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Our current tax code already makes a distinction between food that is good or bad for you. The GST/HST makes a distinction between basic grocery items, which are untaxed and “junk food” such as candy, which is taxed.

Moe Doiron/The Globe and Mail

A recent Globe and Mail editorial argued that "Slapping a tax on junk food is still a bad idea". This is not a new idea: Junk food taxes already exist in Canada.

Given the fiscal externalities (third-parties paying for decisions made by others) that arise from junk food consumption, existing junk food taxes should be increased, not scrapped.

The piece says that "food is a necessity that is neither inherently good nor bad for you… [a] surtax on foods identified as 'junk' would be a punishing measure".

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Our current tax code already makes a distinction between food that is good or bad for you. The GST/HST makes a distinction between basic grocery items, which are untaxed and "junk food" such as candy, which is taxed. The law is far from perfect; a single muffin is considered a sweetened good and is taxed, whereas a package of six or more muffins is a non-taxable grocery item. The intent of the law, however, is clear – that junk food should be taxed more heavily than basic groceries. A junk food tax would simply increase these taxes, by either increasing the GST/HST rate, or by taxing soda based on its sugar content.

The editorial correctly points out that such a tax, by itself, is regressive. A regressive tax is also not novel, as alcohol taxes are regressive, with tobacco taxes especially so. Regressivity in taxes is easily solved, as some of the revenue could be returned to low-income households in the form of a rebate. This is also not a novel solution: Rebates are used to combat the regressive nature of the GST/HST. A junk food tax can, in fact, be made progressive if the rebates are structured appropriately.

The existence of public health care creates a number of fiscal externalities. If I engage in dangerous activities and break my leg, I impose a cost on other taxpayers. Obesity, partially caused by consumption of junk food, costs taxpayers billions of dollars each year. We could pretend this externality does not exist. We could ignore it. We could eliminate the public health care system to rid ourselves of these pesky fiscal externalities. Or finally, we could decide as a society that we care about fiscal externalities and work to solve ones created by the health care system. A junk food tax is one such solution.

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About the Author

Mike Moffatt is an Assistant Professor in the Business, Economics and Public Policy (BEPP) group at the Richard Ivey School of Business – Western University. Mike also does private sector consulting for the chemical industry. More

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