Sugar tax - flawed thinking?

As IB students approach their first IA I'm posting this story to remind you about the UK 'Sugar tax'.

The article focuses on a group, "The Taxpayers Alliance", who oppose the tax (very Australian - any tax is a bad tax attitude). They point out that the tax is not being applied to all drinks with high sugar content.  They also suggest that the tax is regressive.

A sugar tax intends to address a negative externality of consumption and was dealt with in a post on 19th February. However the economics of it is shown in the diagram below. People don't understand how their consumption of the good is not as good for society (and them) as their perceived private benefit.

The first point made by the group is that the tax is not being applied to other sugary drinks. This is a fair point in some respects. Perhaps those who drink fizzy sugary drinks will switch to untaxed drinks due to the change in relative prices. This expose an important flaw in taxation policy, and suggests that applying the tax across a wider range of goods might be advisable.

However the criticism miss the point. Young people (and some older ones) can drink litres of fizzy drinks, but are unlikely to drink litres of hot chocolate. The problem is not the sugar content per 100ml, but the amount consumed. So if people swap a litre of fizzy drink for a hot chocolate then less sugar is consumed.

The second point made is that the tax is regressive. This means that the poorer households pay a higher proportion of their income in tax than richer households. This is usually true of specific indirect taxes. Should we be worried about this? In short, probably not. The sugar tax is designed to change behaviour. If households buy fewer fizzy drinks then they don't pay the tax and that's what the government wanted. If they carry on buying fizzy drinks then they are paying more towards their medical treatment.

Maybe the Taxpayers Alliance should have claimed the elasticity of demand was not conducive to reducing consumption instead?

The BBC article is here

This article is more relevant to IB students because of its international nature. However VCE students should be aware of the impact of, justification for and limitations of indirect tax.