assumptions incorporated into the models), 0.03% in California), with declines in the number of these studies have consistently shown that SSB taxes employees in the beverage industry offset by new employment created in the non-beverage industry (due to can lead to significant reductions in the prevalence and increased demand for other goods and services), and in incidence of associated diseases, provided the tax rate is state and local government sectors (through government sufficiently large. spending of new tax revenues) (Powell et al 2014). The burden of avoidable disease and early deaths in a IMPACTS ON PRODUCTIVITY population is commonly measured in terms of health- adjusted life years (HALYs), with two measures being the Productivity is a measure of how efficiently inputs, such disability-adjusted life year (DALY) (which can be thought as labor, are being used in an economy to create a given of as one lost year of healthy life) and the quality-adjusted level of output. The overall productivity of an economy is life year (QALY) (which can be thought of as one year reduced when individuals of working age are not able to lived in full/perfect health). In 2010, an estimated 184,000 be as productive as they would be in full health due to deaths and 8.5 million disability-adjusted life years illness, or for as long as possible due to an early death. (DALYs) worldwide were attributable to SSB consumption (Singh et al 2015). There is strong, consistent evidence linking SSB consumption to weight gain, obesity (Te Morenga et al Modelling of SSB taxes around the world have predicted 2012; Malik et al 2013; Trumbo and Rivers 2014; Bleich considerable gains in HALY. In the US, a nation-wide 1 and Vercammen 2018), type 2 diabetes (Malik et al cent per ounce (roughly 10%) SSB tax is predicted to 2010a; Immamura et al 2015), and dental caries (Bleich avert roughly 100,000 DALY´s and gain 871,000 QALYs and Vercammen 2018). There is also growing evidence over 10 years (Long et al 2015). Over the life-time of the linking SSB consumption to metabolic syndrome (Malik et population, 3.4 million QALYs may be gained from such a al 2010a; Malik and Hu 2019), a number of cardiovascular tax (Wilde et al 2019). Modelling of a 20% tax on SSBs in disease (CVD) risk factors (including raised blood Australia has predicted a gain of roughly 170,000 lifetime pressure and dyslipidaemia) (Fung et al 2009; de Koning HALY´s (Veerman et al 2016; Lal et al 2017). et al 2012; Te Morenga et al, 2014; Xi et al 2015; Malik et al 2010b; Malik and Hu 2019), non-alcoholic fatty liver When reductions in disease and premature deaths are disease (Nseir et al 2010), and several cancers (Mueller combined with labor indicators (such as labour force et al 2010; Chazelas et al 2019). participation, illness-related absenteeism, full-time equivalent working years, or present value of life-time In addition to their significant health burden, these income (PVLI)), gains in productivity can be expressed in chronic, non-communicable diseases (NCDs) have financial terms. enormous social and economic costs, including reduced employment, higher absenteeism, lower productivity (due Modelling of a 20% excise tax on SSBs in Australia to premature mortality or morbidity), reduced tax revenue, estimated that reduction in diseases and deaths and higher public expenditure on health and welfare associated with SSB consumption would lead to potential (Duckett and Swerissen 2016). These diseases often lifetime productivity gains in the paid sector of AU$751 have a considerable impact on the health of individuals million, and AU$1172 million in the unpaid sector and can reduce productivity through lower employment, (including caring, household work, and volunteer and higher absenteeism, early retirement, and premature community work gains) (Nomaguchi et al 2017). This was deaths. In addition, the cost of treating these diseases is equal to 1.9% of total annual health expenditure in enormous, reducing disposable income to spend on other Australia, or 0.2% of gross domestic product (GDP) in Page 3 HNP GP Knowledge Brief • 2010 (Nomaguchi et al 2017). da-Silva 2018a,b), while Hungary´s PHPT generated a more modest HUF 61.3 billion (USD 200 million) over the Modelling of a 10% tax on SSBs and unhealthy foods in first four years (WHO/National Institute for Food and Australia predicted that over 2,000 premature deaths Nutrition Science 2015). would be averted over the first 25 years of the tax, resulting in a cumulative productivity gain of 8,656 Conclusion additional full-time equivalent working years and a The results of this study contradict the common argument AU$307 million increase in present-value of lifetime used by opponents of SSB taxes that reduced demand for income (PLVI) (Carter et al 2019). This study did not SSBs will harm businesses, lead to job losses, and slow account for productivity impacts associated with unpaid economic growth. Emerging evidence from independent labour, or with reduced obesity-related morbidity. evaluation and modelling studies consistently identifies net positive economic impacts from SSB taxes, including IMPACT ON GOVERNMENT REVENUE overall employment and productivity gains, and increased government spending from additional revenue. Independent modelling and empirical studies consistently report substantial revenue generation from SSB taxes (Mounsey et al 2020). Although this may represent only a small proportion of total government tax revenues (particularly at the low tax rates applied in most currently implemented SSB taxes), this revenue can be used to compensate for any transitional costs or short-term displacement of productivity in affected sectors. Modelling of a 30 cents per litre tax on SSBs in Indonesia predicted a revenue gain of $920 million in the first year and $27.3 billion over 25 years (Basu et al 2014). A 6 peso/litre (roughly 13%) SSB tax in the Philippines is predicted to raise 41.0 billion Philippine pesos (US$ 813 million) in revenue per annum (Saxena et al 2019), while a 20% SSB tax in Australia is predicted to generate tax revenue gains of between AU$400-650million annually (Veerman et al 2016; Lal et al 2017). Experiences with implemented SSB taxes show that revenue generation is difficult to predict with any precision, particularly if the tax successfully incentivises product reformulation. Revenue collected from the UK Soft Drink Industry Levy (a tiered, volume-based SSB tax) in the first six months was reportedly less than half what had been forecast due to the extent of reformulation that took place before the tax had even been implemented (Vandevijvere and Vanderlee 2019). Revenue generated by a tiered sugar-based SSB tax in South Africa, on the other hand, exceeded forecasts despite evidence that it has incentivised significant reformulation, generating ZAR 2 billion (US$140 million) in the first year (approximately 0.15% of South Africa's total tax revenue for the 2018/19 fiscal year) (Stacey et al 2019). Portugal´s tiered volume-based tax, which also appears to have incentivised significant reformulation, generated EUR 80 million (US$90 million) in its first year (Goiana- Page 4 HNP GP Knowledge Brief • Goiana-da-Silva et al. The future of the sweetened beverages tax in Portugal. The Lancet Public Health 2018b; 3(12): PE562. References Balbinotto G and Cardoso L. Measuring the economic impact of SSB Lal A, Mantilla-Herrera AM, Veerman L, Backholer K, Sacks G, Moodie taxes in Brazil: An input-output analysis. Value in Health, 2016; 19(3): M, et al. Modelled health benefits of a sugar-sweetened beverage tax A101. across different socioeconomic groups in Australia: A cost-effectiveness and equity analysis. PLoS Med 2017; 14(6): e1002326. Basu S, Vellakkal S, Agrawal S, et al. Averting Obesity and Type 2 Diabetes in India through Sugar-Sweetened Beverage Taxation: An Lawman HG, Bleich SN, Yan J, LeVasseur MT, Mitra N, Roberto CA Economic-Epidemiologic Modeling Study. PLoS (2019) Unemployment claims in Philadelphia one year after Med, 2014;11:e1001582. implementation of the sweetened beverage tax. PLoS ONE, 2019;14(3):e0213218. Bleich SN and Vercammen KA. The negative impact of sugar- sweetened beverages on children´s health: an update of the literature. Long, Michael W., Steven L. Gortmaker, Zachary J. Ward, Stephen C. BMC Obesity, 2018;5:6. Resch, Marj L. Moodie, Gary Sacks, Boyd A. Swinburn, Rob C. Carter, and Y. Claire Wang. Cost Effectiveness of a Sugar-Sweetened Carter HE, Schofield DJ, Shrestha R, Veerman L. The productivity gains Beverage Excise Tax in the U.S. American Journal of Preventive associated with a junk food tax and their impact on cost- effectiveness. Medicine 2015; 49 (1):112–123. PLoS ONE 14(7): e0220209. ́ , W. C. Willett, and Malik, V. S., B. M. Popkin, G. A. Bray, J.-P. Despre s Chazelas E et al. Sugary drink consumption and risk of cancer: results F. B. Hu. Sugar-Sweetened Beverages and Risk of Metabolic Syndrome from NutriNet-Santé prospective cohort. BMJ, 2019;365:l2408. and Type 2 Diabetes: a Meta-Analysis. Diabetes Care. 2010a; 33(11), 2477–2483. Duckett S and Swerissen H. A sugary drinks tax: Recovering the community costs of obesity. Melbourne, Australia: Grattan Institute, Malik V, Popkin B, Bray G, Despres JP, Hu F. Sugar sweetened 2016. Accessed 8 Feb 2020 at: https://grattan.edu.au/wp- beverages, obesity, type 2 diabetes and cardiovascular disease risk. content/uploads/2016/11/880-A-sugary-drinks-tax.pdf Circulation 2010b; 121(11):1356-1364. Fooks GJ, Williams S, Box G, Sacks G. Corporations’ use and misuse of Malik VS, Pan A, Willett WC, Hu FB. Sugar-sweetened beverages and evidence to influence health policy: a case study of sugar-sweetened weight gain in children and adults: a systematic review and meta- beverage taxation. Globalization and Health, 2019; 15:56. analysis. American Journal of Clinical Nutrition. 2013; 98(4):1084-102. https://doi.org/10.1186/s12992-019-0495-5 Malik VS and Hu FB. Sugar-Sweetened Beverages and Cardiometabolic Fung, T. T., V. Malik, K. M. Rexrode, J. E. Manson, W. C. Willett, and F. Health: An Update of the Evidence. Nutrients 2019; 11; 1840. B. Hu. Sweetened Beverage Consumption and Risk of Coronary Heart doi:10.3390/nu11081840. Disease in Women. Am J Clin Nutr 2009; 89(4): 1037–1042. Mueller N, Odegaard A, Anderson K, Yuan JM, Gross M, Koh WP, Guerrero-López CM, Molina M, Colchero MZ. Employment changes Pereira M. 2010. Soft drink and juice consumption and risk of pancreatic associated with the introduction of taxes on sugar-sweetened beverages cancer: The Singapore Chinese health study. Cancer, Epidemiology, and nonessential energy-dense food in Mexico. Preventive Medicine, Biomarkers and Prevention 19(2):447-455. 2017;105(Suppl):S43-S49. Mounsey S, Veerman L, Jan S, Thow AM. The macroeconomic impacts Imamura F, O’Connor L, Ye Z, Mursu J, Hayashino Y, Bhupathiraju SN, of diet-related fiscal policy for NCD prevention: A systematic review. Forouhi NG. Consumption of sugar sweetened beverages, artificially Economics and Human Biology, 2020; 37: 100854. sweetened beverages, and fruit juice and incidence of type 2 diabetes: Systematic review, meta-analysis, and estimation of population Nomaguchi T, Cunich M, Zapata-Diomedi B, et al. The impact on attributable fraction. British Medical Journal. 2015; 351:h3576 productivity of a hypothetical tax on sugar-sweetened beverages. Health Policy,2017;121(6):715-725. de Koning L, Malik V, Kellogg M, Rimm E, Willett W, Hu F. Sweetened beverage consumption, incident coronary heart disease, and biomarkers Nseir W, Nassar F, Assy N. Soft drinks consumption and non-alcoholic of risk in men. Circulation 2012; 125(14):1735-1741. fatty liver disease. World J Gastroenterol: WJG. 2010;16(21):2579. Goiana-da-Silva et al. Using Pricing Policies to Promote Public Health: Powell LM, Wada R, Persky JJ, Chaloupka FJ. Employment impact of The Sugar Sweetened Beverages Taxation Experience in Portugal. Acta sugar-sweetened beverage taxes. Am J Public Health, Med Port 2018a; 31(4):191-195. 2014;104(4):672–7. Page 3 HNP GP Knowledge Brief • WHO/National Institute for Food and Nutrition Science. Assessment of Saxena A,Koon AD, Lagrada-Rombaua L, et al. Modelling the impact of the impact of a public health product tax, Final report. Budapest; World a tax on sweetened beverages in the Philippines: an extended cost – Health Organization Regional Office for Europe, 2015. effectiveness analysis. Bull World Health Organ 2019;97:97–107. Xi BY, Huang KH, Reilly S et al. Sugar-Sweetened Beverages and Risk Singh GM, Micha R, Khatibzadeh S, Lim S, Ezzati M, Mozaffarian D. of Hypertension and CVD: A Dose–Response Meta-Analysis. British Estimated Global, Regional, and National Disease Burdens Related to Journal of Nutrition, 2015;113(5):709–717. Sugar-Sweetened Beverage Consumption in 2010. Circulation 2015; 132:639-666. Stacey N, Mudara C, Ng SW. Sugar-based beverage taxes and End Notes beverage prices: Evidence from South Africa's Health Promotion Levy. 1 Any beverage that contains added caloric sweeteners, such as Social Science & Medicine, 2019; 238: 112465. sucrose (sugar), high fructose corn syrup, or fruit-juice concentrates. The main categories of SSBs are carbonated soft drinks, energy drinks, Te Morenga L, Mallard S, Mann J. Dietary sugars and body weight: sports drinks, less than 100% fruit or vegetable juices, ready-to-drink systematic review and meta-analyses of randomised controlled trials and teas and coffees, sweetened waters, and milk-based drinks. cohort studies. BMJ 2012;345:e7492. 2 Sectors that may be affected by a SSB tax through reduced demand for specific products and services, sales volumes, and industry revenue, Te Morenga LA, Howatson A, Jones RM, Mann J. Dietary sugars and include: inputs/suppliers (e.g. sugar cane/beet), manufacturing, retail, cardiometabolic risk: systematic review and meta-analyses of and transport services. randomized controlled trials of the effects on blood pressure and lipids. 3 Economic activity includes the manufacture, provision, purchase, or AJCN. 2014; 100(1): 65–79. sale of goods and/or services. 4 Low-calorie versions of SSBs that are sweetened with intensely- Trumbo PR & Rivers CR. Systematic review of the evidence for an sweet, low/zero calorie sweeteners (such as aspartame, sucralose, association between sugar-sweetened beverage consumption and risk saccharin, and stevia) in place of caloric sweeteners (such as sugar and of obesity. Nutr Rev. 2014; 72, 566–574. high fructose corn syrup). Also referred to as artificially-sweetened beverages (ASBs) and non-nutritive sweetened beverages (NNSBs). Scarborough P, Adhikari V, Harrington RA. Impact of the announcement and implementation of the UK Soft Drinks Industry Levy on sugar content, price, product size and number of available soft drinks in the This HNP Knowledge Note highlights findings from a World Bank program UK, 2015-19: A controlled interrupted time series analysis. PLoS Med to support governments around the world to design and implement SSB 2020; 17(2): e1003025. taxes. Financial support for this work was provided by the Government of Japan through the Japan Trust Fund for Scaling Up Nutrition. Silver L. Berkeley Evaluation of Soda Tax Project. City of Berkeley, Public Health Institute NCDHub, 2017. Available at: http://www.phi.org/resources/?resource=berkeley-soda-tax-boosts-jobs- revenues Vandevijvere S, Vanderlee L. Effect of Formulation, Labelling, and Taxation Policies on the Nutritional Quality of the Food Supply. Current Nutrition Reports, 2019; 8:240–249. Veerman JL, Sacks G, Antonopoulos N, Martin J. The impact of a tax on sugar-sweetened beverages on health and health care costs: a modelling study. PLoS ONE. 2016;11(4):e0151460. Wilde P et al. Cost-Effectiveness of a US National Sugar-Sweetened Beverage Tax With a Multistakeholder Approach: Who Pays and Who Benefits. American Journal of Public Health, 2019;109(2):276-284. The Health, Nutrition and Population Knowledge Briefs of the World Bank are a quick reference on the essentials of specific HNP-related topics summarizing new findings and information. These may highlight an issue and key interventions proven to be effective in improving health, or disseminate new findings and lessons learned from the regions. For more information on this topic, go to: www.worldbank.org/health. Page 6