Australians are getting fatter. More than one in four adults are classified as obese, up from one in ten in the early 1980s. About 7 per cent of children are now obese.

Obesity is predominantly caused by people eating too much unhealthy processed food, often at considerable cost to their health and quality of life. It can be argued that people ought to be free to make those choices and bear the consequences. But the damage is done not just to consumers, and market failures can contribute to the overconsump- tion of unhealthy foods. The problem confronted in this report is that excessive consumption of unhealthy foods, including sugar-sweetened beverages (SSBs), not only causes long-term problems for consumers but also imposes enormous costs on the broader community.

In addition to personal costs, obese people, on average, receive more healthcare than other people, with taxpayers funding most of the costs of those services. Obese people also have lower rates of employment, receive more social services payments, and contribute less income tax than people in the normal weight range. Together, this foregone tax and additional health and welfare expenses mean that taxpayers are about $5.3 billion worse off each year.

This report calls for a tax on sugar-sweetened beverages. We rec- ommend an excise tax of 40 cents per 100 grams of sugar on non- alcoholic, water-based beverages that contain added sugar. This will increase the price of a two-litre bottle of soft drink by about 80 cents. This tax would raise about $500 million a year, generate a drop of about 15 per cent in consumption of SSBs and likely result in a small decrease in obesity rates, as people switch to water and other drinks not subject to the tax.

We recognise that a tax on sugary drinks is not a ‘silver bullet’ solution to the obesity epidemic – that requires numerous interventions at an individual and population-wide level. But it will address these third-party costs of obesity by reducing sugar intake from SSBs.

Many countries have already introduced such a tax, including the United Kingdom, France and parts of the US.

Not all obesity is caused by SSBs – in fact we estimate about 10 per cent of Australia’s obesity problem is due to these drinks. But it is important to reduce the consumption of SSBs because of their con- tribution to obesity – most contain little or no nutritional benefit, they contribute to additional energy intake, they are consumed heavily by children and teenagers, and Australia’s added-sugar intake is already high. Consumers could easily avoid the tax by switching to other drinks, such as water or artificially-sweetened beverages. The Australian sugar industry will face some transition costs as more sugar will need to be exported, as about 80 per cent is already.

The revenue raised by the new tax could go to promoting healthier eating, preventing obesity, reducing the budget deficit or a variety of other purposes. Most importantly, a tax on SSBs would help to ensure that the producers and consumers of those drinks start paying closer to the full costs of this consumption – including costs that until now have been passed on to other taxpayers. See our full report at: