Study Reveals Lasting Impact of Lieberman’s Sweet Drink Tax on Prices and Consumption

A new study released by the Israeli Tax Authority on Wednesday examines the effects of the sweetened beverage tax imposed during Finance Minister Avigdor Lieberman’s tenure under the Bennett government. The tax, perceived as targeting the ultra-Orthodox community alongside a levy on disposable utensils, led to a sharp increase in prices and a significant drop in consumption of sugary drinks. However, the research shows that beverage companies exploited the tax to raise prices beyond the tax amount, increasing their profits.

Even after the tax was repealed, prices did not fully return to their previous levels, and consumption remained lower than before the tax was introduced. The study found that price increases during the tax period exceeded the tax itself, even after adjusting for inflation. Following the tax’s cancellation, price reductions were smaller than the tax amount removed, indicating that producers did not pass the full benefit to consumers. Consumption of sugary drinks fell by about 12% during the tax period and rose by approximately 5% after its repeal, but did not return to pre-tax levels.

The tax was set at 1 shekel per liter for sweetened beverages and 6 shekels per liter or kilogram for concentrates and powders. Additional levies applied to drinks with lower sugar content or alternative sweeteners. The study also highlighted that the tax had a stronger impact on the ultra-Orthodox sector compared to the general population.

In terms of revenue, the tax generated around 900 million shekels in 2022. Projecting forward, if the tax had remained in place through 2025, government revenues from it would have increased to approximately 1.05 billion shekels, factoring in price and inflation trends.

This research provides insight into the complex dynamics between taxation, corporate pricing strategies, and consumer behavior in the Israeli beverage market.