Monday, October 21, 2013

Mexico to tax soft drinks and junk food

Mexico has passed the US in terms of obesity, with seven of 10 adults now categorized as overweight or obese.  President Enrique Pena Nieto is proposing a series of tax increases to fund increased spending.  WSJ reports part of the package is a one peso tax on sugary drinks.  LA Times reports that there also is a five percent tax on packaged food which has more than 275 calories per 100 grams.

Predictably, the tax is already getting slammed both by citizens upset with the higher cost of simple pleasures and by the companies whose products are being taxed.  From an economic perspective, taxing food to combat obesity is similar to the logic behind taxing alcohol and tobacco.  It would make more sense to have a generalized calorie tax combined with rebates to help the less fortunate.  However, such a tax would have all food companies up in arms, so there is a certain divide-and-conquer element to the government's strategy.  Also many of the leading packaged food and soft drink producers are companies headquartered outside Mexico, e.g., Coca-Cola and Nestle.

Denmark tried a similar tax in 2011 but repealed it after one year after there was no change in eating habits and a lot of junk food smuggled across the border.  Other countries will be keeping an eye on how the junk food taxes work in Mexico.  

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