The Vanuatu SSB tax
The idea of a SSB tax was proposed by the Ministry of Finance and Economic Management (hereafter Ministry of Finance (MOF)) in late 2012. Its instigator was a foreign economist embedded within the MOF. According to one development partner representative, it was conceived of as a ‘revenue gathering exercise’, a view affirmed by another informant:
[The] characterisation of this [the SSB tax] as a revenue raising initiative is absolutely correct.—Finance representative
With existing SSB taxes at least nominally framed as responding to NCDs in other Pacific nations, and with Vanuatu’s own increasing trade and economic pressures, a coalition of MOH and MOF bureaucrats formed around the proposed excise tax. The SSB tax was viewed by proponents as a reputable mechanism aligning the nation’s health, trade and economic priorities. However, despite WHO being a strong advocate of SSB taxes in general, this early coalition did not include WHO representation.
Over more than a year, the MOH–MOF coalition raised the profile and advocated for the idea of the SSB tax. MOH bureaucrats knew that the measure required MOF support to be endorsed by the parliamentary Council of Ministers (hereafter ‘cabinet’) but wanted a tiered, sugar-content based measure, with a portion of revenue earmarked for health. MOF bureaucrats were opposed to earmarking, considering it counter to good public financial management, and wanted a volumetric rather than nutrient-based tax to ease administration. Yet MOF partners also recognised that the ‘health’ framing of the tax (and the support of several senior doctors who advocated for the tax’s putative health benefits)40 shielded the proposed measure from being perceived as one designed exclusively to raise revenue at the expense of the domestic beverage industry.
Whenever there’s a local company producing the product … they have a lot of power to talk to the Government, because there’s such a dearth of local industry. For the Government it’s a really important priority that, of those industries that exist, it’s important we listen to them.—Political representative
Thus, the SSB tax was framed as a health initiative by the MOH Senior Finance Officer at a government-wide revenue generation conference in early 2013. In exchange, the MOF-drafted cabinet paper included loose wording around future health investments, although MOF bureaucrats involved said they never intended to pursue earmarking post the tax’s enactment:
From a Ministry of Finance perspective… you would earmark to get public support for the idea of revenue raising. Well, if there’s no need to get public support, no need to earmark I guess.—Finance representative
The cabinet paper was a MOF initiative with limited input from internal or external health stakeholders, including the MOH and WHO. The MOF’s early interest in revenue raising over health outcomes is illustrated by the paper’s recommendation that the tax be volumetric rather than nutrient-based; in other words, based on a standard per litre charge rather than proportional to the beverage’s sugar content. This pragmatic recommendation was based on the relative ease of enforcing volumetric measures, however it provided no incentive for healthier product reformulation. A second recommendation in the paper was that the tax be specifically assigned to carbonated, but not to non-carbonated SSBs such as the domestically produced Splashe. Non-carbonated SSBs are more widely consumed in Vanuatu,62 and domestic industry are powerful local stakeholders (see further below). Only applying the tax to (largely imported) carbonated SSBs thus reduced domestic opposition, but simultaneously limited the tax’s potential health impact.
Furthermore, as a MOF initiative with few health experts involved, fact checking of health-related claims in the cabinet paper was limited, resulting in the inclusion of data from three important but incorrect technical sources. First, the cabinet paper assumed that SSB consumption in Vanuatu (and associated health conditions and healthcare costs) would all increase with economic development.38 However, the baseline measure of diabetes prevalence at 21% was incorrect. Taken from the NCD STEPS report, this figure was later demonstrated to have resulted from a diagnostic equipment error that inflated diabetes prevalence.63 64 Vanuatu’s true diabetes prevalence was 9.3%.15 A second incorrect technical source was the Global School Health Survey data which reported student SSB consumption.65 The survey data was based on students’ description of their SSB consumption in the previous 30 days, but a regional report mistakenly reported those figures as daily consumption, potentially amplifying youth consumption rates 30-fold.65 A third technical source was the MOF-led analysis of SSB imports, which were reported to have increased 191% between 2006 and 2012, yet were not contextualised with reference to the concurrent 255% increase in tourism (tourists are key SSB consumers) over the same period.38 66
Due in part to the urgency conveyed by these (incorrect) technical sources, the tax gained strong bureaucratic support throughout 2013 and into 2014 despite an unstable political climate, surviving two changes in governments, two different health and three different finance ministers. As bureaucrats refined their pitch to incoming ministers, the proposed tax rate increased from 30vt (US$0.26) to 50vt (US$0.41), an adjustment made to increase the appeal of the tax among successive revenue-concerned governments, rather than based on price elasticity or health impact concerns.
In the end, it went up simply because it didn’t raise enough revenue… 30vt doesn’t make it attractive enough. Where 50vt you could almost, perhaps, maybe, get 100 million vatu from this policy. Which sounded like a nice, round, big number.—Finance representative
The process of securing ministerial support for the tax spanned 18 months, with the cabinet paper finally endorsed by cabinet in March 2014 (figure 1). Less than 6 weeks after that endorsement, a vote of no confidence in Prime Minister (PM) Carcassess saw another change in government. It then took until October 2014 for the draft bill to be endorsed by the Attorney General and, more than 2 years from its initial proposal for the finalised bill to reach parliament in November 2014. Despite some objections, the motion passed by a slim majority, bringing the SSB excise tax into force as of 1 January 2015. However, news of the SSB tax was subsumed by the parliamentary motion that directly followed: a case of widespread political corruption that would upend government and embroil 16 then-sitting MPs (30% of parliament), captivating public and media attention that day and in the months that followed.24 42 43 Three months later, Vanuatu’s situation would shift permanently when a category five cyclone, Cyclone Pam, decimated the country in one of the worst natural disasters in its history.
Timeline of events surrounding the Vanuatu SSB tax. MOH, Ministry of Health; NCD, non-communicable disease; SSB, sugar-sweetened beverage.
The SSB tax political economy
The need for government revenue
Vanuatu’s fiscal situation and the need to raise revenue were pivotal drivers of the SSB tax. As Vanuatu moved to graduate from the United Nations ‘Least Developed Country’ status, preferential treatment by the aid and trade communities alike was projected to diminish.67 The slowing in aid following the global financial crisis had also forced the Vanuatu Government to consider its future economic independence.68 69 The need for government revenue was also sharpened by a global and regional trade climate characterised by trade liberalisation and new trade arrangements.70 71 For Vanuatu, this included WTO accession, full implementation and extension of the MSG free trade agreement and early negotiations of the Pacific Agreement on Closer Economic Cooperation (PACER plus) deal.39 Key motives for engaging in trade deals included regional solidarity, Vanuatu’s growing recognition as a regional player and the promise of economic payoffs associated with greater access to export markets. While trade commitments raised Vanuatu’s profile as a trading partner, the concurrent removal of import tariffs and other barriers to trade increased competition for domestic producers and placed additional strain on the net importing nation’s fiscal reserves.
I’d argue that this whole period there’s always been this focus on government revenues.—Health representative
Vanuatu over time had signed free trade agreements with the Pacific Islands and a whole bunch of others and ascended to WTO. So the tax base on the import duty side was slowly eroding. And there was a feeling within government that they needed to find a way to raise revenue.—Finance representative
Uncertainty regarding foreign aid and reduced import revenue forced the Vanuatu Government to look for internal mechanisms to increase funds. Yet having traditionally encouraged foreign investments and business interests through a low tax base,26 there was powerful opposition among the nation’s business community to introducing an income tax.27
The government in February 2013 wanted to find a way to raise revenue but not implement an income tax… They had a big conference at Le Legon, and brought all of the ministries in, and every single ministry presented on an idea [to raise revenue].—Finance representative
It was in this context that the proposal for the SSB tax emerged, framed by the MOH–MOF coalition as responding to the nation’s growing NCD burden but more critically, addressing the increasing need for revenue. Informants also noted that the excise tax on SSBs was characteristic of the response of governments in many import-reliant economies to trade liberalisation; that is, switching from import-tax to taxation through excise provisions. Import taxes—those that apply to imported and not domestically produced goods—are the target of trade deals and liberalisation. By swapping import taxes for excise tax provision—those that apply to domestic and imported goods—countries can secure ongoing revenue while ensuring compliance with trade deals. Indeed, bureaucrats and politicians at the time of enactment (as reflected in Hansard)72 and during later interviews, reflected that the revenue generating potential of the tax was far more important to those within government, than its putative health benefits.
Any kind of vague revenue collection policy that had any sort of reasonable justification was going to stick. And this [the SSB tax justified on health grounds] was one of them.—Finance representative
Political and bureaucratic instability
Alongside challenging economic conditions, chronic political instability in the early to mid-2010s shifted relationships and power dynamics, creating an unexpected path to legislation for the SSB tax. The 18 month period stretching from late 2012 to mid-2014 saw three PMs and frequent portfolio reshuffles by coalitions trying to maintain internal support. With frequent parliamentary votes of no confidence and the nation’s largest case of political corruption, politicians’ attention was focused more on day-to-day political power struggles than issues of policy.
There was a great deal of criminality at that time. There was a great deal less focus on governance.—Media representative
Indeed, the level of political instability prompted some interviewees to describe the eventual enactment of the SSB tax as a stroke of sheer luck.
The Minister of Finance through that period changed three or four times, I think. So that’s just complete luck that, you know, he just didn’t go [say] one day: ‘No we’re not doing this’.—Finance representative
On the one hand, ownership of the SSB tax proposal by the MOH–MOF coalition protected the measure from the political machinations by positioning it as politically agnostic. Ongoing bureaucratic support for the tax, despite the surrounding political uncertainty, sustained momentum and, importantly, ensured that the tax’s economic impetus—and health framing—were maintained during its passage through parliament. In fact, the challenging political climate shifted considerable power to the bureaucracy in designing and enacting policies like the SSB tax. Several informants highlighted that throughout Vanuatu’s history, it was during times of political instability that policy change was more prolific but could risk insufficient strategy when lacking bureaucratic oversight.
When the government is changing consistently, they’ll pass any old thing through. And they just don’t care. They just care about, you know, who’s the next prime minister.—Finance representative
On the other hand, the unstable political environment negatively impacted many working relationships between ministers and bureaucrats, and rulings by the Public Service Commission saw a high turn-over of key bureaucrats.73 These conditions particularly impacted the MOH, with all three directors concurrently suspended under the 2013 Carcasses government.74 This instability weakened MOH actors’ role in the SSB tax. With previous directors caught in protracted legal battles for wrongful dismissal,74 75 the MOH–MOF SSB tax coalition lost its health champions and those who remained were less vocal. By the time of SSB tax’s implementation, many senior health bureaucrats had not been reappointed, translating into a lack of institutional memory that negatively impacted how health guidance fed into implementation or evaluation.
There’s institutional memory lost about what was done before, that’s definitely true. You have people having to reinvent the wheel a lot because there’s just no memory of these things that’ve already been done.—Political representative
The political (and subsequent natural) disasters saw public and political awareness of the SSB tax dissipate while government personnel changes meant that the MOH–MOF SSB tax coalition were unavailable to guide future steps. The absence of this vanguard left the policy’s implementation vulnerable, a weakness that was soon exploited by the domestic SSB industry.
It was passed but then immediately the lobbying began… In the end … they got a lot of exemptions for other things like import duties et cetera. At the end of the day, [the SSB tax] didn't make any difference.—Finance representative
The power of the domestic industry
The power of the domestic industry was visible in the differential treatment of the domestic and foreign SSB industries in the passage of Vanuatu’s SSB tax. According to interviews, the interests of the foreign SSB industry did not factor into bureaucratic or political thinking around policy design and advocacy. Rather, the socially and politically protected status of the domestic SSB industry, combined with a stretched bureaucracy, resulted in domestic carve-outs and concessions both before and after enactment.
Prior to enactment, for example, it was recommended that the tax be assigned to tariff item 22.02 (encompassing carbonated beverages). This tariff item did not include locally produced and more widely consumed non-carbonated beverages (including Splashe) which were instead assigned against tariff item 20.09 that attracted zero excise tax.
I said to [the foreign economist], I think you’re going to miss Splashe. And it’s basically the one causing diabetes in my opinion. Almost single-handedly the cause of diabetes, that bloody product. So I was like, it’s not carbonated so what are you going to do?—Finance representative
Such concessions were achieved in the context of increasing trade liberalisation and a slowing national economy, which heightened concerns regarding local industries’ viability, encouraging the powerful domestic SSB industry to demand further government protections before and after the tax’s enactment.76 77 While domestic beverage producers, notably Tusker, were initially vocal in their opposition to the tax,36 as the policy coalition solidified, their lobbying was said to have shifted behind closed doors; influencing how the tax was designed rather lobbying for its scrapping altogether. One informant described industry lobbying as focused on shifts in the language used during this phase:
Yeah, maybe that’s where their lobbying focussed on, changing the wording. —Health representative
Records of parliamentary debate also demonstrate an explicit focus on how the tax could be used to carve out domestic protections that had been eroded through trade liberalisation.
The Hon. Minister Simelum thanked the Hon. Chabod for his comments concerning the protection of local industries, and highlighted the financial supports granted to ‘Tusker’, and welcomed further queries from the company. He added that the Government was not seeking to protect the company itself but the entire industrial sector.—Parliamentary Hansard72
The way the SSB tax was structured and administered thus belied its health framing and highlighted the importance of domestic industry interests.
In contrast, the foreign SSB industry exerted relatively little influence over the process. While regional Coca-Cola representatives appeared disapproving of the tax in media reports,36 few informants identified foreign industry actors as having any substantial influence. Some speculated that political instability made it challenging for the foreign industry to identify a receptive audience among politicians. Others suggested that foreign beverage industries saw a strategic advantage in their interests being represented by intermediaries such as the Vanuatu Chamber of Commerce and Industry or domestic actors. Still others suggested that the SSB market in Vanuatu may have been considered too small to intervene or that multinational corporations suspected that the tax would not impact sales. Local industry actors also noted that exclusive supplier contracts between multinational suppliers and local distributors were poorly regulated in Vanuatu. This lax regulation spread the tax’s impact across the market and fuelled local competition, potentially preventing a united opposition to the tax from forming.
