Our political parties have been engaged for two weeks in an orgy of tax-cutting proposals.  So far, I have seen no explanation for how this revenue will be replaced, assuming that the fiscal deficit will not be allowed to go through the roof.  That's not counting all the other proposals that will push recurrent expenditure to even higher levels. All this tax-cutting will stoke domestic demand, possibly cause inflation, and strain the public finances.  Unless GDP grows at an unrealistically high rate, I cannot see how the circle can be squared.

So, let me suggest one way of reducing the risk.  It involves levying new taxes on sins. The sins I have in mind have nothing to do with immoral acts or transgressions against religious law.  Rather, I am referring to sins that harm the human body and society. 

Alcohol, tobacco, and ultra-processed foods are a major risk factor in today's leading killers: cancer, lung and heart disease and diabetes.  They are responsible for over 70% of deaths worldwide. Governments and civil society organizations are being challenged to respond effectively to the range of commodities that negatively influence people's health.

Cardiovascular disease, respiratory disease, cancer, and diabetes are estimated to cause 5.64 billion deaths globally, most of which are premature deaths.  The economic cost of health expenditure and lost productivity is significant, and households with members having non-communicable diseases (NCD) bear a higher cost.

According to the WHO, tobacco causes over 7.3m deaths and around 180m disability-adjusted life-years annually; alcohol causes  around 2.6m deaths annually (2019 data), with  around 400 million people living with alcohol use disorder; soft drinks causes a 27% higher risk of type 2 diabetes, while unhealthy diets, including high sugar intake, contribute to over $2 trillion in global health costs from NCDs annually.

"Nothing can be said to be certain, except death and taxes," Benjamin Franklin famously wrote in 1789.  But what if taxes could at least delay death?   Sin tax is a term for excise taxes on unhealthy products like alcohol, tobacco, and sugar that are deemed harmful to society.

The idea behind a sin tax is to discourage the consumption of such products, reduce public health expenditure in dealing with the negative outcomes of such consumption, and raise revenue for the government.  Of course, people view sin tax as a violation of their personal freedom.

The concept of sin tax has existed for many years. As early as 2400 B.C., there were taxes on beer in ancient Egypt.  The actual phrase "sin tax" is first recorded in 1901, when a young women's society in the US started fining its members for using slang.  

These days, to call something a "sin tax" is to express implicit disapproval at the overreach of the state, to imply that it is not the government's job to police great metaphysical questions. Alternatively, one might side with Oscar Wilde's view that there is no sin except stupidity - and imagine the gigantic revenues if we could tax that.

A sin tax is what economists call a "Pigovian Tax," that is a tax aimed to change how we act because it targets those things that negatively impact society.  It not only fills government coffers, but legislators hope that cranking up the cost of the products on which it is imposed will modify consumers' behaviour.

Over the years, a plethora of new products that are harmful to health have entered the market.  Think of e-cigarettes, nicotine pouches, and low-alcohol beer.  The World Health Organisation recommends taxes on addictive products and unhealthy foods and beverages as part of a comprehensive strategy for prevention of non-communicable diseases. However, progress in adopting so-called health taxes has often floundered under the different inconsistent approaches by different sectors of government. Health promotion is the responsibility of health policymakers, while taxation is the mandate of finance ministries.

How can a government optimize both the health benefits and the tax intake from such taxes?  Simply raising rates won't do the trick.  Sooner or later, rather than quitting, a significant number of smokers and drinkers will shift to untaxed or illicit alternatives. This calls for a comprehensive approach that captures all unhealthy products, aligns tax rates with the potential harm to health, and cooperates across borders to limit evasion and smuggling.

Alcohol and tobacco tax revenue in the EU was stable for a long time at around 0.8% of EU GDP, until this share began to fall gradually to 0.67 % of GDP in 2022.  While the percentage might seem small, alcohol and tobacco excise duties still generate over €100 billion in tax revenue across the EU.  In Malta, the per capita revenue at Purchasing Power Standard from excise taxation of alcoholic beverages in Malta in 2022 was $87   ̶   twice as high as Italy's but one-fourth of Latvia's. 

The Institute of Economic Affairs' 2025 'Nanny State Index'   ̶   a ranking of European countries by how much they interfere in people's lifestyles and choices   ̶   gives Malta an overall score of 17.0 on its response to the effects of alcohol, nicotine, food and soft drinks, and smoking.  We are the worst among the 24 countries surveyed, with our score being much affected by the lack of sin taxation on food and soft drinks.

Ideally, the level of taxation should reflect the degree of harm a product is likely to cause while still safeguarding overall revenue.  However, it is difficult to define harm. This depends both on what the product contains   ̶   ethanol in alcoholic drinks, added sugar in sweetened beverages, toxic chemicals in tobacco products   ̶   and on how these substances or their components are administered.  Consumption patterns also have a role: how much people use, how frequently, and whether they combine them with other harmful consumption.

What is certain is that the design of health taxes in many countries, including Malta, remains suboptimal.  One reason for the slow progress has been that the priorities of health and finance policymakers differ, in that the finance and economy ministries have a mandate to consider the economic interests of industry, while the health ministry is focused on health.

Moreover, certain manufacturing industries may claim that high taxation increases illicit trade, pushes consumers to seek cheaper alternatives, and punishes legitimate businesses. However, there is evidence from different countries that joint work by health and finance policymakers can overcome these challenges and strengthen the design and implementation of health taxes.

It is a fact that, because natural market forces fail to account for the full costs of consumption in the price of the product, taxation is necessary as a corrective intervention. Way back in 1920, economists had proposed addressing such externalities, or costs to society, and later refined by others to include internalities, or information failures of the individual.

Taxes on alcohol, tobacco and sugar-sweetened beverages are corrective taxes in that they increase the product price by accounting for personal and social.  The extent to which they reduce consumption depends on how demand for a product will be affected by changes in its price ‒ called the price elasticity of demand.

Demand for tobacco and alcohol is price inelastic because consumption declines less than proportionally to the increase in price. On the other hand, demand for sugar-sweetened beverages is price elastic   ̶   as price increases, demand decreases.  For similar commodities, such as tobacco and alcohol, taxes on one product have been shown to reduce consumption of both products.

Research shows that significant increases in tax rates on cigarettes have led to sustained decreases in the prevalence of smoking, while acting as a deterrent to new smokers. Taxes on sugar-sweetened beverages are similarly correlated with reductions in calorie intake due to these drinks.

In the absence of health tax rates that keep pace with a country's economic growth, consumption cannot be curbed. At the end of the day, the choice of tax rate should depend on the health goal of reducing consumption as much as on the revenue target, since both are informed by consumer responses to the price increase, or the price elasticity of demand.

The EU is encouraging members to pursue a sin tax strategy. Most already differentiate between combustible and non-combustible tobacco products in their excise tax regimes. The European Commission's has published a draft Tobacco Excise Directive which proposes minimum rates for 13 product categories; taxes cigarettes and loose tobacco at similar levels; and sets significantly lower rates for e-cigarettes, heated tobacco products, and nicotine pouches. No tobacco or nicotine product is exempt from taxation, and rates are set to keep pace with or exceed inflation.

If health taxes are designed strategically, they can militate against potential for consumers substituting products to undermine the effectiveness of taxes.  Evidence of substitution from taxed cigarettes to lesser or untaxed tobacco products, such as electronic cigarettes, suggests that all tobacco products should be taxed at similar levels.

On the other hand, health taxes can encourage consumers to change to healthier alternatives and provide incentives to manufacturers to reduce the sugar or alcohol content of their products. This is often the case of differential rates for alcohol and sugar-sweetened beverage taxes.

Health taxes often have a larger impact on consumption in population subgroups that are less responsive to other interventions, such as youth, poorer people, and pregnant women.   Lower socio-economic groups are relatively more responsive to tobacco price changes than higher socio-economic groups.   In view that equity is important to both health and finance policymakers, health taxes should be designed in a way to promote both health and economic equity. 

Overall, however, global evidence shows that sin taxes help reduce consumption of products harmful to health, reduce health-care costs, and increase productivity.  Both big parties in Malta should think seriously about addressing this issue after the election.

Frans Camilleri is an economist. He studied at Oxford and University of East Anglia, is a former corporate head at Air Malta, and has served on various public and private boards.