Sugar tax will damage the Irish economy, group claims

A sugar tax of 10 cent on cans of soft drink will increase the average household's annual grocery bill by €60, but won't help tackle Ireland's obesity problem, said the Irish Beverage Council (IBC).

The group, which represents companies that sell sugary drinks in Ireland, has produced a report arguing sugar taxes do not achieve public-health objectives, and instead cause “economic damage to consumers, business and the Irish economy”.

IBC’s pre-budget submission, called Sugar Tax: All Cost, No Benefit, suggests Irish soft drinks companies could lose sales worth about €60 million a year to Northern Ireland as a result of the planned levy, while Exchequer VAT revenues could also be hit.

It said the estimate of lost sales was based on the consumer behaviour after currency market movements created a similar price gap between groceries priced in sterling and euro.

Low-income households

Food-based “sin” taxes are regressive and have a disproportionate effect on low-income households, it also argues.

“A sugar tax may be populist, but it is simply not supported by evidence,” said IBC director Kevin McPartlan.

The organisation, which is affiliated to employer group Ibec, noted that VAT was already applied to sugar-sweetened drinks at the standard 23 per cent.

This could be lost to the Exchequer if a separate sugar tax is introduced ahead of the UK and provides enough of an incentive for cross-border trade in soft drinks, the industry argues.

The potential lost VAT revenue could be €35 million per year, it estimates.

“Any attempt to introduce a soft drinks tax prior to the UK’s potential implementation would create a significant differential to the price of products sold north and south of the border,” said the report.

A sugar tax in the UK is not due until 2018.

Britvic Ireland chief executive Kevin Donnelly told the Irish Times business podcast last month that the combination of weak sterling and the introduction of a sugar tax in the Republic before Northern Ireland "would drive quite a wedge in pricing between the two parts of Ireland".

Denmark abandoned a tax on sugar drinks after 15 months following a loss of VAT income, which was attributed to consumers travelling to Germany and Sweden.

The Programme for a Partnership Government, published in May, listed a new tax on sugar-sweetened drinks as one of a range of measures that would be used to fund a reduction in personal tax rates, such as the phasing out of the Universal Social Charge (USC). No date was set for its introduction.

A Department of Finance spokesman said on Sunday that the issue had been studied in pre-budget tax strategy papers which outlined the options for the Government.

It said all views would be considered in the run up to the budget. The timing of any introduction of the tax would be dealt with on budget day, he said.

Recipe change

IBC said it “remains unclear” whether a sugar tax was being introduced “solely as a revenue-raising measure or as a health levy with a related strategy”.

It is lobbying the Government to abandon the tax and instead encourage changing recipes and improving labelling.

The soft drinks industry has “taken thousands of tonnes of sugar and billions of calories out of the national diet” in recent years by changing recipes and offering a wider choice, its report states.

Almost half of all non-alcoholic drinks consumed in Ireland are now low or no-calorie varieties.

In Mexico, a sugar tax of 10 per cent introduced in 2014 prompted a fall in the consumption of soft drinks in that year, but figures from the two largest Mexican bottlers of Coca-Cola show sales began to climb again earlier this year.

The tax of one peso per litre has been a successful revenue-raising measure, however, generating more than $2 billion since January 2014, or about one-third more than the Mexican government had expected.