By Nkosikhulule Nyembezi
The fizzy drink-levy might seem like a relatively light business, but through those bubbles you can get a glimpse of what’s to come as Finance Minister Enoch Godongwana hiked the health promotion levy, commonly known as the “sugar tax” from 2.21c per gram of sugar to 2.31c, when he delivered his maiden Budget on Wednesday. And, hey presto, there is panic in the sugar industry.
Sorry, I should say some in the sugar industry. There is one hell of a debate going on in economic, financial, and health policy circles about whether this tax is warranted at all in the first place, given the forecast threat of job losses in the current financial year in an industry that has been battered due to falling prices, stiff competition from cheap imports, and a drop in sales volumes in part apparently due to the sugar tax introduced in 2018.
The industry generates R14 billion income a year, directly employs about 85 000 workers and supports at least 350 000 jobs across the value chain.
The minister must be telling himself that being attacked from both right and left demonstrates what a politically cunning Budget this was as a ringing endorsement of President Cyril Ramaphosa’s business-friendly Sona.
He must be seeing this as a signal that he must be positioned in the centre ground, which is where most voters tend to congregate. And anyway, the right and the left can’t both be correct, can they? Actually, they can…
There can be few people who don’t want to return to the happy-go-lucky days before Covid-19. It’s only human to hanker for a time when one could do all they could to preserve existing jobs or to create more jobs.
On his part, Godongwana has been desperate to strike a balance between addressing fiscal imbalances and restoring the health of public finances in the medium term.
Indeed, his measured judgments in the Budget confirmed that scrapping the sugar tax remains some way off, and extending it to milkshakes and other beverages is not ripe for implementation.
That’s understandable. After all, there is encouraging evidence that the sugar tax is paying off: South Africans are buying 28% less sugary drinks, and have consequently markedly reduced their sugar and calorie intake.
The tax is a “duty at source” paid by the producer and calculated according to sugar content, rather than the item’s total volume. Producers pay 2.1c per gram of sugar per 100ml, after a “free pass” for the first 4g per 100ml.
This structure incentivises manufacturers to do two things: first, to pass the price hike on to the consumer in the form of higher retail prices. Second, reduce the sugar-levels in their drinks to reduce their tax liability, often replacing sugar with “non-nutritive sweeteners”.
Frankly, I think it is far too early to apply the brakes on the sugar tax, and Godongwana’s measured decision is plausible.
This is so even as many in the sugar industry are aghast at what they term as cruelty towards workers facing the threat of job losses. Moreover, beverage companies rumble with discontent over the risk of the loss of revenue due to dropping consumer numbers of sugary drinks.
Andrew Russell, the chair of industry body SA Canegrowers Association says the body has previously drawn National Treasury’s attention to the findings of the socio-economic assessment commissioned by Nedlac, which shows that the sugar tax cost South Africa more than 16 000 jobs and R2bn in the first year of its implementation alone.
They claim that there has been no evidence that the sugar tax has been effective in achieving its primary objective of reducing obesity levels in South Africa. This is a strange claim, especially after the publication in May this year of the first scientific evaluation of South Africa’s “sugar tax” impact report by Professor Karen Hofman and her team. Their report shows that the combination of higher prices and lower sugar content has had a positive impact, and links the levy directly to dramatic drops in South Africans’ sugar intake.
The minister is desperately hoping that these forecasts on job losses will turn out to be wrong, and the sugar industry will experience a windfall as commodity prices are likely to improve later this year.
Besides, there are several initiatives under way to keep the industry active and on a competitive edge to become a leader in biofuels, especially ethanol, as a move to increase blended energy solutions for South Africa.
Unfortunately, if these forecasts are right, the public will be disappointed when they assess progress in job-creation. It will not be experiencing a vibrant age of optimism that could increase both personal and corporate tax revenues as predicted in this business-friendly Sona. Instead, the public will feel a lot more like going through a grinding age of stagnation.
Unless the government spends prudently and improves the implementation of existing policies to cushion vulnerable industries, the disappointment will have long-lasting effects stretching to the polls in 2024.
For all the suffering from the hardships of a depressed economy as well as all the good intentions to use the sugar tax as part of the government’s efforts to improve the health of South Africans, and to try to reduce the related costs for the public and private healthcare systems, this Budget also revealed new possibilities.
The ability of the government to hike taxes and spend vast sums of money on several priority areas demonstrated the economic power it has to address a health threat deemed serious enough. The Budget functioned as an object lesson in what is possible. Maybe it is that hope Godongwana braved spreading – even more than the threat of decimating the sugar industry.
* Nkosikhulule Nyembezi is a human rights activist and policy analyst.
** The views expressed here are not necessarily those of IOL and Independent Media.