Author: George Mangion
Published on Malta Today, 24 March 2016
The Chamber of Commerce has declared itself to be against sugar taxes, according to a statement it issued on the announcement of the UK government to impose a special tax on sugar-sweetened soft drinks. Britain is forecast to be one of the fastest growing economies this year. This is seen in the background of a sluggish outlook for the rest of the global economy as growth has slowed, with the International Monetary Fund (IMF) predicting global growth of 3.4% in 2016.
In contrast, Malta has surprised many economic observers by registering its highest GDP real growth rate this year, reaching almost double the IMF forecast. Yet one is cautious when predicting growth this year in advanced economies as economists talk about concerns on low productivity, high debt levels and deflationary risks. Without hesitation, the advanced economies are still suffering from poor growth since the financial crisis of 2008 and 2009. Undoubtedly, the BRICS countries have taken a beating, particularly Russia and Brazil. This is the combined result of challenges arising from falling oil prices, higher inflation and creeping corruption, which are badly hitting other commodity-exporting economies. It is no secret that China’s rebalancing strategy is leading to lower growth in a number of countries which export to China.
Arising from this feeling of uncertainty, one notices higher volatility in financial markets, with world stock markets seeing substantial losses at the start of the year. All this makes the brave start in 2016 by Malta appear more encouraging – it brandishes a combined higher level of productivity and lower unemployment. By comparison, the UK economy is also seeing growth of new grass shoots and seems to have turned the corner to reap better harvests. Hot on the heels of a budget announcement in Britain came the usual comments from stakeholders that were hit by the Chancellor’s proposals. One of the innovative changes in the tax book will be a first time levy on sugar content of soft drinks. This is a bold attempt to stem the rise of obesity among children.
Tory sympathizers hail the budget as innovative, including eye-catching measures such as a sugary drinks levy and tax cuts. But the good news in the budget measures also include many other mouthwatering surprises. With employment at a record rate of 74.1% the UK economy is on the mend and proof of this (as if proof were needed) is that it wants to cut the rate of corporation tax to 17% in 2020, benefiting over one million companies – large and small. Compare this to the higher tax rate of 35% in Malta charged for domestic businesses and the mind boggles that Malta charges almost double.
More cuts are announced for business rates on UK properties, helping 600,000 small firms by exempting them from paying rates. Within the next five years the business rates burden will fall by £6.7 billion, apart from savings in a lower rate of Capital Gains Tax, going down from 28% to 20% while the basic rate slides down from 18% to 10% this year. There is relief for the self-employed with a cut in National Insurance contributions while an innovative step was taken to help rewrite the corporation tax rules on losses.
This initiative is expected to render the tax system more flexible for smaller businesses while ensuring that companies making large profits do pay the right tax and further restricts banks’ use of historic losses inherited from past years. Finally, notwithstanding the severe drop in the international price of oil, the budget is introducing smart moves to support the fledging North Sea oil and gas industry. Taking a leaf from the books of other oil producing countries the UK is zero-rating Petroleum Revenue Tax, and also reducing the Supplementary Charge from 20% to 10%.
Can Malta emulate this exemplary move to attract bona fide new investment in exploration and infrastructure, and kick start the dormant extractive industry that has in the past 60 years only seen 13 failed attempts to search for hydrocarbons in our offshore waters? The bone of contention with the soft drinks industry is the proposal to Parliament by the chancellor to introduce a new levy to help tackle childhood obesity, by incentivising companies to reduce the sugar in the drinks they sell. This Robin Hood levy is expected to double the primary schools sports premium to £320 million per year starting from September 2017.
The new tax will add 24p a litre to soft drinks with the highest sugar content, a cost that could be passed on to shoppers, and it is predicted the tax will raise £520m in its first year, far less than the cost of introducing the levy. Simply put, this sugar tax on sweetened drinks would save 3.7 million people from becoming obese over the next 10 years, reducing their chances of illness and saving the National Health Service millions of pounds.
Quoting from a study from Washington University, it found that newborns have a distinct preference for sweet flavours over other flavours, while children enjoy sugary foods far more than adults. It goes without saying, that a child’s preference for sweet things is an evolutionary hangover, as youngsters who preferred high-calorie foods in times gone by would have had a better chance of survival when food sources were less abundant.
In modern times, the availability of refined sugar has increased and this could be part of the reason why childhood obesity rates have increased. Readers may ask why do the sugary additives end up in making soft drinks so desirable for children and to a lesser extent, adults. Doctors tell us that our first encounter with sugar starts at birth, as we are born with a sweet tooth. All sugars are broken down by the body into glucose and fructose and are processed in the liver. Sugars are then converted into glycogen or fat for storage, or kept as glucose in the blood for use in the body’s cells.
As always, taken in moderation the sugar dosage will not harm and it is extra consumption that makes the negative difference to health. Not so convinced is Gavin Partington, director general of the British Soft Drinks Association, who said: “This just reaffirms our view that sugar tax is ill-considered. The evidence does not suggest it will be effective and taxpayers will be left paying a heavy price for it.” Soft drinks makers are considering taking legal action against the government over its controversial sugar tax. It appears that drinks makers are on the warpath and one option they are considering is to sue the government although this may be delayed until more details are revealed on the tax, which will come into full force in 2018.
Back home we note that the Chamber of Commerce has declared itself to be against sugar taxes, according to a statement it issued on the announcement of the UK government to impose a special tax on sugar-sweetened soft drinks. According to the Chamber acting as a spokesperson on behalf of the soft drinks industry, taxing the sugar content is not an effective deterrent. Taking a similar stance as the industry lobby in Britain, they argue that such sugar taxes serve only to fuel inflation but not fight obesity. They advise drinkers to take more leisurely walks, read more on the subject of healthy living and possibly partake of marathon walks helping charities like “Puttinu Cares”.
In conclusion there is no rest for the wicked this coming Easter – sugar daddies had better change their lifestyles or else face a sickly life suffering from diabetes and high cholesterol. A blessed Easter to all.
Author: George Mangion
Published on Malta Today, 24 March 2016
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