Issue 41 / 28 October 2013

TAXING alcohol by alcohol content is the best lever to reduce consumption and consequent harms and health care costs, says an Australian expert.

John Rogerson, chief executive officer of the Australian Drug Foundation (ADF), said a tax by alcohol content was an incentive to both producers and drinkers to focus more on low-alcohol products.

He was responding to a study published online by the MJA today modelling four proposed variations on alcohol taxation in Australia — replacing the wine equalisation tax (WET) with a volumetric tax; applying one equal tax rate to all alcoholic beverages equivalent to a 10% increase in the current excise applicable to spirits and ready-to-drink products; applying an excise tax rate that increases exponentially by 3% for every 1% increase in alcohol content above 3.2%; and applying a two-tiered volumetric tax. (1)

The authors used annual sales data and taxation rates for 2010 as the base case.

They found that all four of the proposed variations “were shown to save money and more effectively reduce alcohol-related harm compared with the 2010 base case”.

“Abolishing the WET and replacing it with a volumetric tax on wine would increase taxation revenue by $1.3 billion per year, reduce alcohol consumption by 1.3%, save $820 million in health care costs, and avert 59 000 disability-adjusted life-years”, they wrote.

They said although the three other scenarios would lead to even better results, “perhaps the most politically feasible policy option at this point in time is to abolish the WET and replace it with a volumetric tax on wine”.

A volumetric tax would mean that the same rate of tax would be applied per litre of alcohol across all beverages.

Mr Rogerson told MJA InSight that 3000 deaths and 75 000 hospitalisations a year are directly attributable to alcohol. (2)

“The taxation system is one of the best levers we have to reduce harms caused by alcohol. The key to its success is consistency and that’s why a tax based on alcoholic content makes the most sense.”

The WET is a value-based tax which generally applies on the wholesale price of certain types of products that have an alcohol content of more than 1.15%, specifically grape wine, grape wine products, fruit or vegetable wine, cider, perry, mead and sake. (3)

Mr Rogerson said taxing wine was a political hot potato because many federal electorates included wine producers.

“This research tackles the issue in a positive way”, he said. “Price is the lever. It’s ingrained in our culture to be always looking for the lower price. Look at the way we’re always looking for the cheapest petrol, for example.

“If we put the price up, it needs to be done by alcohol content to be consistent, and if we also reduce the tax on low-alcohol content products, then that’s an even greater incentive to buy them.”

Professor Tanya Chikritzhs, head of the National Drug Research Institute at Curtin University in Perth, told MJA InSight the “protective” health benefits attributed to alcohol, long cited by the wine industry and its supporters, is less relevant as time goes by.

“The literature is becoming more sceptical about the protective effects of alcohol”, Professor Chikritzhs said.

“As epidemiology and studies become better and better, the protective effect found is shrinking.”

Associate Professor Sue O’Malley, a health economics expert from Macquarie University, said the MJA research suggested there was good reason to continue to focus on the taxation of high-alcohol content beers.

“Australia is still a nation of beer drinkers and the current focus on the taxation of the high-alcohol content beers could still be warranted”, she said.

“Another issue not fully investigated in this paper is the ‘change over period’ impact of such a radical change in relative taxes and thus prices.

“The short-term response by drinkers to an abrupt and radical change in the relative pricing of alcoholic beverages needs to be modelled”, Professor O’Malley said.

She said the impact on suppliers, growers and retailers also needed to be taken into account.

 

1. MJA 2013; Online 28 October
2. National Drug Research Institute 1999; National Alcohol Indicators Project Report
3. Australian Taxation Office 2012; Guide to wine equalisation tax
 

8 thoughts on “Tax alcohol to reduce harm

  1. taylorr@amamember says:

    If taxation changes are to be considered, I’d rather a more selective tax focussed on the commonly abused, heavily advertised products. I would be heavily and unfairly penalised by a volumetric system given one of my favourite after dinner drinks at home is Chartreuse which is 55% by volume, or sometimes Cognac. I have the occasional beer or wine, when out, but never get intoxicated because I don’t want to, and because I have to drive home as public transport or taxis are not an option for where I live.

    Much alcohol related behaviour in society is derived from the widely accepted idea that getting drunk is an essential part of  “a good night out”, a view I even heard from an ABC TV commentator on air.

    Volumetric taxation is an easy approach and therefore appeals to administrators, but has little relevance to the drinking behaviour – all that will change is what those seeking to get drunk actually drink. That is why I do not think taxation is a sound approach at all. More public good may be done by education, controlling opening hours of pubs and clubs, limiting alcohol advertising, and prosecuting public drunkenness and offensive behaviour. Unfortunately, a loss of revenue may flow from taking those steps.

    This easy, simplistic, approach has parallels in the approach to traffic accidents, where focusing on easily detected and prosecuted issues in driving behaviour like road speed are chosen whereas alcohol levels, and fiddling with your phone, and your music choices while also speeding may be more important then absolute speed itself. However, tackling those more central issues is less effective in terms of cost and publicity.

  2. Tony Prochazka says:

    I strongly support a volumetric tax. The only justifications for a tax (additional to GST) on alcoholic beverages are (1) to minimise harm by discouraging excessive alcohol consumption, and (2) to recoup losses to the public purse through medical and social costs.

    Now we have direct evidence that (1) is best addressed by a volumetric tax. Regarding (2), it has long been known that the detrimental health effects of alcohol consumption are directly related to total amount of alcohol consumed over time.

    I’m sorry that Shrink might have to pay a little more for his/her Chartreuse, but it’s for the greater good.

  3. Simon Turner says:

    @tylerdurden – I strongly disagree with your position.  We do not have direct evidence that a volumetric tax will lead to harm reduction.  Direct evidence means the system has been implimented and proved to be successful.  What you are talking about is a theory.  

    Changing the taxation/price on alcohol is not the answer.  Education is the answer.  Whilst there is no doubt that alcohol fuelled violence and self harm due to alcohol abuse is a big problem in our society there is also no doubt that the people causing these problems are in the minority of the alcohol consuming public.  Why should everyone else have to pay for a few bad apples?  If you want to spread the cost of these bad apples to everyone else then non-drinkers should also have to contribute.  Should we impliment a “harm reduction levy” similar to the medicare levy?

    I remember when the GST was introduced.  The intention was to make the taxation system simpler.  Now with all the exemptions and adjustments it is no simpler than the wholesale tax system which preceeded it.  We should go back to the spirit of the GST and remove all expemptions and adjustment taxes.  Yes some things will go up and some things will go down.  In the end for the average consumer things will balance out and the country as a whole will be better off with a simple and easy to understand tax system.

     

     

  4. Genevieve Freer says:

    Dear Shrink,

                          if you do not drink much, than any tax on alcohol is hardly any hardship.

    As for drinking to not  get intoxicated because you drive home, sorry, but any amount of aclohol interferes with our ability to drive, as our insurance policies reflect.

    As my time and the taxpayers dollar is consumed by intoxicated persons presenting to the local ED, I strongly support taxing alcoholic drinks by alcohol content, to reimburse the taxpayer .

    The best education is a user pays education-you use a lot of alcohol, you pay a lot of tax.

     

  5. Simon Turner says:

    Dear Rose,

    I am dissapointed that people within our society can have such a jaded view.  The people you see presenting at the emergency department are the minority.  The “bad apples” and it is not fair to penalise everyone because of a few irresponsible people.  I am surprised you didn’t suggest prohabition as the answer.  In your view that would fix the problem – right?

     

     

     

     

  6. Philip Dawson says:

    ” you can’t fix social problems by Taxation, or any other ‘policy’ ” (paraphrase of Alans Greenspan’s evidence to the US senate inquiry on why monetary policy not only failed to prevent the GFC, but also probably added to it). Reducing the number and hours of operation of licenced venues may help, but stronger penalties for those who flout the law (drink driving, serving intoxicated patrons etc) is the only fair way to discourage illegal behaviour. Already the MAIB refuses to cover the costs of drunk drivers (whose treatment in public hospitals then falls to medicare. Maybe there should be a financial penalty here too? Increasing the cost of alcohol for all won’t hurt the 30% of the population who are non drinkers, will penalise only slightly the occasional drinkers, will penalise more those who have their 3 glasses a week, and though it might penalise the alcoholics it won’t stop them. If a cask of port goes from $7 tp $10 or $20 it will still be cheap to get drunk, much cheaper than getting stoned, and the high price of illegal drugs doesn’t seem to stop people!

  7. Dr Philip Norrie says:

    My comments on the article ;

    1] We have been consuming alcohol for over 10,000 years – we are not going to stop and Prohibition did not work – we need to penalise offenders more severely so they think twice before breaking the law and educate children in school about sensible drinking of alcohol.

    2] The trouble with computer modelling is that the computer never told the public what they should do – the public has a habit of doing what it wants to do ,which in this case is to drink alcohol.So the computer model says if you put the price up they will drink less – WRONG – if you put the price up they will drink cheaper forms of alcohol,which may in itself be a health hazard.But they will continue to drink.

    3] The article assumes all grog is the same – WRONG.Not all alcohol is the same – wine is healthier than beer and spirits as shown by the Copenhagen Study and the Zutphen Study for example and should in fact be taxed at a lower rate – especially bottled wine.

    4] The young drink beer and spirits to get blind drunk – not bottled wine.

    5 The article is also biased in its presentation – it only gives one side of the story.How about being balanced and fair [ what a novel experience for the anti-alcohol lobby ],by also factoring in the health cost savings by having fewer heart attacks and strokes,less dementia etc etc from consuming alcohol [ especially wine ] in moderation, like the vast majority of consumers do ? There is much health benefit in consuming alcohol in moderation .Wine is our oldest medicine.We in the medical profession have been using it as such for over 5,000 years and I have a PhD to prove it !

    Dr Philip Norrie     MBBS,MA,MSc,MSocSc[Hons},PhD,MD[cand]

  8. Ray Taylor says:

    Rose,there is evidence from the UK suggesting driving when affected by the common cold is about as impairing as driving at 0.05. How do you plan to solve that – introduce a cold tax? 😉

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