Australia is witnessing a debate over whether the country should introduce a sugar tax on beverages and join the more than 100 other nations that have some form of levy – but industry has argued it would be a misguided step.

Last month, in a report looking at diabetes in Australia, a parliamentary committee recommended the country's government introduce a sugary drinks tax. It suggested a levy “graduated according to the sugar content” on sugar-sweetened beverages should be implemented.

“Obesity in Australia goes hand in hand with our diabetes epidemic and unfortunately, like diabetes, it is the most disadvantaged communities that are suffering the most,” the committee’s chair MP DR Mike Freelander said.

The drinks industry in Australia has pushed back on the idea. The Australian Beverages Council called the recommendation “a misguided attempt to address a complex problem like obesity”, adding that consumption of sugar in drinks in Australia has “decreased significantly” over the last 20 years while obesity and diabetes have continued to rise.

“Clearly, soft drinks aren’t driving the nation’s expanding waistline, which makes this call for a tax illogical and clearly just a revenue raiser for public health groups,” Australian Beverages Council CEO Geoff Parker said.

“At a time when many Australian households are struggling with rising cost-of-living pressures and just trying to make ends meet, calls for even more pain at the supermarket or convenience store checkout shows how out of step these public health organisations are with working Australian families,” Parker added.

Increasing pressure on drinks industry

However, this is not the first time some form of sugar tax has been called for in Australia. In February, Australian public health bodies requested a 20% levy “on sugary drink manufacturers”.

Rethink Sugary Drink, an alliance of groups including the Australian Medical Association (AMA) and Cancer Council, urged Australia's government to introduce a 20% tax to reduce sugar intake and raise money for health initiatives.

The alliance said the move could “reduce Australians’ annual sugar intake by 2.6 kgs per person and raise billions of dollars for health initiatives”.

There is currently no sugar tax in place for manufacturers in Australia. Six years ago, some producers signed up to a pledge to reduce the levels of sugar in their beverage products.

In 2018, Asahi Beverages, Coca-Cola South Pacific, Coca-Cola Europacific Partners and PepsiCo set out plans to cut the sugar used in their non-alcohol beverages by 20% by 2025, using 2015 as a baseline.

Two years ago, the Australian Beverages Council said its members had lowered the sugar content of their drinks by roughly 16% and were subsequently aiming for a 25% reduction over the same 2015-2025 period.

Earlier this year, Australia's Herald Sun newspaper reported Coca-Cola’s Fanta brand was found to have increased its sugar content to 7.2 grams per 100ml, despite having pledged to lower it to 4.5 grams per 100ml.

Prof Steve Robson, president of the AMA, said at the time the increase was “further evidence” of the need to tax sugary drinks to encourage manufacturers to “prioritise true reformulation efforts” of their products.

“Industry’s sugar reduction pledge to reformulate isn't working. That's because it's voluntary, and its impact is severely limited with only four manufacturers signing up,” Robson said.

The parliamentary committee's recommendation has intensified the spotlight on Australia's drinks industry. However, the Australian Beverages Council has questioned the economic rationale behind a sugar tax.

A spokesperson says suggesting consumers will “simply stop buying” soft drinks because of a 20% tax hike “ignores the evidence and basic consumer behaviour theory”.

If a levy was introduced, poorer households would change their purchases to compensate for the price increase, such as by buying in bulk, the spokesperson insists.

"A sugar-sweetened beverages tax is regressive. Tax proponents are quick to skim over its regressive nature, hoping lower-income households who can least afford the tax would be incentivised to buy untaxed items, like water," the spokesperson says. "It’s always the lowest income quintiles that carry all the cost."

Katrina Diamonon, food and foodservice analyst at GlobalData tells Just Drinks that the disadvantages of a sugar tax do include the potential to “exacerbate financial hardships” and that consumers could end up switching to other high sugar food and drink sources not covered by the beverage tax.

The Australian Beverages Council spokesperson also sought to underline the impact a tax could have on smaller manufacturers.

"We anticipate a number of small beverages companies may not be able to absorb the tax, like we have seen some larger beverages companies do around the world or spread price increases over large portfolios rather than raise the price or one of two taxed products," the spokesperson said. "In the current retail environment in Australia where we’ve had a recent government inquiry into supermarket shelf prices, many beverages companies would not even be able to pass on the tax to the retail shelf price."

At GlobalData, Diamonon says a tax would lead to product-development costs but changing recipes could help bolster manufacturers in the longer term.

“Beverage companies will likely incur substantial costs associated with reformulating products to reduce sugar content, including research and development, testing, and marketing expenses for new formulations," she says.

“However, those that successfully do so can position themselves as leaders in the health-conscious segment, whilst demonstrating corporate social responsibility by aligning with public health initiatives. Ultimately, reformulation efforts can secure long-term sustainability and profitability by keeping pace with a market increasingly focused on health and wellness.”

The impact of the UK sugar tax

Last year, the World Health Organization (WHO) called for higher taxes on sweetened beverages and alcoholic drinks to promote “healthier behaviours”.

“Although 108 countries are taxing some sort of sugar-sweetened beverage, globally, on average, the excise tax, a tax designated for a specified consumer product, represents just 6.6% of the price of soda,” the WHO said.

The UK introduced a sugar tax in 2018. It consists of a levy of 18p a litre for drinks with five to eight grams of sugar per 100ml and 24p per litre for those with more than 8g of sugar per 100ml.

Research published last week by the Journal of Epidemiology & Community Health in the British Medical Journal found the tax reduced sugar intake for soft drinks and fostered a reduction across the whole diet.

“This successful outcome speaks to the effectiveness of taxation over other measures to get the population to make healthier choices," Dr Janina Steinmetz, a reader in marketing at Bayes Business School at City, University of London, says.

“We know from consumer psychology research that consumers don't like to be told what to do and show psychological reactance, which is why public service announcements about healthy eating tend to be limited in effectiveness.

“A levy or tax on the other hand treats consumers as adults because they have the freedom to choose what they like, they will just have to pay more for some options over others.”

The calls for sugar taxation in Australia, both by the parliamentary committee and the country’s medical associations, have included recommendations for broader approaches to tackling diabetes.

In total, the committee made 23 recommendations covering areas such as conducting an economic analysis of the cost of diabetes, increased medical support for diabetes patients, expanded subsidies for insulin pumps. It also called for creating “mechanisms for securing supplies of Glucagon-like Peptide-1 (GLP-1) receptor agonists” for disadvantaged and remote communities.

Whether Australia joins the more than 100 other nations in deciding to tax sugar in drinks remains to be seen but it will be not without a fierce local debate.