The Importance Of Obesity In Australia's Economy
The prevalence of obesity in Australia has increased dramatically over the past few decades. According to MODI (2014), obesity has overtaken smoking as the leading cause of premature death and illness in Australia. It is currently a national public health crisis with huge negative impacts on the nation and its economy. This essay will explore obesity rates and costs in Australia and then it will examine the economic theory and the government interventions that underlie policies to deal with obesity rates. Government failures that could arise from these interventions will also be considered.
Australia is considered as one of fattest nations in this developed world. National Heart Foundation of Australia (2012) findings illustrate that nearly …show more content…
four million Australian adult were obese. The proportion of Australians who were obese in 2012 had increased significantly by 47% compared to 1995 as shown in table 1. Further, figure 1 also estimated that the number of obese Australians would increase to 6.9 million by 2025 (Access Economics, 2008, p. 9). Moreover, table 2 indicates that obesity is more prevalent among employed Australian adults (64.8%) than those who were not in the workforce (51.8%). In addition, Australian adults living in remote areas were more likely to be obese than people living in major cities.
Table 1. % Obesity by time period
Source: National Heart Foundation of Australia (2012)
Figure 1. Prevalence projection of obesity from 2008 to 2028.
Source: Access Economics (2008)
Table 2. % Overweight/obesity by socio-demographic status
Source: National Heart Foundation of Australia (2012)
Aside from the serious health problems, obesity has a number of costs and externalities that influence significantly on the Australian economy. According to Access Economics (2008, p. 20), the overall economic cost of obesity to Australia was $58.2 billion in 2008 alone. Obesity was associated with increased risks of serious chronic diseases such as CVD, cancer, type 2 diabetes and osteoarthritis. These health problems related to excess weight impose a huge health system cost and carer cost of $3.9 billion to Australia economy (Access Economics, 2008). In addition, obese workers are more likely to experience higher absenteeism in work place that results in a decrease in productivity (Ketter, 2006) that generated a cost of $3.6 billion in 2008 (Access Economics, 2008).
The significant number of negative externalities arising from growing level of obesity results in market failures in Australian economy. The social cost of obesity lies above its private cost when the market fails to take account of the negative externalities and economic cost of the over consumption of unhealthy food. Figure 2 indicates that when market equilibrium occurs at P1 and Q1, there will be a deadweight loss that reflects the private cost only and indicates there is too much production or consumption of junk food in the market. The efficient equilibrium is P2 and Q2 where S2 is the social cost that is the sum of private cost and the external cost (Hubbard, Garnett, Lewis & O’Briend, 2013, p. 337). Figure 2. The effect of obesity on economic efficiency
Government legislations may help correct the market failure.
This is supported by Hubbard et al. (2013, p. 130) who state that government interventions attempt to increase market’s economic efficiency. The government can impose a fat tax that equals to the obesity cost to eliminate the negative externalities. Figure 2 shows that taxation will drive the supply curve up from S1 to S2. Price goes up from P1 to P2 and deadweight loss is internalised. Taxes on unhealthy food may encourage people to lower their consumptions and suppliers to produce less unhealthy food. This fat tax will raise the cost of unhealthy food and reduce the quantity being exchanged in the market. As a result, the market may produce at an efficient equilibrium …show more content…
again.
Government interventions to reduce the number of unhealthy food consumed in the market may be unsuccessful due to the difficulties on prediction of price elasticity. Franck, Grandi and Eisenberg (2013, p. 1949) state that price elasticity is crucial to consider for accurate forecasting of tax impacts. Moreover, Tsang (2011, p. iii) illustrates that most of the junk food in current market is relatively price inelastic. The resultant reduction of amount consumed depends on the price elasticity of demand of unhealthy food directly affected by tax. Some product may have a strong inelastic characteristic that tax would have limited impact in altering demand and people may continue to consume the unhealthy food available in the market.
Government failure may occur when a fax tax fails to take equity into consideration. According to ESRC (2012), poor people spend a greater percentage of their household budgets on food and groceries. Therefore, a regressive fat tax may affect the low-income families who pay a greater proportion on their income in tax than the rich people. In addition, it may be unfair to tax non-obese people and people who suffered from inherited obesity and these may contribute to discrimination issues in society (Savage, 2011).
Rent seeking may be one of the reasons the leads to the government failure on fat tax. The fat tax that the government introduced to the market will increase the manufacturing cost of unhealthy food that is against the industries’ interest. As a result, firms may use their lobby groups to against the tax and resist any government initiative that lessens their profits (Craven, Marlow & Shiers, 2012, p. 134). If the government is influenced by the industry or feels threatened, they may weaken or withdraw the fat tax that would be another government failure.
It may be difficult for the government to investigate how the fat tax should be levied. Craven et al. (2012, p. 40) suggest that it is extremely unlikely that the government would have sufficient knowledge to set an appropriate tax rate if any externalities exist. This is also supported by Martin (2005, p. 78) who states that there would be difficulties in implementing of any fat tax at a level that can encourage people to alter their eating habits. The tax level on the unhealthy food may be overestimated or underestimated that prevent the government to achieve an efficient market equilibrium.
In conclusion, obesity rates have been rising substantially in Australia over the past few decades and research shows that this trend is expected to continue. Imposing a fat tax may help government to intervene to reduce the obesity level in Australia. However, fat tax may fail due to the difficulties in setting tax level, taking account of equity issue, predicting the price elasticity of healthy food and the firm’s rent-seeking behaviour. Therefore, impact of fat tax will be a crucial consideration for the Australian government before its implementation.
References
Access Economics. (2008). The growing cost of obesity in 2008: three years on. Access Economics Pty Limited. Retrieved from http://www.diabetesaustralia.com.au/en/Resources/Reports/National/The-growing- cost-of-obesity-in-2008-three-years-on/
Craven, B.M., Marlow, M.L. & Shiers, A.F. (2012). Fat Taxes and Other Interventions Won’t Cure Obesity. Economic Affairs, 32(2), 36-40.
ESRC (Economics and Social Research Council).
(2012). 'Fat tax ' ineffective in countering obesity. Retrieved from http://www.esrc.ac.uk/news-and-events/features-casestudies/features/19779/Fat_tax_ineffective_in_countering_obesity.aspx
Hubbard, R. G., Garnett, A. M., Lewis, P. & O’Briend, A. P. (2013). Essentials of economics (2nd ed.). Frenchs Forest, NSW: Pearson Australia.
Ketter, P. (2006). Obesity affects workplace productivity. T + D, 60(6), 14. Retrieved from http://search.proquest.com/docview/227016684?accountid=13380
Martin, S. S. (2005). From poverty to obesity: Exploration of the food choice constraint model and the impact of an energy-dense food tax. American Economist, 49(2), 78-86. Retrieved from http://search.proquest.com/docview/200704386?accountid=13380
MODI (Monash Obesity and Diabetes Institute). (2014). Facts & Figures: Obesity in Australia. Retrieved from http://www.modi.monash.edu.au/obesity-facts-figures/obesity-in-australia
National Heart Foundation of Australia. (2012). Factsheet: overweight and obesity statistics. Retrieved from
http://www.heartfoundation.org.au/SiteCollectionDocuments/Factsheet-Overweight-and-obesity.pdf
Savage, J. (2011). Is a 'fat tax ' just more anti-fat prejudice? Irish Medical Times, 45(48), 28. Retrieved from http://search.proquest.com/docview/916231524?accountid=13380
Tsang, H. (2011). Essays on taxation: Positive and normative aspects (Doctoral dissertation). Available from Proquest Dissertations and Theses database.
Australia is considered as one of fattest nations in this developed world. National Heart Foundation of Australia (2012) findings illustrate that nearly …show more content…
four million Australian adult were obese. The proportion of Australians who were obese in 2012 had increased significantly by 47% compared to 1995 as shown in table 1. Further, figure 1 also estimated that the number of obese Australians would increase to 6.9 million by 2025 (Access Economics, 2008, p. 9). Moreover, table 2 indicates that obesity is more prevalent among employed Australian adults (64.8%) than those who were not in the workforce (51.8%). In addition, Australian adults living in remote areas were more likely to be obese than people living in major cities.
Table 1. % Obesity by time period
Source: National Heart Foundation of Australia (2012)
Figure 1. Prevalence projection of obesity from 2008 to 2028.
Source: Access Economics (2008)
Table 2. % Overweight/obesity by socio-demographic status
Source: National Heart Foundation of Australia (2012)
Aside from the serious health problems, obesity has a number of costs and externalities that influence significantly on the Australian economy. According to Access Economics (2008, p. 20), the overall economic cost of obesity to Australia was $58.2 billion in 2008 alone. Obesity was associated with increased risks of serious chronic diseases such as CVD, cancer, type 2 diabetes and osteoarthritis. These health problems related to excess weight impose a huge health system cost and carer cost of $3.9 billion to Australia economy (Access Economics, 2008). In addition, obese workers are more likely to experience higher absenteeism in work place that results in a decrease in productivity (Ketter, 2006) that generated a cost of $3.6 billion in 2008 (Access Economics, 2008).
The significant number of negative externalities arising from growing level of obesity results in market failures in Australian economy. The social cost of obesity lies above its private cost when the market fails to take account of the negative externalities and economic cost of the over consumption of unhealthy food. Figure 2 indicates that when market equilibrium occurs at P1 and Q1, there will be a deadweight loss that reflects the private cost only and indicates there is too much production or consumption of junk food in the market. The efficient equilibrium is P2 and Q2 where S2 is the social cost that is the sum of private cost and the external cost (Hubbard, Garnett, Lewis & O’Briend, 2013, p. 337). Figure 2. The effect of obesity on economic efficiency
Government legislations may help correct the market failure.
This is supported by Hubbard et al. (2013, p. 130) who state that government interventions attempt to increase market’s economic efficiency. The government can impose a fat tax that equals to the obesity cost to eliminate the negative externalities. Figure 2 shows that taxation will drive the supply curve up from S1 to S2. Price goes up from P1 to P2 and deadweight loss is internalised. Taxes on unhealthy food may encourage people to lower their consumptions and suppliers to produce less unhealthy food. This fat tax will raise the cost of unhealthy food and reduce the quantity being exchanged in the market. As a result, the market may produce at an efficient equilibrium …show more content…
again.
Government interventions to reduce the number of unhealthy food consumed in the market may be unsuccessful due to the difficulties on prediction of price elasticity. Franck, Grandi and Eisenberg (2013, p. 1949) state that price elasticity is crucial to consider for accurate forecasting of tax impacts. Moreover, Tsang (2011, p. iii) illustrates that most of the junk food in current market is relatively price inelastic. The resultant reduction of amount consumed depends on the price elasticity of demand of unhealthy food directly affected by tax. Some product may have a strong inelastic characteristic that tax would have limited impact in altering demand and people may continue to consume the unhealthy food available in the market.
Government failure may occur when a fax tax fails to take equity into consideration. According to ESRC (2012), poor people spend a greater percentage of their household budgets on food and groceries. Therefore, a regressive fat tax may affect the low-income families who pay a greater proportion on their income in tax than the rich people. In addition, it may be unfair to tax non-obese people and people who suffered from inherited obesity and these may contribute to discrimination issues in society (Savage, 2011).
Rent seeking may be one of the reasons the leads to the government failure on fat tax. The fat tax that the government introduced to the market will increase the manufacturing cost of unhealthy food that is against the industries’ interest. As a result, firms may use their lobby groups to against the tax and resist any government initiative that lessens their profits (Craven, Marlow & Shiers, 2012, p. 134). If the government is influenced by the industry or feels threatened, they may weaken or withdraw the fat tax that would be another government failure.
It may be difficult for the government to investigate how the fat tax should be levied. Craven et al. (2012, p. 40) suggest that it is extremely unlikely that the government would have sufficient knowledge to set an appropriate tax rate if any externalities exist. This is also supported by Martin (2005, p. 78) who states that there would be difficulties in implementing of any fat tax at a level that can encourage people to alter their eating habits. The tax level on the unhealthy food may be overestimated or underestimated that prevent the government to achieve an efficient market equilibrium.
In conclusion, obesity rates have been rising substantially in Australia over the past few decades and research shows that this trend is expected to continue. Imposing a fat tax may help government to intervene to reduce the obesity level in Australia. However, fat tax may fail due to the difficulties in setting tax level, taking account of equity issue, predicting the price elasticity of healthy food and the firm’s rent-seeking behaviour. Therefore, impact of fat tax will be a crucial consideration for the Australian government before its implementation.
References
Access Economics. (2008). The growing cost of obesity in 2008: three years on. Access Economics Pty Limited. Retrieved from http://www.diabetesaustralia.com.au/en/Resources/Reports/National/The-growing- cost-of-obesity-in-2008-three-years-on/
Craven, B.M., Marlow, M.L. & Shiers, A.F. (2012). Fat Taxes and Other Interventions Won’t Cure Obesity. Economic Affairs, 32(2), 36-40.
ESRC (Economics and Social Research Council).
(2012). 'Fat tax ' ineffective in countering obesity. Retrieved from http://www.esrc.ac.uk/news-and-events/features-casestudies/features/19779/Fat_tax_ineffective_in_countering_obesity.aspx
Hubbard, R. G., Garnett, A. M., Lewis, P. & O’Briend, A. P. (2013). Essentials of economics (2nd ed.). Frenchs Forest, NSW: Pearson Australia.
Ketter, P. (2006). Obesity affects workplace productivity. T + D, 60(6), 14. Retrieved from http://search.proquest.com/docview/227016684?accountid=13380
Martin, S. S. (2005). From poverty to obesity: Exploration of the food choice constraint model and the impact of an energy-dense food tax. American Economist, 49(2), 78-86. Retrieved from http://search.proquest.com/docview/200704386?accountid=13380
MODI (Monash Obesity and Diabetes Institute). (2014). Facts & Figures: Obesity in Australia. Retrieved from http://www.modi.monash.edu.au/obesity-facts-figures/obesity-in-australia
National Heart Foundation of Australia. (2012). Factsheet: overweight and obesity statistics. Retrieved from
http://www.heartfoundation.org.au/SiteCollectionDocuments/Factsheet-Overweight-and-obesity.pdf
Savage, J. (2011). Is a 'fat tax ' just more anti-fat prejudice? Irish Medical Times, 45(48), 28. Retrieved from http://search.proquest.com/docview/916231524?accountid=13380
Tsang, H. (2011). Essays on taxation: Positive and normative aspects (Doctoral dissertation). Available from Proquest Dissertations and Theses database.