BLOG POST

Health Taxes Are an Ideal Policy Solution for the Polycrisis Era

With the interplay between the COVID-19 pandemic; wars in Ukraine, Africa, and the Middle East; and energy, climate, and cost-of-living crises, we are living through a polycrisis, where “disparate crises interact such that the overall impact far exceeds the sum of each part.” In the face this, countries urgently need to protect population health and raise revenue to invest in human capital. In a policy paper released today, we find that taxing unhealthy commodities are an ideal policy solution for this polycrisis era—good for the budget and good for health.

The health crisis

The impact of the COVID-19 pandemic is well known: COVID directly resulted in over 7 million confirmed deaths, with estimates suggesting the true number is over 18 million. Less widely recognized is the creeping, chronic pandemic of non-communicable diseases (NCDs). By 2030, it is predicted that NCDs will account for 75 percent of all deaths, and will have become the leading cause of death on every single continent, including Africa. Already, the five leading NCDs cost more than USD 2 trillion per year, globally. This rising threat is driven by the commercial determinants of health—the way we organise our markets and industries—which, in turn, shape our health behaviours and our consumption of unhealthy products such as tobacco, alcohol, and sugar-sweetened beverages.

This immense underlying NCD burden worsened the impacts of the pandemic at both an individual level—as those living with obesity or other NCDs were more at risk of severe COVID—and at a societal level—as the NCD burden reduced available healthcare capacity to treat COVID patients. The substantial health system disruptions from the pandemic, including missed vaccinations, diagnoses, and treatments, in turn hampered NCD care, which will have lasting consequences for the health of populations.

The acute COVID crisis and chronic NCD challenges have left countries “woefully off track,” especially on Sustainable Development Goals related to hunger, sustainable diets, and health outcomes. To get back on track and address growing challenges such as pandemics, climate change, and conflict, countries need to increase resilience and reduce pressure on health systems. This will require a renewed effort to control NCD risk factors, reduce avoidable health care costs, and increase health financing to rebuild health systems.

The fiscal crisis

The ability of countries to raise resources to tackle the health crises is hampered by concurrent economic and fiscal crises. The COVID pandemic and resultant economic disruptions led global GDP to fall by 3.4 percent—the deepest recession since the Second World War. Further disruptions from the war in Ukraine mean the global economy is set for the slowest half-decade of GDP growth for 30 years. This slowing of growth makes it challenging to raise government revenue, and the legacy of borrowing during the pandemic means significant amounts of this revenue is being spent on debt repayments. Public debt has increased more than fourfold since 2000, reaching a record USD 97 trillion in 2023. High inflation has led central banks in high-income countries to increase interest rates, meaning 3.3 billion people now live in countries which spend more on interest payments than they do on health or education. The proportion of low-income countries experiencing or at high risk of “debt distress” has doubled to 60 percent since 2015. In sum, weak growth combined with a fiscal space squeezed by increasing debt repayments is triggering an acute health financing crisis in several countries. For instance, Kenya and Nepal are already cutting health budgets.

Much like the health situation, this acute crisis comes in the context of a chronic crisis. Health systems in low- and middle-income countries (LMICs) have long been underfunded, with LMICs on average spending under 3 percent of GDP on health, compared to the estimated minimum of 5 percent which would be needed to achieve universal health coverage. Countries therefore urgently need to find ways to reduce health care costs as well as raise additional revenue to fund key social services, including health care.

Health taxes as a solution

As we explain in our new paper, health taxes offer a perfect win-win solution by both reducing the burden on healthcare systems and raising much-needed revenue. Importantly for the current polycrisis context, health taxes can be quickly implemented—most countries have an excise tax system, and thus the experience to include health taxes. And, unlike other taxes, health taxes do not put economic growth at risk.

Yet, despite the compelling arguments in their favour, health taxes have been underutilised as a tool: progress implementing them has stalled since 2019, the rates are set too low, and the taxes themselves have been undermined by inflation. Policymakers would be wise to harness the imperative of the current economic crises, and the dire need to raise revenue, to overcome industry pressure and deliver a win for the budget and a win for health in the form of optimised health taxes.

At CGD, we have been working with Bloomberg Philanthropies to reconvene the high-level Task Force on Fiscal Policy for Health. Co-chaired by Michael Bloomberg, Larry Summers, and Mia Mottley, the task force includes global experts and nine current or former ministers and prime ministers, representing all six WHO regions of the world. Stay tuned for the task force report coming this September, which will provide rigorous evidence-based recommendations on how the world can regain momentum on health taxes ahead of the High-Level Meeting on NCDs at next year’s United Nations General Assembly.

Disclaimer

CGD blog posts reflect the views of the authors, drawing on prior research and experience in their areas of expertise. CGD is a nonpartisan, independent organization and does not take institutional positions.


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