NATIONAL LIQUOR NEWS – October 2006
10% Alcohol Tax
“Hypothecation of revenue went out with button up boots and Keynesian economics.”
By Gordon Broderick
In August a series of articles appeared in the tabloids calling for “Taxes to curb binge drinking”. These articles claimed that health ministers were considering a new health tax on alcohol amid calls to lift the price of alcohol by 10 per cent. The articles further claimed that a “new booze tax structure is among the recommendations contained in the 2006-2009 National Alcohol Strategy, which won the backing from Australia’s health ministers”.
DSICA is not sure where this call has come from since the 2006-2009 National Alcohol Strategy makes no mention of a 10 per cent ‘health levy’ on alcohol beverages. The closest the strategy comes to talking about tax is a mention of volumetric taxation and a recommendation “to encourage low risk drinking using price-related levers such as tax to partly achieve this”. Arguably this recommendation could equally apply to lowering taxes on lower alcohol beverages – a recommendation DSICA recently put before the Commonwealth Senate Economic References Committee and which was endorsed in the committee’s final report
At the outset, DSICA wishes to state that we are strongly opposed to any tax increases whatsoever on alcoholic beverages. Alcohol is already one of the most highly regulated and highly taxed commodities in the marketplace. For example, the current excise rate on spirits is $64.21 per litre of alcohol, which equates to about 81 cents tax per standard 30ml nip of spirits. DSICA estimates that the Commonwealth will collect $5.9 billion from alcohol taxation over 2006-07 (ie, $4.5 billion from excise and $1.4 billion from GST revenue).
Taxation from alcohol is paid into consolidated revenue and this revenue in turn is allocated through the budget process to areas of expenditure, including to the health system and to other programs that reduce alcohol harms. For example, the Federal Government has recently allocated $5 million to DrinkWise Australia, an industry funded but independent body concerned with changing Australia’s drinking culture, and $25 million for an awareness campaign to promote a more responsible drinking culture in Australia.
Some health advocates have been arguing that increasing the tax on alcohol “is the only effective way of reining in problem drinking”. DSICA is disappointed that such experts are harking back to the tired old blunt instrument of increased taxation. Such one dimensional policies penalise the vast majority of responsible drinkers and only have are marginal impact on problem drinkers. An 80 per cent increase of the excise rate on spirits in the 1978 Budget did not stop problematic drinking, but penalised ordinary Australians. There is also an equity argument that such tax hikes hit the less well off hardest.
Many health advocates call for the hypothecation of revenue from alcohol to health programs. Hypothecation is merely a fancy word for earmarking revenue collected from a source and spending on programs related to the collection source. Hypothecation, however, is an anathema to Treasuries and governments generally. It reduced fiscal flexibility and can cause economic distortions in the economy – thus lowering the economic welfare of all Australians. In fact, as far as Treasuries are concerned, hypothecation of revenue went out with button up boots and Keynesian economics.
Alcoholic beverages also have a high weighting in the Consumer Price Industry (CPI). Of the items contributing to the CPI, alcoholic drinks (beer, wine and spirits) have the highest non-housing related weighting, ie, alcoholic drinks contribute to 5.14 per cent contribution to the CPI. Therefore, changes in the price of alcohol have a large impact on the CPI.
If the price of alcoholic beverages was increased by 10 per cent then this would increase the overall CPI by around 0.43%. That is, the current year to June CPI is 4.0 per cent, and such an increase of tax on alcohol would result in an inflation rate of around 4.43%. A rise in the CPI of this magnitude would place significant pressure on interest rates.
Simplistic policy responses such as jacking up the tax rate on alcohol is not the answer to solving complex problems associated with drinking, which in some cases are deep seated in Australia’s culture. The underlying solution lies in changing Australia’s drinking culture so that more responsible and healthier consumption patterns are adopted. A whole range of policies, such as education, interventions, rehabilitation programs, should be employed to solve this complex problem.
