A simmering discussion about Australia’s goods and services tax (GST) flared up again straight after the election, with WA Premier Colin Barnett arguing for an increase in the GST rate and a broadening of the tax’s base.
Absent from the discussion so far is how broadening the GST base might impact public health. In a letter in this week’s Medical Journal of Australia, my co-author and I reported on the potential health impact of removing the GST exemption for fruits and vegetables.
What we found
In our study, we built on earlier work on the cost-effectiveness of prevention. For that research, we had developed models that mimic the 2003 Australian adult population in terms of health, health-care expenditure, and, among other things, fruit and vegetable consumption.
If the price of fruits and vegetables were to go up by 10% (the current level of GST), consumption can be expected to go down by about 5%.
Our modelling suggests that, over time, this could lead to around 90,000 extra cases of heart disease, stroke and cancer; this might cost between $0.5 billion to $1.8 billion to treat, on top of a loss of 60,000 to 145,000 healthy life years. One healthy life year is the equivalent of a year in full health, and losses can be due to reduced quality of life while living with disease, or due to being dead.
That’s a big health impact, comparable to a 10% extra tax on tobacco or a 30% tax in alcohol.
But all this is hardly surprising, given that less than 6% of Australians manage the recommended levels of fruit and vegetable intake. Small changes in risk for many people can add up to a large effects at the population level.
Ample reason, we concluded, to explicitly consider the potential health consequences in any review of the GST - such as the one currently planned by the government.
What our critics say
Our work was published on Monday, and has garnered some interesting reactions.
Our estimates of consumption change rely on studies from the United States, but “Australians are different”, Grattan Institute chief executive John Daley argues.
While it is true that Australian evidence is highly desirable but as yet unavailable, there seems little reason to think that Australians are any less sensitive to prices than Americans.
The editor of the MJA professor Stephen Leeder thinks that larger price changes may be needed before much effect can be demonstrated. But that would depend on the level at which the effects are measured.
A 5% change in consumption might be distinguishable from the inevitable noise in the data. But changes in the frequency of diseases take place over a long time, in which many other factors also impact on the same variables. So, proving a link with a modest change in taxes is very difficult.
But that doesn’t mean they aren’t there; just that they are hard to measure. Models can help us to order the evidence and logically calculate through the most likely consequences.
Another criticism was from RMIT University professor of institutional economics Sinclair Davidson, who doesn’t remember a big substitution away from fast food toward fresh food when the GST was introduced. But “from memory” hardly counts as evidence.
In its excellent position statement on food taxes, the Cancer Council rightly recommends we study changes in taxes that affect food more in depth.
Health impact assessment
Professor Leeder thinks the scenario we examined is implausible. But while it’s comforting to think the GST exemption on fruits and vegetables won’t be abolished, I get a different impression from reading what economists say.
Among economists, broadening the GST base is very much on the agenda. The Henry tax review explains that exemptions make the tax more expensive, and more onerous to implement - especially for small retailers.
From a public health perspective, removing the GST exemption for fruits and vegetables may be something that’s simply “not done”. But apparently, from a narrow economic perspective, things look different.
As Sinclair Davidson rightly notes, the current GST is akin to a “fat tax”: it encourages healthy behaviour, as fast food is subject to the tax and fresh food is not.
Our study suggests it works very well and delivers large health gains.
The government would do well to think twice before making changes to the tax. Such interventions have health effects, and proposals should come with a thorough, independently executed health impact assessment.