Medical doctors regularly warn their patients about unhealthy foods and behaviors. But who is going to warn the public about unhealthy public policies and government spending?
The quick answer is that other doctors (the kind with PhDs not MDs), along with qualified policy analysts of all kinds, can and do raise alarms about government actions that are unhealthy. A newly published CGD policy paper adds to this literature by discussing how government fiscal policies promote consumption of unhealthy products. This paper supplements the flagship report by the high-level Task Force on Fiscal Policy for Health by estimating how much governments spend to encourage consumption of tobacco, alcohol, and sugar, which directly contradict expenditure and policies to discourage consumption of these same products.
Overall, we find that direct subsidies from government budgets to producers of tobacco, alcoholic beverages, and sugary beverages turn out not to be very large. Governments support these industries through a variety of other programs, but not with direct payments from government budgets. On the other hand, subsidies for other products, such as oil and cereal crops that are used in producing ultra-processed foods and fossil fuels which contribute to air pollution and global warming, are substantial.
Direct subsidies are relatively small, globally, but remain important for specific countries
Our review finds that the revenues that could be saved by eliminating budgetary transfers to farmers growing tobacco, grains and grapes for producing alcohol, and sugar is probably less than $10 billion annually, worldwide, according to the OECD’s agricultural subsidy database. This excludes the effects of many policies that support cultivation of these products, such as general agricultural insurance programs, protective tariffs, or exemption from regulations which benefit these industries, but which do not have a budgetary cost. Other unhealthy agricultural subsidies are much larger. Some $510 billion of taxpayer money promotes cultivation of vegetable oils and cereal crops—much of which is used for the ultra-processed foods that contribute to non-communicable disease.
While direct payments to tobacco, alcohol, and sugar producers may be small on a global basis, they are still significant in specific countries. For example, India paid relatively large sums—$2.8 billion—directly to sugar farmers while forgiving debts of over $10 billion accrued by sugar processors. In 2018, Zimbabwe’s government provided $70 million to capitalize its Tobacco Input Revolving Fund—an amount equivalent to one quarter of its entire Ministry of Health and Child Care budget of $280 million that same year.
Eliminating other tax benefits could supplement the removal of subsidies
Another way that governments can improve their fiscal condition is to eliminate tax benefits for producers of unhealthy products. According to public financial statements for 2023, the top three manufacturers in each of three product categories (cigarettes, alcoholic beverages, and sugary beverages) spent a total of $85 billion promoting their products. With an average tax rate of 20 percent, governments could have raised an additional $16.2 billion if corporate spending to promote unhealthy products was not legally deductible. China has enacted such a policy, disallowing tobacco manufacturers from deducting promotional spending as a business expense. In doing so, they have increased their revenues, made product promotion more expensive to tobacco manufacturers, and indirectly discouraged smoking and its ill health effects.
The fossil fuel industry is another industry with unhealthy products, and it benefits enormously from government support programs, natural resource regulations, and tax policies. International Monetary Fund researchers estimate that the fossil fuel industry is directly subsidized to the tune of $1.3 trillion annually, equal to 3.6 percent of global GDP. Eliminating such subsidies could substantially improve health in both the short and long term, preventing 1.6 million local air pollution deaths and slowing climate change.
Taxing unhealthy goods is the priority, but removing unhealthy subsidies is a valuable addition
Taxing tobacco, alcohol, and sugary drinks must be the current priority in fiscal policies for health because they are highly effective at raising resources and saving lives. However, the existence of any taxpayer-supported subsidies for unhealthy products provides countries with a very clear opportunity to save money and improve health. Identifying and eliminating such subsidies is a win for increased fiscal capacity and a win for better, longer lives. So, here’s the prescription: review your government’s expenditure and tax policies. If they’re subsidizing unhealthy products, start a program right away to help them kick the habit!
