Pros and Cons of a Sugar Tax: Examining the Impact on Health and Economy

Last Updated on May 22, 2023 by Lily Connel

The implementation of a sugar tax has both pros and cons. The pros include potential health benefits, as a sugar tax aims to reduce the consumption of sugary beverages and foods, which are linked to obesity and related health issues. However, critics argue that a sugar tax can disproportionately affect low-income individuals and small businesses, leading to higher prices and economic burdens.

Definition of a Sugar Tax

A tax is a tax on sugary drinks, also known as a Sugar-Sweetened Beverage Tax (SSBT). Its goal is to reduce the consumption of these drinks, which could contribute to reducing obesity and other associated diseases. Several countries, such as France, Hungary, Chile, Mexico, and the United Kingdom, have introduced an SSBT.

However, both the Australian and New Zealand governments have ruled out an SSBT at this stage. A recent secondary analysis conducted by the CSIRO showed that across the Australian population, sugary drinks contributed 3.2% to the total energy intake. Soft drinks ranked seventh after other discretionary foods like confectionery, sweet biscuits, alcohol, and fast food. Teenagers consume a higher proportion of sugary drinks, and people in socially disadvantaged groups are more likely to consume them.

An analysis of the contribution of poor diet to the burden of disease in Australia calculated that a diet high in sweetened beverages ranked number eight at 0.3 percent. The World Health Organization has identified food taxes as a tool to improve population diets, and research indicates that a sugar tax could make a meaningful impact.

The Case for a Sugar Tax

A sugar tax is a hotly debated topic and has both pros and cons. On the one hand, excess consumption of sugar is linked to several health problems such as obesity, diabetes, and tooth decay. This imposes costs on both individuals and society at large. A tax on sugar could discourage consumption and raise revenue to fund improved healthcare, while incentivizing companies to provide healthier alternatives.

Critics argue that a sugar tax is a regressive tax, taking more from low-income people. However, the external costs imposed on society by sugary drinks and processed foods are greater than the private cost of sugar. A 20% sugar tax could raise approximately £1 billion to reduce other taxes, fund diabetes clinics, or educate the public about healthy eating.

Consumers may be unaware of the personal costs of sugar consumption or struggle to reduce consumption because of its addictive qualities. A sugar hit gives a high, but then leads to a decline in energy and endurance, which can only be solved by taking more sugar. The average UK resident consumes 238 teaspoons of sugar per week, often without realizing it because sugar is hidden in many processed foods and soft drinks. This lack of awareness is an example of information failure.

In the two years after the UK introduced a sugar tax, manufacturers responded by reducing the sugar content in their drinks to avoid the tax. The fact that manufacturers absorbed two-thirds of the tax increase suggests that demand for sugary drinks is price-sensitive. Modeling suggests that a 20% rise in price would result in a 12.6% decrease in consumption, leading to small declines in obesity prevalence, saving lives, and saving up to A$609 million on healthcare expenses.

Pros of a Sugar Tax

A sugar tax is a government-imposed fee on drinks and food items that have high sugar content. The advantages of implementing a sugar tax have been hotly debated. Here are some pros of a sugar tax:

  • Firstly, a sugar tax will encourage individuals to adopt healthier eating habits. When the cost of unhealthy food items increases, individuals are more likely to choose lower-sugar alternatives. Increased awareness of the health benefits of a sugar-free diet would be a positive outcome of this tax, as it could help people focus on their overall health and well-being.
  • Secondly, a sugar tax could reduce the obesity rate significantly. Studies have shown that there is a significant correlation between sugar consumption and obesity. The World Health Organization (WHO) has also recommended a sugar tax to reduce sugar consumption. A sugar tax could be an effective strategy to combat both obesity and diabetes.
  • Thirdly, a sugar tax could raise substantial government revenue that could be used on public healthcare campaigns. The generated funds could offer practical support for healthy living campaigns, helping to promote and educate people on the health benefits of a sugar-free diet. Indeed, the money can be used for programs that could promote healthy lifestyles like sports or activities.
  • Finally, the sugar tax could also help to reduce healthcare expenses significantly. Currently, the cost of treating obesity and other diseases linked to high-sugar diets is immense. With measures to lower sugar consumption, healthcare services would see a decrease in the number of people needing treatment for health conditions related to high-sugar diets. Thus, this will allow healthcare resources to be reallocated to other vital health programs which might need funding.

Cons of a Sugar Tax

A sugar tax is a controversial topic, and there are several arguments against it. Let’s check them out!

  • Regressive Tax: Critics argue that a sugar tax is a regressive tax, meaning that it hits those on low incomes the hardest. People with lower incomes may be more likely to consume sugary drinks, and a tax would make them more expensive, affecting their purchasing power.
  • Unintended Consequences: There are concerns that a sugar tax could have unintended consequences. For example, people may switch to cheaper, unhealthier options or buy sugary drinks from neighboring countries where the tax does not apply. This could lead to a decrease in tax revenue and undermine the public health goals of the tax.
  • Displacement: A sugar tax could also displace the consumption of sugary drinks with other unhealthy food and drink options. This could lead to unintended health consequences, especially if people consume items with similarly high sugar content.
  • Expensive: For consumers, a sugar tax would mean higher prices for drinks, which would be undesirable for those who enjoy them. For businesses, a sugar tax could lead to increased costs and lower sales, ultimately affecting their bottom line.
  • Complexity: A sugar tax is likely to be complex and difficult to administer. Depending on how it is implemented, it could lead to challenges with enforcement and regulation, which could ultimately make it difficult to achieve the desired outcomes.


Excessive sugar consumption leads to numerous health problems, including obesity, diabetes, and tooth decay, imposing both individual and societal costs. A tax on sugar could discourage consumption and generate revenue to fund improved healthcare, but critics argue that it is a regressive tax that disproportionately affects low-income individuals. That being said, sugary drinks impose high external costs on society, and the social cost of sugar consumption outweighs its private cost. Sugar is often hidden in processed foods and beverages, and people may be unaware of or struggle with reducing their consumption due to its addictive qualities.


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