Long ago, taxation ceased to be a simple matter of raising money so that a government could rule and redistribute wealth if they thought it necessary. Now it is well established as a mechanism for behavioural change, writes Brian Keegan.
There are plenty of examples. The plastic bags tax has dramatically reduced our reliance on disposable plastic bags, while not collecting huge amounts for the exchequer.
The amount motorists have to pay to use the Dublin Port Tunnel more than trebles during morning and evening rush hours while there is no charge for many buses. The nation’s choice of cars has been skewed by a motor tax policy which favours vehicles with lower CO2 emissions — almost four out of every five new cars sold qualify for the lowest rates of motor tax and VRT.
Details of a new tax to change behaviour were recently released by Revenue. The tax is an excise duty on sugar sweetened drinks, and as such can be compared to excise duties on alcohol. Unusually for an Irish tax, it comes into effect on April 6 next rather than at the start of the calendar year.
It is to coincide with the introduction of the sugar tax in the UK where traditionally new taxes are launched on April 6. Presumably Revenue did not want to foster a burgeoning cross-border trade in tax-free bottles of lemonade because the North was out of step.
It is the culmination of a campaign by medical authorities who have long promoted the notion that too much sugar is bad for us. The idea is that if high-sugar product categories are subject to a special tax, then that will change people’s consumption patterns. It seems that an especially harmful category of such products are soft or carbonated fizzy drinks which contain a lot of sugar.
These soft drinks are comprehensively dealt with in the new Revenue guidelines, which cover ready-made drinks and also dilutables and concentrates whether supplied in bottles, cans, barrels or kegs.
Some drinks are excluded including, alcohol-free beers and wines, drinks that are based on soya, cereals, nuts or seeds or that contain milk. Excluded also are juices that are sold without added sugar.
Just as is the case for Vat, the taxpayer need do nothing other than pay the additional tax. The whole assessment and collection mechanism of the sugar tax remains with manufacturers and suppliers. There is one important exemption, which is that manufacturers can obtain a refund of sugar tax on drinks which are produced in Ireland but then exported to other countries.
So what will the effect be? Undoubtedly prices of some soft drinks will go up as manufacturers pass on the tax to the consumer. It’s estimated the price could rise by about 30 cent per litre so expect to see an additional 10 cent on a can of a typical soft drink.
The Government believes the new tax will raise about €40m a year. But if the sugar tax raises significant amounts for the exchequer, it will have failed as a policy instrument. A high yield would suggest taxing sugary drinks has not changed consumption patterns.
The hope is that drinks manufacturers might change their formulas by reducing the amount of added sugar in the drinks they sell, because there are lower rates of tax for lower sugar content.
Consumers will then make healthier choices because healthier choices will be on offer more. It is always easier to do the right thing when the opportunity to do the wrong thing is reduced.
No amount of tax will ever be a substitute for healthy eating knowledge. Nevertheless there is plenty of evidence taxes do change the way people go about their daily lives.
Brian Keegan is Director of Public Policy and Taxation with Chartered Accountants Ireland