Monday, June 27, 2011

Are Tax Incentives Cost-Effective to Promote Physical Activity?

Government can hope to affect the health of populations by using fiscal measures to give tax credits for positive behaviours and to slap punitive taxes on behaviours that are deemed harmful – typical examples would be a tax-write off for gym-memberships and higher sales tax on fast food or sugary pop.

While both measures (and similar types of incentives or disincentives) may appear popular (the former, because everyone loves tax cuts or tax returns and the latter because everyone likes to see the ‘bad guys’ punished), whether any such measure are actually effective or even affordable is less clear that people may think.

This topic, in the context of using tax incentives to promote physical activity, is now explored in a paper by Barbara von Tigerstrom from the University of Saskatchewan published in the latest issue of the American Journal of Public Health.

These incentives come in two flavours: tax credits and sales-tax exemptions – both measures have recently been introduced in various jurisdictions across Canada.

Tax credits for enrollment and participation in physical activity include the federal government’s Children’s Fitness Tax Credit (CFTC) and credits for the use of public transportation. Several provinces and territories have or are currently looking into introducing similar measures.

With regard to sale-tax rebates or exemptions, although not specifically aimed at promoting physical activity, Ontario and British Columbia have dabbled in reduced taxes for bicycles and childrens’ recreational clothing and footwear, while Other provinces, such as Saskatchewan and Manitoba, do not impose sales tax on a broader range of athletic and recreational programs.

While all of this sounds good at first glance, von Tigerstrom and colleagues discuss that these measures may not be as effective as people may think and may in fact be rather expensive for the ‘return on investment’.

After all, these programs result in a substantial ‘investment’ costing the governments:

“When a government creates tax credits or exemptions, it chooses to forgo tax revenue that would otherwise be collected. Such measures, referred to as ‘‘tax expenditures,’’ therefore represent investments of public funds that should be justified in the same way that direct spending is.

The cost of the measures recently introduced in Canada is substantial. For example, the CFTC is estimated to cost the federal government approximately $90 million to $115 million each year in forgone tax revenue.

The province of Saskatchewan, with a population of about1million people, budgets $11 million to $18 million annually for its Active Families Benefit, out of a total departmental budget (Tourism, Parks, Culture and Sport) of approximately $113 million to $138 million.”

Not surprisingly, such measures are generally enthusiastically supported by those who have the most to gain – the fitness and recreational industry, which has lobbied governments with optimistic estimates on how such investments can pay substantial dividends in health care savings and tax revenues from a more productive workforce.

Needless to say, all of the optimistic assumptions for such calculations (as outlined in this paper) require some ‘blue-sky’ assumptions and have virtually no data to demonstrate their actual impact (which of course, as is usual with most such interventions, everyone is careful not to actually measure).

In fact, most of the limited data available show or suggest that such tax-expenditures have minimal effects, if any.

As the authors note:

“It is easy to spot the flaws in this assessment, but it is much more difficult to make a sound and realistic prediction of the long-term impact of tax incentives on a complex, multifactorial behavior like physical activity. No data exist on the extent to which income tax incentives change health behaviors because the fitness tax credits are the first income tax initiatives to have this aim, and no studies have yet directly studied their impact on physical activity.”

“Furthermore, even if a tax credit does encourage more parents to enroll their children in eligible programs, it is not clear what impact this would have on the children’s overall levels of physical activity. Will a child continue to be active on days when he or she is not participating in the organized activity or after the program has ended? If not, the benefits will be very modest in proportion to the government’s investment. If participation in organized physical activity does occur, will it simply displace physical activity that would have taken place in the form of free play or casual sports or games?”

“A related concern is that a tax credit will not provide an equal benefit or incentive to all families and in particular may not have much effect on lower-income groups.”

In contrast to tax credits, sales tax exemptions or rebates may have advantages in that they provide an immediate incentive and would particularly make expenditures more affordable for lower-income families. However, it is not evident that the magnitude of such rebates (about 6-8% in most provinces) would in itself have enough of an impact on prices to make these services or products more affordable and provide a real incentive to change behaviours.

It is far more likely that:

“…most tax-based schemes will create windfall gains for families that are inclined toward physical activity and that could easily afford the costs of programs and equipment without any public support.”

Another concern is that:

“Tax expenditures aim to affect individual behaviors without addressing systemic factors that could be strong influences on those behaviors; for example, they give incentives to register in physical activity programs or to purchase equipment, but they do not necessarily affect the availability of such programs or of safe places to use the equipment.”

In summary:

“The estimated costs of the tax-based programs in Canada are substantial; therefore, it is important to consider whether those public funds are better spent on other strategies that could instead provide direct public funding to improve recreational facilities and active transportation networks or to enhance physical activity programs in schools.”

I guess in the end we will still be likely to see more policies that are populistic and ‘buy’ votes than fiscal policies that actually make sense.

AMS
Edmonton, Alberta

von Tigerstrom B, Larre T, & Sauder J (2011). Using the Tax System to Promote Physical Activity: Critical Analysis of Canadian Initiatives. American journal of public health PMID: 21680912

VN:F [1.9.22_1171]
Rating: 10.0/10 (5 votes cast)
VN:F [1.9.22_1171]
Rating: +5 (from 5 votes)
Are Tax Incentives Cost-Effective to Promote Physical Activity?, 10.0 out of 10 based on 5 ratings

3 Responses to “Are Tax Incentives Cost-Effective to Promote Physical Activity?”

  1. JeninCanada says:

    “It is far more likely that:

    “…most tax-based schemes will create windfall gains for families that are inclined toward physical activity and that could easily afford the costs of programs and equipment without any public support.”

    Yes, this. If you’re already poor, a tax credit doesn’t help you if you can’t afford to enroll your child in the first place. There’s no way my family can join the YMCA here in my town, so offering me a tax credit does nothing. Reducing the sales tax, however, would help a tiny bit right from the get-go.

    Obesity is most often seen in families with low-income. Getting these people, myself included, nutritious food on a regular basis should be our first priority, not their weight.

  2. Lucy A. says:

    I agree with JeninCanada before a tax credit can be issued capital in the form of cash must be put out to complicate the low income problem is the lower literacy problem among low income people to find out about such credits.

    There are other barries also in my case the gym that is within walking distance plays music so loud that I would need to take airport grade hearing prtection with me–then there is the killer stairs going up to the gym; a work out in itself. The dis incentive of a sales tax in Alberta would not work because the government has sorwen that there would be “no sale taxes ever in Alberta”. This oath and upholding it has caused many governments to be reelcted. Sales taxes on hig fat fast foods would be seen as the thin edge of the wedge for other sales taxes.

  3. rork says:

    I want farm animal taxes, for ecological reasons. Might lead to some health benefits too. ( Note: I eat farm animals. Less than most. I even kill and butcher some.)

Leave a Comment

You must be logged in to post a comment.

In The News

Diabetics in most need of bariatric surgery, university study finds

Oct. 18, 2013 – Ottawa Citizen: "Encouraging more men to consider bariatric surgery is also important, since it's the best treatment and can stop diabetic patients from needing insulin, said Dr. Arya Sharma, chair in obesity research and management at the University of Alberta." Read article

» More news articles...

Publications

  • Subscribe via Email

    Enter your email address:

    Delivered by FeedBurner




  • Arya Mitra Sharma
  • Disclaimer

    Postings on this blog represent the personal views of Dr. Arya M. Sharma. They are not representative of or endorsed by Alberta Health Services or the Weight Wise Program.
  • Archives

     

  • RSS Weighty Matters

  • Click for related posts

  • Disclaimer

    Medical information and privacy
    Any medical discussion on this page is intended to be of a general nature only. This page is not designed to give specific medical advice. If you have a medical problem you should consult your own physician for advice specific to your own situation.


  • Meta

  • Obesity Links

  • If you have benefitted from the information on this site, please take a minute to donate to its maintenance.

  • Home | News | KOL | Media | Publications | Trainees | About
    Copyright 2008–2014 Dr. Arya Sharma, All rights reserved.
    Blog Widget by LinkWithin