The federal government should impose a tax on sugary drinks that would lift the price of a two-litre bottle of soft drink by about 80 cents, according to the Grattan Institute.
A new report from the public policy think tank urges imposing an excise tax of 40 cents per 100 grams of sugar on all non-alcoholic, water-based drinks with added sugar.
If imposed, the tax would lift the price of a two-litre soft drink by around 80 cents, raising about $500 million a year in extra revenue, the Grattan Institute says.
A tax of this kind would result in a 15 per cent drop in the consumption of sugary beverages as consumers switched to water and other non-taxed drinks.
The measure is needed to put a dent in Australia's obesity epidemic, the think tank says.
"Obesity is one of the great public health challenges of modern Australia, and so this is a reform whose time has come," Grattan Institute's Stephen Duckett said. "We target these drinks because most of them contain no nutritional benefit."
"How we use the money is a debate for later. For now, Australia should introduce this tax because it offers twin benefits -- it will reduce the number of people who become obese and it will ensure fewer taxpayer dollars have to be spent on the damage done by obesity."
The report says the $500 million a year boon from the new tax could be used to cut the budget deficit or boost healthcare funding. Alternately, it could be spent on programs designed to treat obesity and promote healthy eating.
A sugar tax would lead to a big fall in soft drink consumption and to an average annual 400 gram weight loss in men and 290 grams in women, the report argues.
Grattan believes the drastic action would also help ease costs in the health system, with obesity costs calculated at more than $5.3 billion annually.
Nations like France, Belgium, Hungary, Finland, Chile, the UK, Ireland and South Africa have already taken action on the issue, imposing taxes on sugar.
Grattan's call comes after Australia's doctors issued a plea for the government to tackle the issue earlier this month.
Australia's doctors want the federal government to step up on fighting obesity by imposing a tax on junk food and providing subsidies for fruit and vegetables.
The Australian Medical Association (AMA) wants a national strategy on obesity under a "whole-of-society approach".