Today, former New York Mayor Michael Bloomberg and I announced the Task Force on Fiscal Policy for Health. We are bringing together fiscal-policy, development and health leaders from around the globe, including ministers of finance, to address the enormous and growing health and economic burden of noncommunicable diseases (NCDs) in lower- and middle-income countries (LMICs). The hope is to identify underused fiscal-policy tools to lighten that burden.
Given the human and economic toll, the prevention of NCDs — cancer, cardiovascular disease, chronic lung disease and diabetes — should be of great interest to us all. The statistics on the big three are staggering:
- Tobacco use contributes to 7 million deaths annually.
- Obesity contributes to 4 million deaths annually.
- Alcohol consumption contributes to 3.3 million deaths annually.
Fiscal measures, in the form of taxes, are underused, yet we know they work for two important reasons. First, prices on goods matter, especially to the younger and poorer populations. People, particularly the poor, will buy less if it’s more expensive. Second, taxes on certain goods can be educative and signal disapproval. Nothing illustrates this more than gains we have seen from taxing tobacco over the past 50 years in our country and others. In Brazil, when tobacco taxes increased 116 percent (in real terms, i.e. adjusted for inflation) between 2006 and 2013, sales decreased by 32 percent, and tax revenue increased 48 percent. Countries like Mexico have had great success with fiscal tools and sugar. A 1-peso-per-liter tax on sugary beverages resulted in a nearly 10 percent reduction in consumption after two years.
I would venture to say that sugar is where tobacco was in 1972: The dangers have been recognized and pointed up, but not much is happening YET to reduce the demand.
Behavioral economic considerations have indicated that taxes are more potent than we otherwise may have supposed. Beyond the direct effects of higher prices in discouraging consumption, taxes send a signal of social disapproval. No one wants to be the only one eating dessert after a group restaurant meal. So through social multipliers, higher taxes discourage emulation of risky behaviors.
The task force will examine the growth of NCDs in LMICs and the evidence to support excise-tax policies and develop recommendations on fiscal policies for health. While NCDs are the leading cause of death worldwide and a barrier to development, only about 1 percent of global health funding is aimed at preventing them. The World Health Organization predicts major economic losses, $500 billion a year and growing, for LMICs if NCDs are not addressed. Ministers of finance shape tax policy — a powerful tool to reduce the harmful use of these products. But we also know that these ministers have many competing priorities. Viewed through a public health lens, tackling NCDs can easily be seen as someone else’s issue. Our task force aims to help ministers of finance around the globe understand the importance of their role in setting effective tax policies to save lives in their countries.
Taxes are what makes a government function. Taxing “bads” like tobacco and sugar over “goods” like savings and income is as close to a free lunch as you can get in economics. This is low-hanging fruit that makes people’s lives better and makes the world a better place.
Lawrence Summers is a professor at and past president of Harvard University. He was treasury secretary from 1999 to 2001 and an economic adviser to President Barack Obama from 2009 through 2010.