I would like to thank the members of the committee for providing me this opportunity to address you today.
I'm a health economist at the University of Alberta, and I'll be focusing my comments today on food price interventions, because that's my area of expertise, but I don't in any way mean to suggest that other forms of intervention shouldn't also be considered.
As you know, obesity and dietary-related diseases have come to be viewed as some of the greatest ever threats to public health in Canada. Obesity-related diseases are estimated to cost the Canadian health care system billions of dollars annually. A particularly disturbing trend is an observed increase in childhood obesity, as highlighted most recently in the findings just published by Statistics Canada from the Canadian Community Health Survey.
Both policy-makers and the general public have been discussing whether government interventions are warranted and, if so, what measures should be undertaken. Tax policy has been proposed as a possible instrument for reducing the incidence of obesity and dietary-related non-communicable diseases. This has become popularly known as a fat tax approach, and I'll use fat taxes to discuss taxes on a wide variety of food items.
Several versions of fat taxes have been proposed. The most commonly discussed approach is actually not a tax on fat content per se, but rather a tax on foods deemed to be nutritionally undesirable, particularly energy-dense nutrition-poor foods. Sweet and soft drinks, potato and corn chips, and certain categories of fast food have all been suggested as candidates for such taxes.
A related but more complicated suggestion is to tax large categories of food on the basis of the content of certain macro-nutrients for which we wish to reduce consumption. For example, one might impose a per-unit tax on saturated fat content of all foods available to Canadian consumers.
In any case, the primary goal is to reduce consumption of certain food items or macro-nutrients by increasing their price relative to other food. Furthermore, such taxes would also raise revenues that could then be used to fund other health promotion activities, such as exercise programs for children or nutritional information campaigns. Alternatively, fat tax revenues could be used to reduce other taxes elsewhere in the economy.
Researchers have just recently begun to investigate the possible effects of such taxes. Such work necessarily involves interdisciplinary challenges and relating fiscal policy to behavioural changes and further relating these changes in behaviour to effects on public health.
With these important caveats in mind, there are still certain themes that emerge. One is that small price changes are only likely to achieve small changes in behaviour, and as a result, small taxes will have minimal impact on obesity. Large price changes, such as doubling the price of sugary soft drinks, would have much more dramatic deterrent effects, but would also necessarily involve larger monetary impacts on consumers who still choose to consume these foods.
One interesting thing to note with regard to childhood obesity is that very little is actually known about how children respond to price differences, as they are often outside the scope of economic studies of food demand and often, for reasons of research ethics, are deliberately left out of such studies.
We also do not know much about how fat taxes may impose a stigma on certain food items. For example a 5ยข-per-bottle tax on soft drinks may not, in itself, induce large changes in behaviour, whereas a tax that is accompanied with a scarlet letter on the packaging highlighting that the food item has been singled out for a fat tax may have a much greater deterrent effect.
Another likely outcome is that fat taxes, particularly ones that target broad categories of food, will be regressive in that they will have a larger relative impact on the real purchasing power of poorer Canadians, who spend a much larger percentage of their income on groceries. They would therefore be paying a relatively larger portion of their income on fat taxes. As the previous speaker noted, this could be corrected through increasing rebates on these taxes. However, that would be an additional intervention.
Furthermore, economic pressures may already be pushing lower-income Canadians to some of the same energy-dense nutrition-poor foods that one may wish to target with fat taxes. Hunger may trump nutrition for many families with limited ability to pay for food, and basic energy needs can be met much more cheaply by purchasing energy-dense foods. Taxes targeting these foods may increase the difficulties faced by our most vulnerable households. There is also some evidence that tax schemes targeting saturated fats or other macro-nutrients will similarly have disproportional impacts on less wealthy households. In particular, if revenues from such taxes are used to offset taxes on income or allow for exemptions of other goods from GST, the net effect could be a transfer from poorer households to richer ones.
Another issue to bear in mind is that while taxes can indeed discourage consumption of targeted products, the universe of food items that consumers may instead choose to purchase is quite large. This is referred to as a targeting problem. A consumer who is discouraged from purchasing a sugary soft drink that has been subject to a large tax may instead switch to an item that is no more desirable from a nutritional point of view.
Taxes can only be implemented by clearly outlining in legislation, or in regulation, how and to what the tax is to apply. For example, a tax on carbonated beverages containing high-fructose corn syrup that doesn't apply to uncarbonated lemonade containing cane sugar may lead consumers to substitute one energy-dense, nutrition-poor food for another. If we agree that both the cola and the lemonade from the previous example should be subjected to the tax, but exclude beverages with the 10% real fruit juice content, producers will reformulate their products accordingly and consumers will follow their pocketbooks and buy those new products.
Whenever you draw a bright line, people will step over it to avoid the tax. The net effect may be that we redirect consumption while achieving negligible health benefits.
Macronutrient-based taxes may raise similar issues, as many affected food items may have both undesirable and desirable food properties. A tax discouraging pre-teens from consuming large amounts of ice cream containing high saturated fat may have appeal, but the same tax may also increase the price of the whole-milk products that most nutritionists encourage parents to buy for their toddlers. It would be difficult, if not impossible, to tax the same product differently for different uses.
Some studies have also suggested that macronutrient-based taxes may even have perverse nutritional effects. The next speaker may address this further in his comments.
An alternative approach to consider is the subsidization of food items of which we wish to encourage consumption, such as fresh fruit and vegetables. Such subsidies would benefit all consumers and may provide the greatest benefits to lower-income consumers. In contrast to my earlier comments regarding the difficulty of targeting a fat tax, we can be more certain that consumers will be encouraged to eat more of those foods that are the focus of what I would call thin subsidies.
I've been involved in work that suggested such subsidies could also further reduce disease-burning directly--that is, beyond the indirect impact through reductions and obesity--if they target food items known to aid in the prevention of diseases such as stroke, heart attack, or cancer. While such subsidies would necessarily involve outlays from government that eventually would cost taxpayers, it would also help the same consumers at the grocery store checkout counter and over time may also result in lower public expenditure on health care. However, this approach would still involve the difficult task of deciding what to subsidize and what not.
The members of this committee may also wish to consider those programs already in place that affect food prices in ways that may have undesirable influences on dietary choice. The previous speaker's testimony highlighted some of the tensions in the existing tax system. For example, in Canada we also have made extensive use of indirect and direct subsidies, administered pricing, and regulated marketing to support some areas of agricultural production. These affect prices, which in turn affect behaviour. Another example is that of increased trade with our neighbours. Increased trade in food products enhances consumer access to fresh fruit and vegetables, but also enhances their access to high-fructose corn syrup.
There is also a wide variety of non-food-related policies that may indirectly affect dietary choice. Since these programs were originally established in complete isolation from health policy, it's not at all surprising that the net effect on public health may be negative. In much the same way as policy-making processes are increasingly subjected to environmental impact assessment requirements, perhaps agricultural and food policies should be formulated with a health filter in place to avoid perverse dietary outcomes. Changing those programs that are currently having the most deleterious effects on public health should perhaps be considered before new taxes are imposed.
I feel strongly that there is a role for government in issues of childhood obesity and the promotion of dietary health. Yet as my comments today indicate, I do have some concerns regarding whether new taxes can be particularly effective in pursuing society's goals in these areas. The debate regarding fat taxes is a good one to have, however, particularly as it shines a spotlight on the extreme importance of food access and affordability on nutrition and obesity.
I thank you for inviting me here today and welcome any questions you may have later.