Clark prefers voluntary sugar cuts to a new tax or hard rules

"Sugar you know you want it" signage outside a sweet shop at Mall of America, Minneapolis.

The verdict on the tempting idea of a sugar tax is coming in. They don't work as well as many hoped. So the Government wants to nudge the industry to voluntarily cutting the sugar content of food and drink, but may use the stick of regulation if necessary. Thomas Coughlan reports.

The Government is working with food and drink manufacturers on new voluntary measures to reduce the sugar content of their products, but is leaving open the option of harder regulation if that doesn't work. A sugar tax looks even more remote as the evidence mounts that they don't work and after an official report to the Health Ministry said they were not effective.

Health Minister David Clark told Newsroom in an interview after receiving the report that the Labour-led Government had no plans for a sugar tax and was instead focused on voluntary sugar reductions.

"Currently breakfast cereals have high health ratings because they've got fibre in them even though they've got really high sugar," Clark said.

He said the first task of the government was to talk to the industry about some voluntary measures that might be introduced to improve the quality of their food.

Clark said he would expect the industry to voluntarily reduce the content of sugar in their food and to have a wider conversation about sugar substitutes, as well as plainer labelling.

Asked whether allowing the industry to regulate itself was a soft touch, he responded that he preferred an approach where the industry was not the "recipient of regulation that they will then try and work their way around. It's pointless and you don't get an outcome."

He did offer that regulation would be threatened if the industry did not make sufficient moves on its own.

"If that path isn't credible then we're also not afraid to regulate. I'm being clear upfront about that."

Clark said that he had not announced a time-frame for talking to the industry, but it would begin before the end of this parliament.

The jury is coming in

A report from economic consultancy firm NZIER commissioned by the Ministry of Health has argued against the implementation of a so-called 'sugar tax' to tackle the country's epidemic of obesity and related health problems.

The report was submitted to the Ministry of Health last October and was made available after a complaint to the Ombudsman by Dr. Eric Crampton, Chief Economist of the New Zealand Initiative, a free-market think tank.

The report concluded that the evidence supporting a sugar taxes was inconclusive and that the authors "had yet to see any clear evidence that a sugar tax would meet a comprehensive cost-benefit test".

The cost to the economy of putting the tax in place, increasing compliance and creating a market distortion, in other words, was not outweighed by the evidence of the tax's effects on obesity and health, which was inconclusive.

"Previous studies had wildly overestimated this price elasticity"

Crampton, speaking to Newsroom, was unsurprised with the direction the report took. The New Zealand Initiative had itself published a report in 2016 arguing against the imposition of a sugar tax.

The effectiveness of a sugar tax is effectively determined by price elasticity, which measures the proportional change in demand due to a change in price. Studies in support of a sugar tax had shown consumers of sugary drinks to be very responsive to changes in prices, which economists refer to as the product's 'price elasticity'.

The problem, Crampton argues, is that the previous studies had wildly overestimated this price elasticity. Studies would measure how much people were spending on sugary drinks and ignore the more important measure which was the volume of sugar consumed.

"The estimates for price responsiveness were four times overestimated because you would ask people how much they spent," Crampton said.

"What people are really doing is shifting. Even within a brand if you shift from cans of coke to a two-litre bottle you're paying much less per millilitre. If you ignore it, you're going to overestimate how people respond to price changes. It's a category shift, but it looks like a decrease in consumption because they are spending less."

The diabetes cost is looming

Heather Verry, Chief Executive of Diabetes New Zealand, agreed that a sugar tax is ineffective and will probably lead to perverse outcomes.

"If you do tax it and you impact on people from lower socio-economic backgrounds the reality is that they will find alternative products which may be less healthy than those you're taxing," Verry said.

"It will ultimately put the price up on a range of foods and hurt the people who can least afford it. Those who are often the most at risk. As the report says, they will generally just look for a cheap alternative," she said.

She does however, want to see change in public health regime to combat a looming crisis of diabetes and other obesity related illnesses.

Diabetes diagnoses are increasing by 7 percent a year. There are now 250,000 diagnosed type two diabetics in New Zealand and possibly another 100,000 undiagnosed or pre-diabetic. Diabetes New Zealand estimated in 2008 that the direct cost of diabetes would be $1.7 billion by 2021/22.

Diabetes New Zealand would like to see a raft of changes instead of a straight sugar tax, including better labelling of the amount and kind of sugar in food, promotion of a healthy lifestyle, more drinking fountains in cities so that people weren't put in the position of choosing between buying a bottle of water and a bottle of fizzy drink and a serious effort made by food manufacturers to reduce the amount of sugar in food.

"The more awareness you put out there the more manufacturers will adapt to what people want," she said. "You only need to look at Coke. They've put out a range of sugar-free options (in response to consumer awareness and demand)."

"It's a bit like gluten-free. Ten years ago there was nothing around. Now it's everywhere."

'Obese people die earlier and cost less'

Jenesa Jeram, a policy analyst and the author of the New Zealand Initiative report, argues that this tackles the wrong issue. Her report argued that it was unfair to claim that the obesity crisis was a net drain on public spending, as the obese tended to live shorter lives and therefore cost the taxpayer less in terms of old-age care.

Jeram insists that she only made the claim in response to those who argued about obesity's burden on the state.

"It is equally unhealthy I think to just see people as fiscal costs," Jeram said.

We should instead consider the enjoyment people get from sugar and unhealthy foods, even as the Labour Government shifts to focus public spending on people's more general wellbeing from 2019.

"Health is one part of wellbeing, but it doesn't capture the enjoyment people get from unhealthy foods. So it could be that if you have a wellbeing focus that it may actually turn-out in favour of some of these products", she said.

Crampton agrees and argues that the decision to eat unhealthily can be explained by simple economics

"Economics has always followed wellbeing. We call it utility and we tend to figure that people tend to make the choices that are best to them because they best understand what they enjoy and the constraints they face. So as long as people have reasonable information about health effects if we observe that they are choosing some things rather than other things, its probably because the enjoy them," he said.

In other words, we all weigh up the enjoyment we get from a chocolate bar with the possible health costs and many of us are still quite happy to choose the chocolate bar. Of course, this assumption rests on the idea that the choice is made by a rational economic actor and that that actor has all of the information necessary to make a rational decision. Both assumptions could be disputed.

Jeram argues, however, that people do have the necessary information to make rational decisions.

"We're going though a health and lifestyle movement at the moment and access to information has never been easier for anything so for those who are interested in learning more about how to change their diets," said Jeram.

Verry, however, argues that food labelling still isn't quite at that point yet.

"A lot of sugar is coming out in alternative names so we would like to see something that is pushing that," she said.