health care

A Fat Tax

Are we Filipinos becoming too “healthy”?

I am reminded of a short film sponsored by a multinational food company in which a rich overweight schoolboy is seen playing with a thin street kid (watch film clip below). A few smartly placed product endorsements subliminally send the message that the diet of the rich overweight kid is something the poor should aspire to. While it did have a social message embedded which is admirable, the stereotypes contained in the roles played by the two boys left a rather dissonant impression with me at least (much as it pains me to say since I know the film maker).

With obesity now reaching epidemic proportions in the West (by 2020, it is projected that two out of three people will be overweight or obese in some OECD countries), governments have introduced some variation of a fat tax. Europe in particular has led the way with Denmark, Hungary, Finland, France having introduced it with Britain and Scotland following suit.

So what is a fat tax? According to the authors of an influential new study on the topic, “a fat tax may refer to a tax on fat, saturated fat, or the dietary causes of obesity.” This is related to the much broader term, health related food tax, which includes “any tax levied at a higher rate on food items that are considered unhealthy.” This expanded definition would cover sugar in drinks like colas (even artificially sweetened “diet” drinks have been found to stimulate appetite for sweet food).

The findings of the study I referred to which were published in the British Medical Journal showed that for such a tax to be effective, a rate of at least 20% needed to be levied on such unhealthy food items. In addition, the tax needed to be imposed on a broad set of unhealthy food and part of that revenue had to be used to subsidise healthier food alternatives.

The study examined the results from natural experiments and controlled studies and found that in the US, with a tax of 20%, there would be a daily reduction in energy consumption of 29-209 kJ per person (the lower values came from studies that considered only home consumption). Modelling the effects of these findings revealed that a 20% tax on sugary drinks would reduce the prevalence of obesity by 3.5%.

That may be fine for advanced economies where the prevalence of overweight and obese individuals is high, but what about the developing world, more specifically the Philippines where poverty, malnourishment and hunger prevail? According to one source, contained in the International Journal of Epidemiology, back in 1998, 20% of Filipinos over the age of 20 were overweight (having a body mass index greater than 25 kg/sq. m.).

That is one out of every five Filipinos over the age of 20 was overweight back then (17% of males and 23% of females). Although obesity levels (where the BMI is larger than 30 kg/sq. m ) were still in the single digits (2% of males and 3% of females), they may already have risen much higher as these statistics were compiled more than a decade ago. In fact the World Health Organisation estimates that by 2030 obesity-related ailments will be the No. 1 killer of poor people around the world.

Anecdotally, we can look at the countryside and see the growing number of fast food joints that have dotted the landscape. To gain hard data, we can look at the total revenues of one major fast food chain and see that in the last year alone, their system-wide sales went up by a whopping 15%. The growth of commercial shopping malls and along with them movie houses, restaurants and supermarkets also contributes to this trend.

Just as the consumption of tobacco and alcoholic products leads to chronic and long-term health impacts, so does the consumption of sugary, salty and fatty food and beverages. A tax on unhealthy food items would not only discourage their intake, it would also help fund the cost of dealing with their effects on the health system.

And help deal with the rising cost we must. Over a decade, from 2000-2010, the health expenditure per person in the Philippines has more than doubled from 33.50 to 77.33 current US dollars a year (see Chart 1 below).

Chart 1:

If you look on the other hand at the contribution of the state to the total health expenditure, it has fallen from 47.6% to 35.34% in the same period. By contrast, in Indonesia, it rose from 36.6% to 49.08%, and in Thailand, it went from 56.15% to 75.04% (see Chart 2 below).

Chart 2:

So yes, an unhealthy food tax would be appropriate and timely for our country just as the present administration is seeking to spread the coverage of its public health insurance scheme. From the proposed sin taxes, the government could afford to pay the equivalent of last year’s Department of Health budget, but it would fall short of providing for this year’s which is at 42 billion pesos (note: not all of the sin taxes would go to funding health programs, as some of it is earmarked for assisting tobacco farmers adjust to new circumstances).

So how much money would an unhealthy food tax potentially raise? To give an indication (a rough calculation is all we need), we could use the gross revenues of one major fast food operator. Thanks to it being publicly-listed, such information is readily available on its website. There we find that its first quarter ending March 31, 2012 year-to-date sales were 21.6 billion pesos (up from 18.74 billion in the previous year).

Previous news reports have indicated that this conglomerate accounts for about 65% of the total fast food market in the Philippines. So assuming that to be the case, one would estimate the total market to be 33 billion pesos in size. If we extrapolate the first quarter figures to the full year by using a crude straight-line method, we would arrive at 132 billion pesos for the whole industry. Now accounting for reduced consumption of about 10% due to a 20% levy on their sales (up from the current 12% value added tax), we would be able to generate 8.4 billion pesos in additional revenues for the government.

Now that is a good starting point. We have yet to take into account the sale of unhealthy food and sugary drinks from stores, movie houses and restaurants. The snack food business is quite large. One major producer registered 48 billion pesos worth of revenues in the Philippines last year. Assuming a five per cent mark-up at the retail level and following the same steps as I have outlined above would lead to additional revenues of 3 billion pesos for the government from just one domestic firm’s products.

More rigorous calculations may be performed by finance officials, but clearly the imposition of a fat tax would generate a reliable income stream which could help fund the growth of the health budget in coming years.

Now there will likely be vehement objections raised by businesses affected by this tax similar to the ones lobbed by the tobacco and alcohol firms. Most of these were unfounded. One valid complaint however would be that such a tax would affect the poor the most, since it is they who consume a lot of these items (think instant noodles).

This is where healthy food programs targeting the poor would come in. Some of the money ought to be used for this purpose and to expand health insurance coverage. In this manner would the regressive effects of the tax be off-set.

Finally, we need to emerge from the old Victorian notion that taught us to regard gout and other similar diseases associated with a rich and unhealthy food diet to be rather fashionable. It is time that our countrymen stopped buying into the idea that to have an overabundance of food on our collective plate is a good thing.

Hindi porket busog, malusog (just because you are full, it doesn’t mean you are healthy).

To spread that message, we need to boost the health budget so that the government can help shape awareness and deal with the lingering effects of obesity. It is time to recognize the price society pays for having unhealthy diets. It is time to promote nutrition and health insurance programs to those that need it. Yes, and because of all this, it is time for us to have a fat tax.

UPDATE: For more on the debate surrounding this issue, read Tackling Obesity on my blog.