More taxes on sugary drinks, alcohol, and tobacco to fund health care

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Latin America and the Caribbean are facing the weakest economic growth of any region, and some of the highest public debt levels. Government deficits are rising and geopolitical tensions, including tariffs on Mexico and other countries by the Trump administration, add further uncertainty. Against this backdrop, governments are grappling with constrained fiscal space to tackle the challenges of the day, including climate, AI, and now, protectionism. As a result, fiscal resources available for healthcare are far below the level needed to address the growing health crisis in the region. One potential avenue to raise funds that remains grossly underutilized is health taxes.

Few policy levers remain as potent for raising revenue as health taxes. According to the high-level Task Force on Fiscal Policy for Health, of which we are both members, increasing taxes enough to raise prices of tobacco, alcohol, and sugar-sweetened beverages by 50% would raise US$ 41.82 billion in Latin American and the Caribbean, each year. This is nearly 20% of the region’s current annual expenditure on healthcare. This additional revenue could be reinvested back into the healthcare system to provide essential services, such as maternal and child health services, chronic disease management, and cancer treatments.

But the economic benefits of health taxes are only half of the story. These taxes have the potential to tackle the region’s growing crisis of non-communicable diseases—including cancer, diabetes, and cardiovascular diseases —the leading cause of mortality in the region. Tobacco use and second-hand smoke claimed over 350,000 lives in 2021, with over 40% of respiratory cancers in the region attributable to tobacco use. And these health effects have knock-on economic implications, too, further gnawing away at healthcare system spending. In Chile, smoking cost the government almost US$ 2 billion a year in direct costs—for treatments, hospitalizations, surgeries, and medicines— representing 8.1% of the country’s annual healthcare expenditure. By reducing consumption, raising health taxes would significantly reduce the incidence of non-communicable diseases. In fact, tax increases that raise the price of these harmful products by 50 percent would save 50 million lives over the next 50 years, globally.

A number of countries in the region have an excellent track record in the use of health taxes. Colombia tripled tobacco taxation between the years 2016 to 2019. Prior to this, it had the second-cheapest cigarettes in the west, after Paraguay. The effect was immediate: by 2018, cigarette consumption dropped by 34% and the increased tax revenues helped to fund an expansion of our health services. In Chile, tobacco taxes rose to a remarkable 75% of the final pack price in 2016, contributing to a reduction in smoking prevalence from 40.6% in 2010 to 33.3% in 2017.

Despite the compelling health and economic arguments in favor of raising health taxes, tobacco products in Latin America and the Caribbean remain affordable and have become more affordable over time. Yet health taxes have few economic downsides when compared with other taxes: they do not put economic growth at risk, nor do they affect employment rates. The passing of Colombia’s sugary beverage tax in 2022, for example, was the third of a series of health tax increases by successive governments from different sides of the political spectrum. And surveys consistently show substantial support for health taxes by majorities of the population. The political economy for raising health taxes is often more manageable than for other taxes, largely because opposition is limited to certain industries and younger generations tend to support policies that promote healthy or “clean living.” Policymakers should harness this sentiment in favor of raising health taxes.

Several countries in Latin America already appear to be heeding the call: the governments of Colombia and Brazil are currently discussing increased health taxes, and Barbados just announced a new excise tax on high-salt foods. Policymakers involved in these discussions should keep in mind the strong case for raising health taxes. Given the region’s fiscal challenges, it’s no longer a question of if taxes should be raised, but which. Health taxes offer a unique win-win policy solution for revenues and for health.