You should always be wary of taxes justified on the basis of fiscal externalities. They can come back to bite you.
Celebrity chef Jamie Oliver was delighted with the ‘sugar tax’ that was announced as part of the 2016 Budget in the UK. The tax, which will come in from 2018, could add 8p (17c) to the price of cans of fizzy drinks like Coca-Cola, 7Up and Irn Bru, energy drinks like Red Bull and carton juice drinks like Ribena from 2018. Below is a clip from BBC Newsnight explaining the rationale behind the tax.
https://www.youtube.com/watch?v=dbYEd-nmxN0
In economics sugary drinks have a negative externality, (cost to third party) and the tax will make consumers pay some of the external cost.
This higher tax reduces the quantity demanded, raises revenue for government and achieve a more socially efficient level of consumption. The money raised will go towards sport in primary schools. The sugar tax should help to reduce major health issues, such as:
- obesity and related illnesses
- diabetes – in particular type 2 diabetes
- tooth…
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