Taxation and Regulation in Health Policy
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This document discusses various topics related to taxation and regulation in public health. It begins by reviewing concepts of neo-liberalism and assumptions of free markets. It then discusses how markets can fail through monopolies, asymmetric information, and negative externalities. Various policy instruments that governments use are outlined, including information tools, economic incentives/disincentives, and regulations. Methods of corporate regulation and using taxation to regulate are also covered. The document provides examples of how advertising, liability, and health promotion can be regulated. It concludes by defining key concepts in taxation and regulation.
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Taxation and Regulation in Health Policy
- 1. Curtin University is a trademark of Curtin University of Technology CRICOS Provider Code 00301J Health Partnerships, Politics and Power TAXATION AND REGULATION Louise Francis
- 2. Curtin University is a trademark of Curtin University of Technology CRICOS Provider Code 00301J Module 10: Taxation and Regulation Health Partnerships, Politics and Power Curtin University is a trademark of Curtin University of Technology CRICOS Provider Code 00301J Overview Neo-liberalism – review and assumptions Markets & Market Failure Policy instruments Corporate regulation Regulation through taxation
- 3. Curtin University is a trademark of Curtin University of Technology CRICOS Provider Code 00301J Module 10: Taxation and Regulation Health Partnerships, Politics and Power Curtin University is a trademark of Curtin University of Technology CRICOS Provider Code 00301J Neo-liberalism REVIEW What are the concepts underpinning the neo-liberal philosophy? (Australian Public Service, 2009
- 4. Curtin University is a trademark of Curtin University of Technology CRICOS Provider Code 00301J Module 10: Taxation and Regulation Health Partnerships, Politics and Power Curtin University is a trademark of Curtin University of Technology CRICOS Provider Code 00301J Neo-liberalism REVIEW What are the concepts underpinning the neo-liberal philosophy? ASSUMPTIONS What are the assumptions that underpin these concepts? What have previous modules suggested are the failures in these assumptions and therefore market failures? (Australian Public Service, 2009
- 5. Curtin University is a trademark of Curtin University of Technology CRICOS Provider Code 00301J Module 10: Taxation and Regulation Health Partnerships, Politics and Power Curtin University is a trademark of Curtin University of Technology CRICOS Provider Code 00301J Competitive markets & their failures Whilst it’s no longer as simple as this, put simply, a market working effectively delivers products or services that a consumer wants at a price consumers can afford. All the costs of supplying the good are covered by the cost of the good and the exchange occurs voluntarily. A market failure occurs when there is an inefficient allocation of resources: - Monopolies - Asymmetric information - Negative externalities (Australian Public Service, 2009
- 6. Curtin University is a trademark of Curtin University of Technology CRICOS Provider Code 00301J Module 10: Taxation and Regulation Health Partnerships, Politics and Power Curtin University is a trademark of Curtin University of Technology CRICOS Provider Code 00301J Policy instruments (Australian Public Service, 2009
- 7. Curtin University is a trademark of Curtin University of Technology CRICOS Provider Code 00301J Module 10: Taxation and Regulation Health Partnerships, Politics and Power Curtin University is a trademark of Curtin University of Technology CRICOS Provider Code 00301J Policy instruments Techniques the government has at its disposal to either ensure support or prevent change in a particular area, broadly: information-oriented tools, in which governments seek to persuade citizens through claims and reasoning; economic incentives or disincentives, in which individuals are not obliged to perform an action, but the actions are made easier or more difficult by the addition or deprivation of material resources; and regulations, in which formal rules and directives are used. (Australian Public Service, 2009
- 8. Curtin University is a trademark of Curtin University of Technology CRICOS Provider Code 00301J Module 10: Taxation and Regulation Health Partnerships, Politics and Power Curtin University is a trademark of Curtin University of Technology CRICOS Provider Code 00301J Education and Information Instruments Broad in variety and scope and usually involve varying degrees of compulsion by government. - education & training, including media & information campaigns - corporate reporting requirements such as full cost accounting - community right to know laws + public information registers + product certification and labelling (APS, 2009) Advantages: exploit self-interest; modest administrative burden Disadvantages: cannot be used in isolation
- 9. Curtin University is a trademark of Curtin University of Technology CRICOS Provider Code 00301J Module 10: Taxation and Regulation Health Partnerships, Politics and Power Curtin University is a trademark of Curtin University of Technology CRICOS Provider Code 00301J Economic Instruments Consist of positive incentives such as subsidies and grants, and negative ones, including taxes and fines. • market creation (e.g. emissions trading schemes) • fiscal instruments and charge systems (e.g. taxes, fines, charges, licence fees, subsidies, grants, tax credits) • liability instruments—using the threat of legal action to recover the cost of damages to provide firms with an incentive to internalise the costs associated with the risk (e.g. environmental damage, health or property damage to consumers) • performance bonds—this requires regulatees to post a security deposit which is redeemable on satisfactory completion of a task (e.g. when a mining company has undertaken rehabilitation of the land), and • deposit refund systems (e.g. deposit refund system for used beverage containers). (APS, 2009)
- 10. Curtin University is a trademark of Curtin University of Technology CRICOS Provider Code 00301J Module 10: Taxation and Regulation Health Partnerships, Politics and Power Curtin University is a trademark of Curtin University of Technology CRICOS Provider Code 00301J Economic Instruments Advantages: influence behaviour through price signals or market systems without the need for direct intervention; reduce enforcement costs. Disadvantages: may be less dependable; taxes and subsidies can restrict innovation. (APS, 2009)
- 11. Curtin University is a trademark of Curtin University of Technology CRICOS Provider Code 00301J Module 10: Taxation and Regulation Health Partnerships, Politics and Power Curtin University is a trademark of Curtin University of Technology CRICOS Provider Code 00301J Corporate regulation
- 12. Curtin University is a trademark of Curtin University of Technology CRICOS Provider Code 00301J Module 10: Taxation and Regulation Health Partnerships, Politics and Power Curtin University is a trademark of Curtin University of Technology CRICOS Provider Code 00301J Source: Government of Victoria, 2011, Victorian Guide to Regulation, Department of Treasury and Finance, Melbourne.
- 13. Curtin University is a trademark of Curtin University of Technology CRICOS Provider Code 00301J Module 10: Taxation and Regulation Health Partnerships, Politics and Power Curtin University is a trademark of Curtin University of Technology CRICOS Provider Code 00301J
- 14. Curtin University is a trademark of Curtin University of Technology CRICOS Provider Code 00301J Module 10: Taxation and Regulation Health Partnerships, Politics and Power Curtin University is a trademark of Curtin University of Technology CRICOS Provider Code 00301J
- 15. Curtin University is a trademark of Curtin University of Technology CRICOS Provider Code 00301J Module 10: Taxation and Regulation Health Partnerships, Politics and Power Curtin University is a trademark of Curtin University of Technology CRICOS Provider Code 00301J Activity 10.1: Policy Instruments 1.Why do you think that market mechanisms (leaving it to the 'free market') might be more popular than full government regulation? 2.In what circumstances would the government seek to directly regulate rather than leave it to market mechanisms?
- 16. Curtin University is a trademark of Curtin University of Technology CRICOS Provider Code 00301J Module 10: Taxation and Regulation Health Partnerships, Politics and Power Curtin University is a trademark of Curtin University of Technology CRICOS Provider Code 00301J Corporate regulation Given the impact of commercial determinants of health - how do we level the playing field? 1. Advertising standards 2. Liability for harms caused 3. ‘Counter’ health promotion 4. Political reforms Freudenberg, N. (2012) The manufacture of lifestyle: The role of corporations in unhealthy living. Journal of Public Health Policy, 33; 244-56. (Module 7 reading)
- 17. Curtin University is a trademark of Curtin University of Technology CRICOS Provider Code 00301J Module 10: Taxation and Regulation Health Partnerships, Politics and Power Curtin University is a trademark of Curtin University of Technology CRICOS Provider Code 00301J Examples: Advertising standards (Freudenberg, 2012) 1. Set advertising standards prohibiting promotion of unhealthy products and making misleading health claims. 2. Restrict advertising to children. 3. Require public or industry support for counter-advertising of unhealthy products. 4. Restrict rights of companies to target advertising of unhealthy products to vulnerable populations. 5. Require warning labels on advertisements.
- 18. Curtin University is a trademark of Curtin University of Technology CRICOS Provider Code 00301J Module 10: Taxation and Regulation Health Partnerships, Politics and Power Curtin University is a trademark of Curtin University of Technology CRICOS Provider Code 00301J Examples: Liability for harms caused (Freudenberg, 2012) 1. Strengthen laws making corporations liable for the health- related damage associated with products they produce and promote. 2. Create enforceable standards giving consumers and workers the right to know the health consequences and companies the duty to disclose what they know about a product. 3. Require company-financed independent health impact assessments of new products and practices might help health officials translate precautionary principle into policy.
- 19. Curtin University is a trademark of Curtin University of Technology CRICOS Provider Code 00301J Module 10: Taxation and Regulation Health Partnerships, Politics and Power Curtin University is a trademark of Curtin University of Technology CRICOS Provider Code 00301J Examples: ‘Counter’ health promotion (Freudenberg, 2012) 1. Actively promote healthier, more sustainable lifestyles, addressing demand for unhealthy products as well as supply – countering ‘corporate lifestylers’. 2. Tap into people's desire to avoid corporate manipulation; linking with social movements that effectively advocate alternative lifestyles.
- 20. Curtin University is a trademark of Curtin University of Technology CRICOS Provider Code 00301J Module 10: Taxation and Regulation Health Partnerships, Politics and Power Curtin University is a trademark of Curtin University of Technology CRICOS Provider Code 00301J Examples: Political reform (Freudenberg, 2012) 1. Demand political reforms that reduce corporations’ privileged voice in public policy – i.e. donation reform and lobbyist registers. 2. Public health needs to claim a voice in trade negotiations, as they often help corporations promote unhealthy lifestyles and undermine national health regulations. 3. Local governments, too, need to assert authority to shape social and physical environments that influence behaviours.
- 21. Curtin University is a trademark of Curtin University of Technology CRICOS Provider Code 00301J Module 10: Taxation and Regulation Health Partnerships, Politics and Power Curtin University is a trademark of Curtin University of Technology CRICOS Provider Code 00301J The Taste of Change
- 22. Curtin University is a trademark of Curtin University of Technology CRICOS Provider Code 00301J Module 10: Taxation and Regulation Health Partnerships, Politics and Power Curtin University is a trademark of Curtin University of Technology CRICOS Provider Code 00301J Regulation through taxation What do governments regulate through taxation?
- 23. Curtin University is a trademark of Curtin University of Technology CRICOS Provider Code 00301J Module 10: Taxation and Regulation Health Partnerships, Politics and Power Curtin University is a trademark of Curtin University of Technology CRICOS Provider Code 00301J Progressive and regressive taxes Figure 1: Progressive, proportional and regressive taxes (Source: Stewart et al., 2015, p.8)
- 24. Curtin University is a trademark of Curtin University of Technology CRICOS Provider Code 00301J Module 10: Taxation and Regulation Health Partnerships, Politics and Power Curtin University is a trademark of Curtin University of Technology CRICOS Provider Code 00301J Tax and health equity Taxes are often used as health promotion instruments to discourage consumption of products determined unhealthy through the effect of raising the prices of those products (Sassi et al, 2018) – i.e. alcohol, tobacco, soft drinks etc. Progressive or regressive? “Given that in industrialised nations poorer smokers suffer disproportionately from the diseases caused by smoking, a larger proportion of the eventual health benefits of quitting will accrue to the low-income population. In this regard, increasing the cigarette tax is clearly a ‘progressive’ public health policy” (Warner KE, 2000 as cited by Hirono & Smith 2017, p. 230).
- 25. Curtin University is a trademark of Curtin University of Technology CRICOS Provider Code 00301J Module 10: Taxation and Regulation Health Partnerships, Politics and Power Curtin University is a trademark of Curtin University of Technology CRICOS Provider Code 00301J Five Rs of taxation and public health 1. representation through more democratic, accountable and responsive government; 2. revenue generation for better financing of health systems; 3. redistribution of public wealth to reduce social inequalities; 4. re-pricing of goods and services to foster a healthier food environment and healthier consumption behaviours; and 5. regulation and control of the harmful and illicit economy. McCoy, D., Chigudu, S & Tillman, T. (2017) Framing the tax and health nexus: a neglected aspect of public health concern. Health Economics, Policy and Law, 12; 179–194.
- 26. Curtin University is a trademark of Curtin University of Technology CRICOS Provider Code 00301J Module 10: Taxation and Regulation Health Partnerships, Politics and Power Curtin University is a trademark of Curtin University of Technology CRICOS Provider Code 00301J Activity 10.2: Taxing Issues 1.Summarise the relationship between wealth redistribution and public health outcomes. 2.Explain the rationale for taxation on tobacco as part of a suite of public health interventions. 3.Reflect on the regulatory pyramid (earlier slide) as it relates to gun control (if not familiar with this topic in Australia see Law Reform Case Study #4) and the political or economic reasons that direct government regulation was achievable and a market/price mechanism was not prioritised.
- 27. Curtin University is a trademark of Curtin University of Technology CRICOS Provider Code 00301J Module 10: Taxation and Regulation Health Partnerships, Politics and Power Curtin University is a trademark of Curtin University of Technology CRICOS Provider Code 00301J Key concepts Policy instruments Taxation Regulation Self-regulation Market mechanism
- 28. Curtin University is a trademark of Curtin University of Technology CRICOS Provider Code 00301J Module 10: Taxation and Regulation Health Partnerships, Politics and Power Curtin University is a trademark of Curtin University of Technology CRICOS Provider Code 00301J Next week Healthy Public Policy
- 29. Curtin University is a trademark of Curtin University of Technology CRICOS Provider Code 00301J Module 10: Taxation and Regulation Health Partnerships, Politics and Power Curtin University is a trademark of Curtin University of Technology CRICOS Provider Code 00301J Questions & comments
- 30. Curtin University is a trademark of Curtin University of Technology CRICOS Provider Code 00301J COMMONWEALTH OF AUSTRALIA Copyright Regulation 1969 WARNING This material has been copied and communicated to you by or on behalf of Curtin University of Technology pursuant to Part VB of the Copyright Act 1968 (the Act) The material in this communication may be subject to copyright under the Act. Any further copying or communication of this material by you may be the subject of copyright protection under the Act. Do not remove this notice
Editor's Notes
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- Very simply! Monopolies Where one company controls most of the market and therefore has little competition to drive prices down for consumers. Asymmetric information - Where consumers do not have the same level of information about a product/service that the company does – i.e. potential harms, undisclosed ingredients, manufacturing processes that cause harm (human or planet). Therefore is it truly voluntary exchange if consumers do not know about risks or impacts? Negative externalities - Where not all costs of doing business are paid for by the company, i.e. environmental harms that must be paid for by governments/public. If these costs were to be internalised by the business (required to bear the burden) then we can assume that the company would likely produce less off the product as it is more expensive to produce (would depend on whether consumers are willing to pay more).
- Now let’s look a bit closer at policy instruments and the different types. Policy instruments are the way we the government will enact the policy decision. When choosing policy instruments that will achieve our desired outcomes, it is essential to note that: It is assumed that a rigorous analysis will be undertaken to determine whether policy intervention is justified in the first place. This requires an assessment that the policy intervention will achieve net benefits for the community after taking account of all the impacts. The identification of a social, economic or environmental problem and its associated risks does not justify government intervention per se. It is an explicit part of the Government’s deregulation agenda that policy makers are being asked to look at policy intervention more rigorously when responding to a perceived risk. Policy makers need to demonstrate that the benefits of intervening outweigh the costs. Policy makers do not start with a clean slate. The choice of policy instruments is invariably constrained, to some extent, by the existing array of government interventions. Thus an audit of current policy instruments already operating in the policy space is a prerequisite for a good policy design process. This audit would ideally include interventions by all levels of government and the full range of policy instruments—both regulatory and non-regulatory. In some policy contexts it is also necessary to understand the policy interventions applying in other countries, for example, in areas of national security and financial services.
- The range of educational and information-based instruments is broad and can involve varying degrees of compulsion by government. They include the following major categories: education and training, including media and targeted information campaigns corporate reporting requirements such as full cost accounting community right to know laws, that is, laws compelling disclosure of something, for example, pollution and chemical hazards or executive remuneration public information registers such as those for registered builders or health practitioners product certification and labelling, and awards schemes. When are they most useful? Instruments within this category will be more effective in some circumstances than in others, for example: Community Right to Know legislation relies heavily on the energies of local communities in using the information and pressuring firms to improve their performance. Similarly, corporate reporting is dependent upon public interest groups to both shame bad performers and praise good ones. If these are missing such instruments are generally not useful. Instruments such as product certification, labelling and public registers are only useful if consumers are able and willing to utilise this information in their purchasing behaviour— something that needs to be investigated before these instruments are applied. Investment in compliance with labelling and certification standards is also required but in some cases can be achieved via private accreditation schemes with appropriate safeguards. Advantages The viability of many other policy instruments is often substantially dependent on the availability and quality of relevant information. Hence, this type of policy instrument frequently is beneficial as part of a broader package of measures. A key function of these types of instruments is to internalise the desired behaviour into corporate and individual decision-making. This is often vital if governments are to successfully address a range of complex policy problems such as climate change, water conservation and challenging public health issues like obesity. They work best when they can exploit the self-interest of the target audience, although self-interest is not a prerequisite for the success of education and information campaigns—there is evidence that some people are willing to sacrifice their own financial interests for the broader public interest if education campaigns are well-targeted and designed.11 In most circumstances, educational and informational instruments can be implemented with modest administrative burdens, thus increasing their cost effectiveness. Disadvantages This category of instruments cannot usually be relied upon in isolation, particularly where there is a substantial tension between public and private interests.
- Economic instruments may take a wide variety of forms, some providing positive incentives and others negative ones. They include the following categories: property rights (e.g. fishing quotas, water quotas) market creation (e.g. emissions trading schemes) fiscal instruments and charge systems (e.g. taxes, fines, charges, licence fees, subsidies, grants, tax credits) financial instruments (e.g. soft loans, revolving funds) liability instruments—using the threat of legal action to recover the cost of damages to provide firms with an incentive to internalise the costs associated with the risk (e.g. environmental damage, health or property damage to consumers) performance bonds—this requires regulatees to post a security deposit which is redeemable on satisfactory completion of a task (e.g. when a mining company has undertaken rehabilitation of the land), and deposit refund systems When are they most useful? This is difficult to generalise about as it depends on the type of economic instrument and the particular context in which it may be used. Market creation is useful, for example, where the use of permits can be monitored and verified easily and where there are good trading prospects, whereas taxes and charges can be used in a much broader range of circumstances. It is beyond the scope of this paper to discuss the appropriate selection of the range of economic instruments in more detail except to say that policy makers will need to assess the suitability of each type of instrument in the more particular context in which the issue arises.
- Advantages The virtue of economic instruments is that they seek to influence behaviour through price signals or market systems without the need for direct intervention in the affairs of individuals or firms. Individuals and firms can seek out the most cost-effective solutions for their individual circumstances. Many economic instruments encourage firms and individuals to go beyond minimum levels of compliance. Their use may reduce government’s enforcement costs (although some economic instruments such as an emissions trading scheme still require significant control costs because the Government has to establish a market to internalise the true cost of the activities of enterprises and individuals) as well as individuals’ or firms’ compliance costs. Property rights, for example, can address the externalities associated with the ‘tragedy of the commons’ without significant levels of ongoing government intervention. If clear and enforceable property rights are created for water with commercial value, for instance, then an incentive exists for those holding the property rights to conserve water or sell to more efficient producers. Market creation, as in the case of an emissions trading scheme, is one means of making firms internalise the cost of the externalities of pollution but in a way that allows flexibility in how individual firms respond. Those firms able to reduce their pollution levels at less cost can sell their excess permits to those that find it more expensive to cut their emissions. Thus it is a more flexible way of achieving a given emissions reduction target than direct regulation imposing the same target across all firms regardless of their individual circumstances. Disadvantages On the downside, however, individuals and businesses do not always act in an economically rational way, which can make economic instruments less dependable than direct regulation. Similarly, taxes and subsidies can restrict innovation and efficiency in certain circumstances and may not operate equitably across different levels of industry and the community. Some economic instruments can generate significant direct costs to government, for example, subsidies and grants. Each particular category of economic instrument also has its own relative disadvantages. In the case of the instrument of market creation for trading emissions, for example, it can be difficult to find a rational basis for allocating permits. Simply allocating them to existing polluters, for instance, can create a barrier to new market entrants. Using the threat of legal liability as a means of internalising risk also has disadvantages such as high transaction costs and inevitable inequities between different litigants.
- Summary of the regulation continuum and their features.
- This figure from the National Preventative Health Taskforce’s discussion paper shows the different levels of regulation using advertising to children as an example. If we start at the bottom with no regulations or restrictions, this is where only market mechanisms are at work. We then move up to self-regulation, where participating companies voluntarily agree that they will limit their advertising during children’s television times. There may be some benchmarking by particular companies but usually no or minimal penalties for not complying with these standards. Next we have co-regulation where industry, government and consumers agree to a regulatory approach with specific targets and whilst generally self-regulated internally by the industry, the government oversees this process to insure that there is full participation. This might include requiring industry to monitor and report on their activities. And then at the top we have full direct government regulation where legislation may ban specific types of advertisements from designated television viewing periods and the government may enforce penalties for non-compliance. This is usually seen as a last resort and governments often prefer industry self-regulation for the reasons mentioned previously. However if it appears that self-regulation is not working, government may choose to escalate the amount of regulation and enforcement that occurs.
- Useful example to consider drug use
- "Encourage governments to set advertising standards prohibiting promotion of unhealthy products and making misleading health claims. Where commercial speech is protected, as in the United States, it is supposed to help consumers make informed decisions. But today's food, tobacco, and alcohol advertising reveals widespread misinformation or disinformation.54 Many jurisdictions are considering restricting advertising to children, requiring public or industry support for counter-advertising of unhealthy products, restricting rights of companies to target advertising of unhealthy products to vulnerable populations, and requiring warning labels on advertisements.55 Such policies might begin to undermine corporations’ ability to dominate public discourse on lifestyle and health.
- Strengthen laws making corporations liable for the health-related damage associated with products they produce and promote. When companies externalize these costs onto consumers or taxpayers, they impose a burden on society and divert public resources from other social goods.57 Requiring companies to absorb these costs could change corporate decisions about what to produce and advertise. Create enforceable standards giving consumers and workers the right to know the health consequences and companies the duty to disclose what they know about a product.58 Requiring company-financed independent health impact assessments of new products and practices might help health officials translate the precautionary principle into policy.59
- Actively promote healthier, more sustainable lifestyles, addressing demand for unhealthy products as well as supply. Too often campaigns blame the victims, use ineffective strategies, or fail to enlist people's underlying desires for community, sustainable environments, and more meaningful daily lives.60 Tapping into people's desire to avoid corporate manipulation (for example, the truth campaign's anti-smoking ads); linking with social movements that effectively advocate alternative lifestyles (for example, the women's and food movements); and linking healthy lifestyles to environmental sustainability, pleasure, and capacity to enjoy life, can assist those who promote healthy lifestyles to more effectively counter corporate lifestylers.61, 62
- Demand political reforms that reduce corporations’ privileged voice in public policy. Globally, public health needs to claim a voice in trade negotiations, as they often help corporations promote unhealthy lifestyles and undermine national health regulations. The growing power of corporations that shapes national legislation, court decisions, elections, and health regulations calls out for a democratic approach to restore and expand citizen participation in political processes that influence health. Municipal governments, too, need to assert authority to shape social and physical environments that influence lifestyle."
- income tax where people pay part of their earnings to fund general social services and infrastructure, which can be progressive income tax (as it is in Australia) where higher incomes pay a higher proportion of tax and this is a way to redistribute this wealth to those in need and provide universal services that everyone can access no matter their SES flat income tax where no matter what you earn you pay the same proportion of your income, i.e. 15% or 20%. This hits lower income earners harder as they have less discretionary income available than higher income earners, i.e. a greater proportion is locked into living expenses. Because of this equity impact some refer to this as a regressive tax model. goods and services tax which provides a source of general revenue for the government through a flat sales tax on all or most products and services at the point of sale - e.g. our GST which is 10%. This is also considered a regressive tax although the exclusion of fresh food and some other items as part of a deal between former PM John Howard and the Democrats in order to legislate it made it a bit less regressive than it is elsewhere. excise taxes are levied on specific goods and services usually in order to discourage people consuming them and/or recoup funds required to address their harms, i.e. excise on cigarettes, carbon price etc. This can be regressive as well BUT there is a counter argument that if low SES have the greatest harms from these products then they have the greatest health gains to be made by shifting the behaviour and a price signal is more persuasive with this group than higher income - resulting in an equalising of the behaviour/harms. Nonetheless the impact of a price change does impact people on lower incomes more so this implication needs to be considered.
- Taxes can be categorised into three types: progressive, proportional or regressive. The most common way to assess the nature of a particular tax as progressive or regressive is to compare it with individual income (Varela, 2016). If the amount of tax paid increases as a percentage as individual income increases it could be deemed a progressive tax (i.e. income tax), while if the amount of tax paid decreases as a percentage as individual income increases it could be deemed a regressive tax (Varela, 2016). See Figure 1. Personal income tax is a progressive tax due to the higher tax rate applied to higher income earners (Stewart et al, 2015). A tax on luxury items could also be deemed a progressive tax (Varela, 2016). A ‘lump sum’ tax, while equitable in the sense that each person pays the same, would be deemed regressive because those on lower incomes would bear a larger burden relative to their income (Stewart et al, 2015; Varela, 2016). Taxes applied to gambling, alcohol and tobacco as well as government fines and charges are also usually categorised as regressive (Varela, 2016). The Australian value-added tax on consumption known as the Goods and Services Tax (GST) although a flat rate of 10% and in that sense a proportional tax, is often deemed regressive as it affects those on lower incomes more as they spend a higher proportion of their income compared to higher income earners who are able to save (Stewart et al, 2015). (Meheus & McIntyre, 2017, p. 168) agree, stating that such goods and services taxes “…are strongly regressive in most middle- and high income countries”. While many exemptions have been applied to the GST, such as fresh fruit and vegetables, water, education et cetera, the extent to which this has reduced the regressivity of the tax is debatable (Stewart et al, 2015). Pearl (2016, p. 408) argues that “While exemptions undoubtedly benefit low income earners, they are enjoyed by all who spend money on exempt goods and services regardless of their income. In other words, exemptions can be seen as poorly-targeted and so economically wasteful benefits”. Varela (2016) contends that individual income is only one method used to assess the progressive or regressive nature of a tax, and that when comparing GST to household expenditure (a proxy for lifetime income) instead of individual income, the GST approaches a proportional tax . The use of different methods to measure progressivity/regressivity highlights that determining the nature of a tax is not always clear-cut.
- Taxes are often used as health promotion instruments to discourage consumption of products determined unhealthy through the effect of raising the prices of those products (Sassi et al, 2018). Examples include, alcohol, tobacco, soft drinks etc. Such taxes are often seen simply as regressive and this can pose an obstacle to implementing policy. The different methods employed to assess regressivity may lead to different conclusions. Introducing a tax versus increasing an existing tax may also have varying impacts in term of progressivity. In ‘the economics of tobacco: myths and realities’ published in 2000 by Warner, is it argued: Given that in industrialised nations poorer smokers suffer disproportionately from the diseases caused by smoking, a larger proportion of the eventual health benefits of quitting will accrue to the low-income population. In this regard, increasing the cigarette tax is clearly a ‘progressive’ public health policy (Warner KE, 2000 as cited by Hirono & Smith 2017, p. 230). Tobacco taxes might be categorised as regressive, yet increases in tobacco taxes may not be deemed as such because “a tax increase will cause more poorer smokers to quit smoking.” (Hirono & Smith 2017, p. 230). Concern has been raised that the additional financial burden borne by those on lower incomes via these taxes is unfair, however debate ensues around whether the potential health gains outweigh the costs incurred (Hirono & Smith 2017; Sassi et al. 2018). While increases in tobacco taxes in Australia have led to more smokers quitting, and produced associated health gains and cost saving, it is necessary to weigh the financial impact and social stigma that may affect those who do not quit against the degree of benefits enjoyed by others (i.e. quitting, cost savings, less uptake of smoking etc) (Hirono & Smith 2017). Studies of tobacco taxation in low-income populations have indicated that net incomes may actually increase over the long term due to savings in medical expenses, longer working lives and avoidance of devasting health costs (Sassi et al. 2018). It is essential that the financial benefits associated with positive health outcomes are given due consideration in calculations and policy-making. Hirono & Smith (2017) conclude that: In tobacco- specific terms, evidence also suggests the tax increases will have an equity-positive impact, reducing inequalities in smoking rates. The implications for broader inequalities (both health inequalities and socioeconomic inequalities) are, however, less clear. (Hirono & Smith 2017, p. 232)
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