Sugar tax in Australia

The sugar tax is a rich topic for IA's in microeconomics. Australia is now starting discussions at State and Federal level on the possibility of introducing one. Look out for possible articles on this and save them up!

An example from the SMH here

Effects of the UK sugar tax

The article below is not suitable itself for an IA. However it makes important points about the effectiveness of the proposed UK sugar tax that would be useful material to help analyse any sugar tax or anti-obeisity measure.

Therefore very useful for those revising their IA's or the 2017 year 11's.

The BBC article is here

UK Sugar Tax

Much has been written on the sugar tax in this blog. The article below is posted to allow those in the 2017 Year 11 cohort to have a chance to use in their microeconomics IA. Remember all articles must be less than a year old at the time of writing.

The BBC cover the sugar tax here

Australian Sugar tax

This post is really a marker for those who will be undertaking Year 11 IB in 2017.

The sugar tax has been a topic of discussion in many countries in the last year. The Grattan Institute has issued a report and the Green party have drafted legislation on an Australian sugar tax. As discussed in previous posts it is a good idea as it helps deal with a negative externality of consumption.

Deputy Prime Minister Barnaby Joyce has called the tax 'Bonkers mad'. Takes one to know one.

The ABC covers the story here

An IA article must not be more than twelve months old when the commentary is written. Previous articles and taxes highlighted on the blog will be out of date for the 2017 Year 11 cohort, but not this!

Taxing sugar - should Australia follow the UK?

Yesterday the UK announced a tax on sugary drinks. It might increase some own brand cola products by 80%.

The tax is tackling an negative externality. This time the problem is a  lack of information leads consumers to value sugary drinks too highly. This then causes obesity and imposes higher costs on the public health system. Therefore sugar is a demerit good in this case.

As the last post was on externalities I'll just draw the diagram and link to and ABC article on the subject. Jamie Oliver, a prime mover in the campaign for the 'sugar tax' has urged Australia to follow suit. They should.

The problem with sugary drinks is that consumers don't consider the full costs of them. There is a lack of information about the negative effects of the sugar in the drinks. We could represent this as an additional external cost, but instead here it is shown as consumers overestimating the private benefits of sugary drinks. Therefore Demand (Marginal Private Benefit) is to the right of Marginal Social Benefit.

Placing a tax on the drinks pushes the supply curve to the left. There is a new equilibrium price (0P2) and lower quantity (0Q2). In this case the socially optimal output is achieved, because exactly the right tax has been applied and the deadweight loss of the externality is completely eliminated.

Note that not all of the tax is paid by consumers. Part of the tax comes out of firms profits. How this is divided between consumer and producer is determined by the elasticities of demand and supply.

The ABC article is here

VCE students should note how governments deal with externalities (Unit 3, outcome 1). IB students will need to understand the way markets fail in the technical way the diagram shows it and is an excellent example of tackling demerit goods.