Are Tax Incentives Cost-Effective to Promote Physical Activity?Monday, June 27, 2011
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 governmentÔÇÖs ChildrenÔÇÖs 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 ÔÇÿÔÇÿtax expenditures,ÔÇÖÔÇÖ 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┬ámillion annually for its Active Families Benefit, out of a total departmental budget (Tourism, Parks,┬áCulture 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┬áphysical activity. No data exist on the extent to which income tax incentives change health behaviors┬ábecause 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 childrenÔÇÖs 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 governmentÔÇÖs 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┬áand 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┬ácould 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.”
“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.
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