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"Health taxes to save lives"

September 05, 2019

The Task Force on Fiscal Policy for Health published the document "Health taxes to save lives", which exposes the need to use high excise taxes to reduce the consumption of tobacco, alcohol and sugary drinks; and thus achieve the targets by the Sustainable Development Goals.

Tobacco, alcohol and sugary beverages are markets that are characterized by place of harmful consumption, preventable deaths and large economic costs. These three products are currently responsible for more than ten million premature deaths a year in the world. Tobacco, in particular, is the largest and most documented risk of the three products, and causes 8 million deaths per year. Therefore, increasing tobacco taxes can do more to reduce premature mortality than any other single health policy.

But when governments consider this attractive measure, governments face strong opposition with three main arguments: the impact on the unemployment rate, illicit trade and its negative effect on tax revenues and the effects on the poorest population. The global evidence shows that these arguments are usually false or exaggerated and it is not justification for giving up on the implementation of the tax.

One must take into account that, although the prevalence of smoking is modestly decreasing worldwide, the number of tobacco users is growing; especially in low-middle income countries. These countries are the most affected by premature deaths, as they are the places where the industry is making the products more available and more affordable. To face this situation, excise tax on consumption are highly effective. A clear example of the region, on the evolution of taxes is Brazil. Data shows that between 2012 and 2016, real prices increased by 33% and consumption per adult decreased by almost 50%.

The Task Force projected the results of increasing the tax at different levels. A raise by 20% in the real price, could avert 10.8 million deaths, gain 212 million years of life and raise 1.6 billion of additional revenue. In a second scenario that contemplates an even stronger increase, which raises prices by 50%, 27.2 million deaths could be averted, 535.7 years of life would be gained and there would be a gain of 3 billion in additional revenue. Taxes have such great impacts that they should be seen primarily as measures in favor of health, and their effect on tax revenues is an additional benefit that is very useful especially for domestic resource mobilization in low-middle-income countries.

But despite all the available evidence regarding the efficiency of tobacco taxes, this is one of the most underutilized tools in the world. Given this situation, the Task Force concludes four important recommendations to facilitate the implementation of tobacco tax:

  • Governments must take actions to increase tobacco taxes quickly and significantly, and periodically to make products less affordable, to reduce consumption and prevent deaths and diseases.
  • Taxes should be designed to be easy to administer, hard to manipulate and difficult to game. Therefore, specific taxes should be preferred over ad valorem excises and over complex and mul-tiered taxes. In addition, they must be adjusted according to inflation and other macroeconomic variables.
  • To increase taxes significantly in the short term, it is necessary to improve excise tax administration and enforcement.
  • The international community and multilateral organizations must take measures to support countries that adopt, implement and increase taxes in favor of health. These organizations should make efforts to support governmental capacity to implement evidence-based health policies, to review agreements that constrains tax reforms, to disseminate evidence on taxes effectiveness, to refute misinformation and to provide technical assistance to address the industry opposition.

Members of the Task Force on Fiscal Policy for Health:

Michael R. Bloomberg, Co-Chair

Lawrence H. Summers, Co-Chair

Masood Ahmed, President, Center for Global Development

Zeti Akhtar Aziz, Ex Governor of Malasya Central Bank

Kaushik Basu, Professor of Economics, Cornell University

Helen Clark, Ex Administrator of UNDP; Ex Prime Minister of New Zealand

Margaret Chan, Ex General Director, WHO

Bent Høie, Minister of Health and Care Services, Norway

Sri Mulyani Indrawati, Minister of Finance, Indonesia

Ngozi Okonjo-Iweala, Ex Minister of Finance, Nigeria

Zhu Min, Director, National Institute of Financial Research, Tsinghua University, China

Mauricio Cardenas, Ex Minister of Finance, Colombia

Minouche Shafik, Director, London School of Economics

Nicola Sturgeon, First Minister of Scotland

Tabaré Vázquez, President of Uruguay