Fiscal Instruments for Health: Creating the incentives for better health

20 Jul 2015
Author: Ashvin Ashok
 
Each year around the world, 6 million people die from tobacco use, 7 million deaths annually are linked to air pollution and 3 million deaths a year are caused by alcohol. Apart from being sobering, these statistics share another common feature­: They could be improved by curbing consumption of goods that pose mortality risks. To be sure, the rates of risk differ by the type of product used (e.g. differences in emissions by burning coal vs. natural gas), volume consumed (chain smokers are at much higher risk than casual smokers) or even patterns of consumption (binge drinking anyone?). However, ensuring appropriate levels of consumption for each product would undoubtedly improve public health outcomes and reduce healthcare costs.
 
So how do we ensure “appropriate levels of consumption”?
Of all the possible factors that drive demand—income, utility (i.e. taste, buzz or convenience), awareness, etc.—price is among the foremost. Taxes, subsidies and tariffs are relatively simple, easy to administer and cost-effective tools that governments can use to influence prices and thereby deter or promote the right levels of “consumption” – by making products more expensive or cheaper. In addition to improving public health and lowering healthcare costs, these instruments can also serve as a source for additional revenues (at least in the case of taxes and tariffs).
 
Do we know if these instruments work?
Based on the proven effectiveness of tobacco taxes, the World Health Organization recently re-iterated its call for levying appropriate levels of taxes on them. Though evidence for them is not yet as widespread, similar pathways could be used to deter consumption of other goods such as alcohol, fuel, sugar-sweetened beverages or even excessive salt consumption—all items that pose morbidity risks or harm dietary quality
 
If it’s so easy and effective, why don’t governments do it?
Although toggling tax and subsidy levels is a simple mechanism (especially compared to other policy alternatives), governments still face several challenges and considerations that hinder implementation:
 
·      Political economy: Actions such as taxing products might prompt a strong reaction from industry lobbies and mobilization of people employed in the industry.
·      Lack of specific evidence: The absence of locally-focused studies can leave governments with insufficient knowledge and evidence on both 1) what products to tax or subsidize and 2) how much to raise tax or subsidy levels to derive maximum public health and revenue benefits.
·      Implementation capacity: In developing countries, which often have inefficient tax collection systems and multiple administrative levels of taxation, the process of imposing taxes is cumbersome and costly.
 
 
How is CDDEP involved?
As part of the Fiscal Instruments for Health project, CDDEP is working with PRICELESS SA (Priority Cost Effective Lessons for System Strengthening) based at the Wits School of Public Health and the Public Health Foundation of India (PHFI) to address the lack of sufficient evidence in India and South Africa with respect to the effectiveness of fiscal instruments. An Expert Panel for Fiscal Policies for Health established under this project will recommend the taxation, tariff and subsidy policy changes that would have the greatest potential to improve health in each of the two countries.
 
Stay tuned for updates!
 
Ashvin Ashok is a Senior Research Analyst at CDDEP.
 
Image courtesy Shutterstock.