- 1 Key messages and recommendations
- 2 Background
- 3 Alcohol taxes in Australia
- 4 Price, consumption and harm
- 5 Alcohol price interventions: potential for adverse effects
- 6 Alcohol price interventions: consumer responses
- 7 Cancer Council Australia’s position
- 8 Position statement details
- 9 References
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:
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. 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.
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
|Tax||Beer||Spirits and RTDs||Wine||Cider|
|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.
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
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).
Harmful drinking is more often associated with cheap rather than expensive products. The current taxation system compounds this effect by ensuring that cheap products are also high alcohol products.
Price, consumption and harm
Evidence shows that increasing the price of alcohol through tax reduces consumption and alcohol-related harm. 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%.
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. 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%; 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.
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
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.
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.
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.
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.
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. 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.
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.
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.
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. 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.
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".
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.
Support for raising the price of alcohol increased to 28.5% compared with 24.1% in 2007 and 20.9% in 2004. 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.
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. 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.
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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