When former treasury head Ken Henry completed a review of alcohol tax arrangements in 2009 he described them as “contradictory” and “incoherent”. Earlier, former treasurer Peter Costello had been more colourful in his description, labelling the system as “a dog’s breakfast”.
For some years now, it’s been clear that an overhaul of alcohol taxes is sorely needed. But governments have baulked at taking their own advice and have instead sent out for yet more guidance. So, it’s no surprise that the latest advice to government again urges reforming the current alcohol tax regime.
ANPHA and WET
Like previous reviews, the report from the Australian National Preventive Health Agency (ANPHA), which explores the public interest case for a minimum (floor) price on alcohol, singled out the somewhat ironically named Wine Equalisation Tax (WET) as of most concern and requiring reappraisal by government.
The irony is the very unequal way that wine is taxed under the WET system compared to other products.
At present, the typical amount of tax per standard drink (12 millilitres of pure alcohol) is 97 cents on bottled spirits, 43 cents on full strength packaged beer, but around just 30 cents on most bottled table wine. The disparity is starkest with cask wine – the tax per standard drink is a mere eight cents.
The result is massively distorted prices that don’t consistently reflect the alcohol content of products. What’s more, price signals to drinkers are unclear and the opportunity to encourage people to reduce their alcohol intake, via the tax system, is completely botched.
Plenty of reasons
The ANPHA report acknowledges these failings of the current alcohol tax regime, but it excuses itself from the job of making comprehensive and useful recommendations for overall system reform because “these questions do not form part of the task” it was given.
This is a pity, but one need only peruse the available scientific evidence and the submissions received by ANPHA from experts in alcohol taxation, public health groups, and the alcohol industry itself to see the broad base of support for replacing the WET with a volumetric tax.
This would mean taxing wine products according to their alcohol content, as per the current tax arrangements for beer and spirits.
Reflecting the alcohol content of wine in its price would better align product prices with their propensity to cause harm. It would also raise the price of some of the cheapest alcohol currently on the market, which studies show is sought out by the heaviest drinkers.
Even more advantages
Volumetric taxes can also be indexed to inflation to prevent the real price of alcohol from declining over time. But a disadvantage of this type of taxation is that it may result in some consumers switching to cheaper products because it doesn’t prohibit alcohol from being heavily discounted or sold below cost.
To address this, a national minimum price for alcohol should be implemented to complement and reinforce the effectiveness of a volumetric tax.
A minimum price for alcohol, which has operated successfully in Canada for over two decades, would establish a government-regulated price for a specified volume of pure alcohol (one standard drink, for instance), below which products may not be sold.
Across the entire market, the products most likely to be affected by a minimum price, of say A$1 per standard drink, are the very cheap wines that would also be affected if a volumetric tax were applied. The price of most other products in the Australian alcohol market would remain unchanged by such minimum pricing, as they are already close to $1.50 or more per standard drink, as noted in ANPHA’s report.
Who is affected?
It follows that the drinkers who would be most impacted by minimum pricing are those who regularly consume large volumes of the cheapest alcohol available.
A recent study of the impact on Australian consumers from introducing a minimum price of $1 per standard drink, published since ANPHA’s report was finalised, found the annual cost increase for light and moderate alcohol consumers was almost undetectable.
But there would be a significant cost increase for the heaviest consumers, which could lead to reductions in consumption, and harm.
This casts serious doubt over claims that minimum pricing would adversely affect responsible drinkers, and strengthens the evidence base to support comprehensive reform of alcohol pricing and taxation policy in Australia.
This paper was part of the ARC Discovery Project ID: DP120102252.
Brian Vandenberg does not work for, consult to, own shares in or receive funding from any company or organisation that would benefit from this article, and has no relevant affiliations.