Position statement - Alcohol pricing and taxation

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Position statement - Alcohol pricing and taxation


Key messages and recommendations

Cancer Council Australia recommends that the formulation of alcohol taxation policy should acknowledge that alcohol is responsible for major harms in our community, including cancer. Increasing the price of alcohol through taxation would be one of the most effective ways to reduce alcohol consumption and associated harms.

Accordingly, Cancer Council Australia recommends:

  1. The introduction of volumetric-based excise taxes, to be applied to all alcohol products at the stage of production or implementation, together with abolition of the Wine Equalisation Tax.
  2. Continuation of the current practice of adjusting the alcohol excise and customs duty every six months, with reference to changes in the Consumer Price Index.
  3. A proportion of alcohol tax revenue allocated for the purpose of recovering the costs of alcohol-related harm and funding education, harm prevention and alcohol treatment programs – i.e. hypothecation.
  4. Improved access to wholesale and retail alcohol sales data, an essential indicator of consumption levels and patterns, and of the impact of prevention policies and programs.
  5. Continual monitoring and evaluation of the alcohol taxation system, and research into potential improvements.
  6. Investigating a public interest case for the introduction of minimum pricing of alcohol.

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Background

Alcohol is a risk factor for cancer of the mouth, pharynx, larynx, oesophagus, bowel and breast and has been classified as a Group 1 carcinogen (the highest rating for cancer risk factors)[1].

Cancer Council Australia has a position statement on alcohol and cancer, which provides a brief overview of the evidence concerning alcohol use and cancer and gives recommendations regarding alcohol consumption. The position statement is available here.

Evidence shows a strong link between alcohol price, alcohol consumption levels and alcohol-related harm[2]. The burden of illness associated with drinking alcohol and convincing association with cancer risk underpin Cancer Council Australia‘s concerns around alcohol price and taxation.

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Alcohol taxes in Australia

In Australia, there are currently four categories of taxes applied to alcohol:

  • Goods and Services Tax (GST) – a 10% value based tax on all retail sales of alcohol;
  • Customs duties – a combination of both volumetric and a value based tax imposed on imported products only;
  • Excise duties – a volumetric tax based on alcohol content per volume of product; adjusted twice each year in line with changes in the Consumer Price Index; and
  • Wine Equalisation Tax (WET) – a value based tax that applies on the last wholesale sale of wine, usually between the wholesaler and the retailer.


Table 1. Summary of alcohol taxes applied by category of alcohol product[3]

Tax Beer Spirits and RTDs Wine Cider
GST Yes Yes Yes Yes
Excise duty Yes Yes No No
WET No No Yes Yes
Customs duty (ad valorem) No Yes (imported) Yes (imported) No
Customs duty (per unit of alcohol) Yes (imported) Yes (imported) No No

RTDs - Ready-to-drink

Beer, spirits and pre-mixed beverages are subject to excises or customs duties, and GST. The first 1.15% of alcohol in beer is tax-free. Spirits attract a higher rate of tax, according to their alcohol content, which can be up to 40% alcohol content per volume.

Wine is subject to the WET and GST. The WET rate is 29% and is a value-based tax, calculated according to wholesale sales and untaxed retail sales[4].

Figure 1 shows the different amounts of tax payable per standard drink for different types of alcoholic beverages.


Figure 1. Tax payable per standard drink of alcohol, various products, Australia, June 2008[5]

Alcohol excise graph.JPG

Note: The Australian standard drink contains 10 g of alcohol (equivalent to 12.5 ml of pure alcohol); ABV = alcohol by volume; WET payable per standard drink of wine is based on a four litre cask of wine selling for $13 (incl. GST), a 750 mL bottle of wine selling for $15 (incl. GST) - 'Bottled Wine 1', a 750 mL bottle of wine selling for $30 (incl. GST) - 'Bottled Wine 2', and a 750 mL bottle of port selling for $13 (incl. GST).


Development of the Australian alcohol taxation system has been incremental and ad hoc, resulting in a medley of inconsistencies, which adversely influence alcohol consumption and related harm. Although from a public health perspective, some tax disparities are desirable – for example, reduced tax on low-strength beer acts as an incentive for its production and consumption – other disparities are problematic, especially where they encourage the production and consumption of higher strength products and make them cheaper than mid-strength products. For example, the tax on cask wine is significantly less than the tax on mid-strength beer, despite cask wine having higher alcohol content (this is because the amount of WET is calculated irrespective of the alcohol content of wine)[5].

Harmful drinking is more often associated with cheap rather than expensive products[6]. The current taxation system compounds this effect by ensuring that cheap products are also high alcohol products.

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Price, consumption and harm

Evidence shows that increasing the price of alcohol through tax reduces consumption and alcohol-related harm[7][8]. When alcohol prices increase, consumers drink less, and alcohol-related harm decreases. For example, a price increase of 10% has been shown to reduce consumption by an average of 5%[9].

Alcohol taxation is a highly cost-effective alcohol-harm reduction tool. The ACE Prevention Report, which assessed the cost effectiveness of policy actions for the prevention of non-communicable disease in Australia, found good evidence to support a tax increase on alcohol and recommended volumetric taxation of alcohol (i.e. a tax levied on the alcohol content per volume of the product) at a level 10% above the current excise rate on spirits[10]. The conclusions of the ACE Prevention Report are supported in other Australian research. For example, one study found that appropriate alcohol taxation measures could reduce the social costs of alcohol by up to 39%[11]; whereas another study found that a volumetric tax based on alcohol content had the lowest intervention costs and provided the greatest reduction in harm measured in disability-adjusted life years[12].

In 2010 the Australian Government‘s comprehensive review of Australia‘s tax system (the Henry Review) recommended a volumetric tax on alcohol to better address social harm, noting that:

While the abuse of alcohol imposes significant costs on society, these are not effectively targeted by current tax and subsidy arrangements for alcohol, which are complex and have conflicting policy rationales. In particular, the wine equalisation tax, as a value-based revenue-raising tax, is not well suited to reducing social harm[13]

The Henry Review recommended a tax rate based on evidence of net social costs to help balance the benefits from alcohol consumption with its social costs. However, the Australian Government rejected these recommendations, ruling out any change to alcohol taxation "in the middle of a wine glut and when there is an industry restructure under way".

The 2009 National Preventative Health Strategy strongly recommended reforming alcohol taxation and pricing arrangements to discourage harmful drinking[14].

Cancer Council Australia supports the recommendations of the Henry Review and the National Preventative Health Taskforce, particularly the recommendation to introduce a volumetric tax on alcohol without discrimination based on the type of alcohol.

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Alcohol price interventions: potential for adverse effects

Taxing alcohol to change drinking behaviour and improve health outcomes can have a differential impact on sub-populations. For example, very heavy drinkers and those on low incomes, including young people, the elderly and Indigenous populations, feel price increases more acutely. Additionally, excise taxes impose a welfare loss on non-abusive customers; if consumers who drink moderately change their behaviour to avoid a tax increase, this creates an overall loss to society; that is, the loss of health and social benefits related to low-level alcohol consumption. Therefore, the optimal alcohol tax must take into account the welfare loss imposed on responsible consumers against the reduction in the marginal externality cost of abusive consumption.

Cancer Council Australia acknowledges the potential for alcohol taxes to disproportionately impact on heavy drinkers and lower income consumers. However, lower income consumers, particularly young people, the elderly and indigenous populations also experience a significant amount of alcohol related harm. For example, alcohol accounts for 13% of all deaths among 14–17 year old Australians, is a significant contributor to premature death and hospitalisation among older Australians – among 65 to 74 year olds, almost 600 die every year from injury and disease caused by drinking above the NHMRC 2001 guideline levels, and a further 6,500 are hospitalised. And the rate of alcohol-attributable death among Indigenous Australians is about twice that of the non-Indigenous population. Thus these groups stand to gain significant health benefits from tax increases that encourage lower alcohol consumption.

In terms of a welfare loss, the burden of alcohol related disease and negative social and health consequences significantly exceeds any benefit that may be gained through psychological effects or the potential for cardio-protective effect of low-level alcohol consumption.

Hypothecation

A portion of alcohol taxation revenue should be used for health and welfare assistance to lower income consumers affected by an increase in alcohol prices. This could involve allocation of excise revenue for the purpose of addressing the costs of alcohol-related harm as well as funding education, harm prevention and alcohol treatment programs.

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Alcohol price interventions: consumer responses

When alcohol prices increase, consumers may act to mitigate the price increase in two ways, either:

(i) Downshifting the quality of the alcohol they buy within the same beverage categories (for example, buying cheaper, lower-quality spirits instead of premium brand spirits); or
(ii) Substituting different, less expensive alcohol products for more expensive ones[15]. This is problematic when the new, substituted product has higher alcohol content than the product it replaces. Substitution is a particular issue at the cheapest end of the alcohol price spectrum. For example, when cheap cask wine was removed from sale in some Northern Territory communities, consumers substituted casks of fortified wine or port; high alcohol products that were the next cheapest beverage[16].

Either response may lead to consumers maintaining, or indeed increasing, their overall alcohol consumption. Consumer behaviour is further influenced by a pricing tactic called 'loss leading'. This is where stores heavily discount alcohol products to below cost prices, and it is a tactic commonly used by larger alcohol retailers to encourage customers into stores[17].

Minimum pricing

A minimum retail price or 'floor price‘ for alcohol has the potential to prevent consumer behaviours such as downshifting and substitution and may be effective at stopping loss-leading practices. For example, the removal from sale in a Northern Territory community of two-litre cask wine over twelve months to April 2003 was accompanied by substitution to two-litre casks of fortified wine or port; however, overall the effect of removing cheap cask wine from sale was a decrease in alcohol-related harm in the communities[18].

Regulating the floor price of alcohol aims to set a price per unit for alcohol products – for example, per standard drink – and products may not be discounted below this minimum unit price. As noted in the National Preventive Health Taskforce report, minimum pricing could achieve a shift in per capita consumption, rather than simply a shift in product preference[14]. Although minimum pricing has been implemented in some jurisdictions, there has been very little research into its impact on consumption and effectiveness at reducing alcohol related harm. The most recent work in this area, a modelling project from the UK in 2010, suggests that minimum pricing would be an effective tool for reducing alcohol-related problems[19].

Accordingly, the Taskforce has recommended the development of a public interest case "to the satisfaction of the National Competition Council, that minimum price regulation would produce a net public benefit for the Australian community"[14].

Community support for alcohol taxation

The 2010 National Drug Strategy household survey found support for raising the price of alcohol increased as compared to the 2007 and 2004 surveys[20].

Support for raising the price of alcohol increased to 28.5% compared with 24.1% in 2007 and 20.9% in 2004[20]. The proportion of respondents who supported increasing alcohol taxes to pay for health, education and treatment (i.e. hypothecation) also increased to 42.7%, compared with 41.3% in 2007 and 38.6% in 2004[20].

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Cancer Council Australia’s position

The formulation of alcohol taxation policy should acknowledge that alcohol is responsible for major harms in our community including cancer. Increasing the price of alcohol through taxation is one of the most effective ways to reduce alcohol consumption and associated harms.

Alcohol taxation should be volumetric – calculated according to alcohol content – with higher taxes on products with higher alcohol volumes. Changes to alcohol taxes should not have the effect of decreasing the price of alcohol products, other than low alcohol products. The real price of alcohol should increase steadily over time. The current practice of adjusting alcohol excise taxes every six months by reference to the Consumer Price Index should be maintained.

Cancer Council Australia supports the allocation of a proportion of alcohol taxation revenue for the purpose of recovering the costs of alcohol-related harm and funding education, harm prevention and alcohol treatment programs.

Wholesale and retail alcohol sales data represent an essential indicator of consumption levels and patterns as well as the impacts of prevention policies and programs including changes in alcohol pricing and taxation. Currently, alcohol sales data are collected only in Queensland, Western Australia and the Northern Territory. This data should be collected in all States and Territories, and made available to researchers and policy planners, to improve the evidence base for alcohol taxation policy and the evaluation of policy changes[21]. Additionally, Cancer Council Australia seeks a commitment from the Australian Government to ensure independent monitoring and evaluation of any reformed alcohol taxation scheme, together with research into potential improvements.

Cancer Council Australia supports efforts to establish a public interest case for the introduction of minimum pricing of alcohol, on the understanding that the real price of alcohol should not drop.

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Position statement details

This position statement was reviewed and approved by the Public Health Committee September 2011.

This position statement is based on the 'Alcohol pricing and taxation‘ position statement developed by the Alcohol Policy Coalition, a coalition of health agencies consisting of Cancer Council Victoria, VicHealth, Australian Drug Foundation, Heart Foundation (Victoria) and Turning Point Alcohol and Drug Centre.

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References

  1. World Cancer Research Fund, American Institute for Cancer Research. Food, nutrition, physical activity, and the prevention of cancer: a global perspective. Washington DC: AICR; 2007.
  2. Babor T, Caetano R, Casswell S, Edwards G, Giesbrecht N, Graham K, et al. Alcohol: No ordinary commodity - research and public policy. Second Edition. Oxford: Oxford University Press; 2010.
  3. National Preventative Health Taskforce. Australia: the healthiest country by 2020. Technical Report 3. Preventing alcohol-related harm in Australia: a window of opportunity. Canberra: Commonwealth of Australia; 2009 Available from: http://www.health.gov.au/internet/preventativehealth/publishing.nsf/Content/09C94C0F1B9799F5CA2574DD0081E770/$File/alcohol-jul09.pdf.
  4. Webb R. Alcohol taxation reform: considerations and options. Canberra: Department of Parliamentary Services; 2009 Nov 20. Report No.: Research Paper No 11. Available from: http://www.aph.gov.au/binaries/library/pubs/rp/2009-10/10rp11.pdf.
  5. 5.0 5.1 Vandenberg B, Livingston M, Hamilton M. Beyond cheap shots: reforming alcohol taxation in Australia. Drug Alcohol Rev 2008 Nov;27(6):579-83 [Abstract available at http://www.ncbi.nlm.nih.gov/pubmed/19023770].
  6. World Health Organization. WHO expert committee on problems related to alcohol consumption. Second report. Geneva, Switzerland: WHO; 2007. Report No.: WHO technical report series 922. Available from: http://www.who.int/substance_abuse/expert_committee_alcohol_trs944.pdf.
  7. Markowitz S. The price of alcohol, wife abuse and husband abuse. Cambridge, MA: National Bureau of Economic Research; 1999 Jan. Report No.: Working Paper 6916. Available from: http://www.nber.org/papers/w6916.pdf?new_window=1.
  8. Chaloupka FJ, Grossman M, Saffer H. The effects of price on alcohol consumption and alcohol-related problems. Alcohol Res Health 2002;26(1):22-34 [Abstract available at http://www.ncbi.nlm.nih.gov/pubmed/12154648].
  9. Fogarty J. The nature of the demand for alcohol: understanding elasticity. British Food Journal 2006;108(4):316-32.
  10. Vos T, Carter R, Barendregt J, Mihalopoulos C, Veerman JL, Magnus A, et al. ACE–Prevention Team (2010). Assessing cost-effectiveness in prevention (ACE–Prevention): Final report. Brisbane, Melbourne: University of Queensland, Deakin University; 2010 Sep Available from: http://www.deakin.edu.au/strategic-research/population-health/assets/resources/ace-prevention-report.pdf.
  11. Collins D, Lapsley H. The avoidable costs of alcohol abuse in Australia and the potential benefits of effective policies to reduce the social costs of alcohol. Canberra: Commonwealth of Australia; 2008. Report No.: Monograph Series No. 70. Available from: http://www.health.gov.au/internet/drugstrategy/publishing.nsf/Content/0A14D387E42AA201CA2574B3000028A8/$File/mono70.pdf.
  12. Doran C, Vos T, Cobiac L, Hall W, Asamoah I, Wallace A, et al. Identifying cost-effective interventions to reduce the burden of harm associated with alcohol misuse in Australia. Brisbane: The University of Queensland; 2008. Sponsored by Alcohol Education Rehabilitation Foundation. Available from: http://www.fare.org.au/wp-content/uploads/2011/10/Identifying-Cost-effective-Interventions-to-Reduce-the-Burden-of-Alcohol-Harm.pdf.
  13. Henry K, Harmer J, Piggott J, Ridout H, Smith G. Australia’s future tax system: Report to the treasurer. Canberra: Commonwealth of Australia; 2010 Available from: http://www.taxreview.treasury.gov.au/content/FinalReport.aspx?doc=html/Publications/Papers/Final_Report_Part_1/index.htm.
  14. 14.0 14.1 14.2 National Preventative Health Taskforce. Australia: the healthiest country by 2020. National preventative health strategy – the roadmap for action. Canberra: Commonwealth of Australia; 2009 Jun 30 Available from: http://www.preventativehealth.org.au/internet/preventativehealth/publishing.nsf/Content/nphs-roadmap/$File/nphs-roadmap.pdf.
  15. Gruenewald PJ, Ponicki WR, Holder HD, Romelsjö A. Alcohol prices, beverage quality, and the demand for alcohol: quality substitutions and price elasticities. Alcohol Clin Exp Res 2006 Jan;30(1):96-105 [Abstract available at http://www.ncbi.nlm.nih.gov/pubmed/16433736].
  16. Hogan E, Boffa J, Rosewarne C, Bell S, Chee DA. What price do we pay to prevent alcohol-related harms in Aboriginal communities? The Alice Springs trial of liquor licensing restrictions. Drug Alcohol Rev 2006 May;25(3):207-12 [Abstract available at http://www.ncbi.nlm.nih.gov/pubmed/16753643].
  17. Hess JD, Gerstner E. Loss leader pricing and rain check policy. Marketing Science 1987;6(4):358-74 [Abstract available at http://www.bauer.uh.edu/jhess/documents/15.pdf].
  18. Victorian Alcohol and Drug Association. Position paper: Alcohol taxation. Collingwood, Victoria: VAADA; 2010 Jun Available from: http://www.vaada.org.au/wp-content/uploads/2013/01/Alcohol_taxation.pdf.
  19. Priscillia H, Lila R, Ben B. Preliminary assessment of economic impacts of alcohol pricing policy options in the UK. London: UK Government, Home Office; 2010 Jun.
  20. 20.0 20.1 20.2 Australian Institute of Health and Welfare. 2010 National drug strategy household survey report. Canberra: AIHW; 2011 Jul. Report No.: Drug statistics series no. 25. Cat. no. PHE 145. Available from: http://www.aihw.gov.au/WorkArea/DownloadAsset.aspx?id=10737421139&libID=10737421138.
  21. Alcohol Policy Coalition. Position statement: Wholesale sales data. APC; 2010.

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