South Africa to lose weight, save money with sugar tax

Feb 25, 2016, 10:18 AM EST
Assorted sugary drinks.
Source: HEMANT JOSHI/flickr

South Africa's Finance Minister Pravin Gordhan announced on Wednesday that the government will introduce a sugar tax. The measure, to begin on April 1, 2017, will target sweetened sugar beverages (SSBs) in a bid to curb the rise of obesity in South Africa. The country has the highest rate of obesity in sub-Saharan Africa, with accordingly high diabetes-related healthcare costs. And while dissuading excessive sugar consumption is the main goal, the additional revenue to the treasury won't hurt. This is a welcome, overdue step.

South Africa intends to reduce its budget deficit from the current 3.9% of GDP to 3.2% next fiscal year, by cutting $1.6 billion of expenditures over the next three years and raising taxes. The government did not say how much the tax on SSBs would be, nor how much revenue it expects to raise from it. However, research institute Priceless S.A. estimated that a 20% tax on sugary drinks would bring in nearly $450 million in additional revenue each year.

The future savings in healthcare costs could be far greater still. According to Priceless S.A., moderate obesity is associated with an 11% increase in healthcare costs, while severe obesity is associated with a 23% increase in healthcare. Without a sugar tax or other measures, researchers estimated that 2.4% growth in consumption of sugary drinks  – the rate at which SSB sales are expected to rise – could lead to an additional 1.3 million obese adults in South Africa by 2017. The institute projected that on the current track, total healthcare expenditures related to adult diabetes will cost South Africa $1-2 billion by 2030. But it concluded that a 20% tax on SSBs could possibly reduce obesity in 220,000 adults. 

Data in the Department of Health’s national strategy on the prevention and control of obesity, released late last year, also gives credibility to a sugar tax. It found that fiscal measures were the most cost effective ways to combat rising obesity – costing 20 cents to each rand saved in healthcare, compared to other measures like regulating food advertising, which costs 90 cents.

South Africa can draw inspiration from Mexico’s recent experience introducing a sugar tax. Finally confronting the fact that more than 50% of Mexican adults are overweight or obese, the government slapped a 10% tax on sugary drinks at the beginning of 2014. By the end of the year, SSB consumption had declined by 12%, and in the poorest socioeconomic groups it had dropped 17%. It is still too early to see an effect on obesity rates, but the tax did bring in almost $1.1 billion to the Mexican treasury.

Still, some critics (like those in South Africa’s beverage industry) say a tax on SSBs will disproportionately hurt the poor with higher prices. That would be true initially, but the poor are the ones suffering most from obesity and diabetes under the status quo. Thus they stand to gain the most from changing their drinking habits, not to mention that the government’s future finances will also be much more secure. That said, a sugar tax won’t solve everything. It should be accompanied by other anti-obesity measures, such as improving health and dietary education and facilitating access to better alternative drinks. Consumers might grumble now, but complaints are much cheaper than hospital bills.