EXPLORING THE PUBLIC INTEREST CASE FOR A MINIMUM (FLOOR) PRICE FOR ALCOHOL. Issues Paper

Transcription

1 EXPLORING THE PUBLIC INTEREST CASE FOR A MINIMUM (FLOOR) PRICE FOR ALCOHOL Issues Paper June 2012

2 The Australian National Preventive Health Agency (ANPHA) ANPHA, established on 1 January 2011, is Australia s first national preventive health agency. Underpinned by the Australian National Preventive Health Agency Act 2010, ANPHA s establishment was a key recommendation of the National Health and Hospitals Reform Commission and the National Preventive Health Taskforce to strengthen Australia s investment in preventive health and help turn the tide on the rising prevalence of preventable chronic diseases. ANPHA supports the development and implementation of evidence-based approaches to preventive health initiatives. Its initial focus, as requested by Health Ministers, is to target obesity (including physical inactivity), harmful alcohol consumption and tobacco. In partnership with the Commonwealth and the state and territory governments, ANPHA is driving the national capacity for change and innovation around preventive health policies and programs and is committed to improving health outcomes for all Australians. Further information about ANPHA can be obtained from the Agency website ( or by contacting the Agency on (02)

3 CONTEXT AND CONSULTATION There is increasing public interest within Australia and internationally on the effects of harmful alcohol consumption on individuals and communities. In response to this concern, the Australian National Preventive Health Agency (ANPHA) has been tasked by the Commonwealth Government to develop further the concept of a public interest case for a minimum (floor) price of alcohol, to discourage harmful consumption and promote safer consumption. To assist in determining the public interest for a minimum price for alcohol, ANPHA has developed an issues paper. This paper seeks to provide the community with an overview of the minimum pricing issue and to invite public response. The paper presents an overview of current alcohol consumption in Australia, current alcohol pricing and taxation policies and the potential mechanisms available to reduce harmful alcohol consumption, with a focus on minimum pricing. The aim of this paper is to promote community discussion on the issue of minimum pricing and provide stakeholders with the opportunity to present their views. This paper is not intended to promote or oppose the introduction of a minimum (floor) price on alcohol. Its purpose is solely to provide background material, to inform stakeholders, and to indicate to those making submissions the issues which the Agency has identified for its consideration. NB: This paper also does not indicate that any Australian Minister or Government supports or does not support the introduction of minimum pricing. How to make a submission Any interested person or organisation can make a written submission. Submissions may be long or short and do not have a fixed format. For example, you may wish to provide a short letter outlining your views on a particular issue or an in-depth document that covers a range of issues. Supporting documents may be provided as attachments. If possible, it is preferable that all submissions are provided as public documents; however, ANPHA can accept confidential submissions if requested (for example: submissions containing sensitive information of a personal or commercially confidential nature). If you wish to make a confidential submission, please contact ANPHA prior to sending your submission and mark it as confidential. Submissions will be placed on the ANPHA website shortly after receipt, unless ANPHA has been informed that the submission is confidential. Submissions will remain on the ANPHA website indefinitely. For submissions made by individuals, all personal details other than your name and the State or Territory in which you reside will be removed from your submission before it is published on the ANPHA website. Where relevant, information contained within the submissions may be referred to in the final report.

4 Time frames Following initial consultation, ANPHA will release a draft report for discussion prior to completing the final report. The time frames for this process are outlined below: Submissions are due by 31 July 2012 A draft report will be released for comment in September 2012 with the final report provided to the Minister in December 2012 We are interested to hear your views on the issue of a minimum (floor) price for alcohol. To participate in this consultation please provide a written submission by (preferred) or post to: minimumprice@anpha.gov.au Post: Minimum (floor) price Australian National Preventive Health Agency GPO Box 462 Canberra ACT 2601 Phone: (02) Submissions are due by July Please include the cover sheet with your submission. The cover sheet can be found at Attachment B.

5 A MINIMUM (FLOOR) PRICE FOR ALCOHOL: ISSUES PAPER CONTENT...1 OVERVIEW...2 ALCOHOL CONSUMPTION IN AUSTRALIA...2 Harmful consumption of alcohol...3 Indigenous Australians...6 Alcohol and pregnancy...7 Alcohol Affordability...8 Reducing harmful consumption...10 PRICING POLICIES...10 CURRENT ALCOHOL PRICING/TAXATION IN AUSTRALIA...14 MINIMUM (FLOOR) PRICES...14 Price policies and minimum price experience in Australia...14 Minimum pricing research and experience internationally...15 Canada...15 Scotland...16 England and Wales...17 Other countries...17 Sheffield Study...17 SUMMARY OF KEY ISSUES...19 A minimum price would adversely affect sensible, moderate drinkers...19 A minimum price would adversely affect individuals/households with low incomes...20 A minimum price would have little effect on heavy drinkers and young drinkers...21 The effects of minimum pricing on retailers and trade...22 Concluding comments...23 ATTACHMENT A...24 Current alcohol taxation in Australia...24 Proposed changes considered to alcohol taxation...26 ATTACHMENT B Submission cover sheet

6 OVERVIEW 1. The Government Response to the Report of the National Preventative Health Taskforce stated that the Commonwealth would task the Australian National Preventive Health Agency (ANPHA) to develop further the concept of the public interest case for a minimum (floor) price of alcohol to discourage harmful consumption and promote safer consumption In relation to this, ANPHA is looking at the evidence around the harms associated with cheap alcohol and associated consumption patterns and the different mechanisms available to affect this consumption. Price is one of the key levers or measures that affects alcohol consumption and harms. 3. This issues paper presents an overview of current alcohol consumption in Australia, current alcohol pricing and taxation policies and the potential mechanisms available to reduce harmful alcohol consumption. The primary focus of the paper is on the public interest issues which would inform consideration of a minimum pricing policy as requested by the Government. There are a number of factors and a range of stakeholder views which need to be considered in relation to harmful alcohol consumption. The aim of this paper is to promote community discussion on the issue of minimum pricing and provide stakeholders with the opportunity to present their views to the Agency. ALCOHOL CONSUMPTION IN AUSTRALIA 4. Alcohol is entwined within Australia s social, cultural and economic fabric. It is associated with socialising, celebration, religious and cultural ceremonies, and recreational activities. The apparent per capita consumption of alcohol has changed in Australia over time, with periods of both increasing and decreasing consumption (see Figure 1). From the early 1960s to the mid 1970s, apparent alcohol consumption increased from 9.3 litres of pure alcohol per person to 13.1 litres of pure alcohol per person. Following a period of steady consumption, there was a decrease in consumption to a level of 9.8 litres per person in Between and alcohol consumption increased steadily, reaching an apparent per capita consumption of 10.4 litres in In , Australia s apparent per capita consumption of pure alcohol was 9.99 litres. 3 While this represents a decrease compared to previous years, Australia s per capita consumption is still considered high by world standards. 4 1 Commonwealth of Australia (2010). Taking Preventative Action. A response to Australia: The healthiest country by The report of the National Preventative Health Taskforce. Canberra: Australia 2 Australian Bureau of Statistics (2010). Apparent Consumption of Alcohol: Extended Time Series, to Canberra: Australian Bureau of Statistics 3 Australian Bureau of Statistics (2012). Apparent consumption of alcohol, Australia , No Canberra: Australia Bureau of Statistics 4 World Health Organization (2011). Global Status Report on Alcohol and Health. Switzerland: World Health Organization 2

7 Figure 1: Apparent consumption of pure alcohol in Australia Beer Litres of pure alcohol Wine Spirits and RTDs Total consumption Year ended 30 June Source: ABS 2010, As with consumption levels, the proportion of different alcoholic beverages that are consumed in Australia has changed over time. Over the past 50 years the proportion of beer consumed has decreased (from 76% to 44%), while the proportion of wine and spirits has increased (from 12% to 36% and 12% to 20% respectively). 5 In 2010, the main type of alcohol consumed by recent drinkers aged 14 years or older was bottled wine (32.5%), followed by regular strength beer (20%). 6 Since the late 1980s the alcohol content of wine has gradually increased from an estimated 11.2 per cent to an estimated 12.7 per cent (13.4 per cent for red wine and 12.2 per cent for white wine). This increase in alcohol content, combined with the increased market share of wine, is likely to be the driving force behind the increased apparent per capita consumption observed between and Drink preference differs by age and sex. Male drinkers report most often drinking regular strength beer (33.9%) while female drinkers report most often drinking bottled wine (47.3%). Younger drinkers (14 19) are more likely to consume pre-mixed spirits than older drinkers (43.8%) The Australian Bureau of Statistics does not include data for the consumption of cider when calculating apparent per capita consumption. 9 In the past 3-5 years consumption of cider in Australia has increased significantly. 10 A recently released Nielsen report Cider Report 2011 stated that cider now represents 1.8 per cent of all liquor purchases in Australia. 11 While cider consumption remains low relative to other alcoholic beverages, the exclusion of this data makes it difficult to determine the effect of cider on overall consumption and trends. Harmful consumption of alcohol 8. The majority of regular drinkers in Australia consume alcohol in moderation; however, a proportion of drinkers consume alcohol at a level that is considered harmful to either 5 Australian Bureau of Statistics (2010), see 2 6 Australian Institute of Health and Welfare (AIHW) (2011) National Drug Strategy Household Survey report. Drug statistics series no. 25. Cat. no. PHE 145. Canberra: AIHW 7 Chikritzhs, T.N., Allsop, S.J., Moodie, R., Hall, W.D. (2011). Per capita alcohol consumption in Australia: will the real trend please step forward? Medical Journal of Australia. 193(10): Australian Institute of Health and Welfare (AIHW) (2011), see 6 9 Australian Bureau of Statistics (2012), see 3 10 Roy Morgan Research (2011). Alcoholic cider category continues to grow. Accessed 16 May 2012 from releases/2011/1531/ 11 Nielsen (2011). News Release: Alcoholic cider continues its meteoric rise: Nielsen. Accessed 16 May 2012 from 3

8 their short-, or long-term health. The Australian Guidelines to Reduce Health Risks from Drinking Alcohol 12 recommend that: For healthy men and women drinking no more than two standard drinks (see Box 1) on any day reduces the lifetime risk of harm from alcohol-related disease or injury (long-term harm); and For healthy men and women, drinking no more than four standard drinks on a single occasion reduces the risk of alcohol-related injury arising from that occasion (short-term harm). Box 1: What is a standard drink? In Australia, a standard drink is any drink containing 10 grams of alcohol (equivalent to 12.5mL of pure alcohol). One standard drink always contains the same amount of alcohol regardless of container size or alcohol type. 13 A serving of alcohol (e.g. a glass of wine or a schooner of beer) may contain more than 1 standard drink. Standard drinks by beverage 14 - Can/Stubbie low-strength beer = 0.8 standard drink - Can/Stubbie mid-strength beer = 1 standard drink - Can/Stubbie full-strength beer = 1.4 standard drinks - 100ml wine (13.5% alcohol) = 1 standard drink - 30ml nip spirits = 1 standard drink - Can spirits (approx 5% alcohol) = 1.2 to 1.7 standard drinks - Can spirits (approx 7% alcohol) = 1.6 to 2.4 standard drinks 9. The most recent National Drug Strategy Household Survey Report (NDSHS) 15 found that: in 2010, 80.5 per cent of Australians aged 14 years and over consumed alcohol; two-in-five people (39.7 per cent) aged 14 years and over consumed alcohol, at least once in the last 12 months, at levels which put them at risk of short-term harm; one-in-five (20.1 per cent) consumed alcohol at levels which risk long-term harm; and the proportion of people who drank daily was 7.2 per cent. 12 National Health and Medical Research Council (2009). Australian Guidelines to reduce health risks from drinking alcohol. Canberra: Commonwealth of Australia. 13 Department of Health and Ageing. The Australian Standard Drink. Accessed 14 June 2012 from 14 National Health and Medical Research (2009). Alcohol guidelines: reducing the health risks. Accessed 14 June 2012 from health/alcohol guidelines 15 AIHW (2011), see 6 4

9 Box 2: Alcohol consumption patterns over time While the level of alcohol consumption has been relatively stable in Australia over the past 15 years (fluctuating between 9.8 and 10.4 litres per capita), the absolute number of people drinking at levels that risk their short- or long-term health has increased as the population increases. For example: In 2007, 20.3 per cent of people consumed alcohol at levels which risk long-term harm, compared to 20.1 per cent in Whilst the overall percentage is stable, there has been an increase in the absolute number of risky drinkers from 3.5 million in 2007 to 3.7 million in Harmful alcohol consumption is associated with an increased personal risk of morbidity and mortality. In 2003, alcohol consumption accounted for 3.2 per cent of the total burden of disease in Australia. 17 Between 1996 and 2005 an estimated 32,696 Australians aged 15 years and older died from alcohol-attributable injury and disease caused by harmful alcohol use. Over the same period, 813,072 people aged 15 years and older were hospitalised for alcohol-attributable injury and disease. A major cause of death was alcoholic liver cirrhosis, whilst the most common reasons for hospitalisation were alcohol dependence, falls and assaults Harmful alcohol consumption does not only impact on the drinker. It has a wide range of social impacts, including public safety (violence and antisocial behaviour), family violence, workplace productivity, vandalism and road accidents. 19,20 The total social costs of harmful alcohol consumption to the Australian community are estimated to be $15.3 billion annually. 21 A recent survey found that 70 per cent of Australians felt affected by strangers drinking, experiencing nuisance, fear or abuse. Furthermore 30 per cent reported negative effects from the drinking of someone close to them. Young adults were more likely to be negatively affected than other groups Young people (18 29 years) are more likely than the rest of the population to drink at levels that put them at risk of short-term harm (at least monthly), whilst males are more likely than females to drink at levels that place them at risk for short- or long-term harm (see Figures 2-5) AIHW (2011), see 6 17 Carragher, N and Chalmers, J (2011). What are the options? Pricing and taxation policy reforms to redress excessive alcohol consumption and related harms in Australia. Published by NSW Bureau of Crime Statistics and Research. Available online at: 18 Pascal, R., Chikritzhs, T. & Jones, P (2009). Trends in estimated alcohol attributable deaths and hospitalisations in Australia, National Alcohol Indicators, Bulletin No. 12. Perth: National Drug Research Institute, Curtin University of Technology. 19 Tobin, C., Moodie, R., Livingston, C. (2011). A review of public opinion towards alcohol controls in Australia. BMC PublicHealth. 11:58 20 Australian Government (2009): Technical Report 3 Preventing alcohol related harm, a window of opportunity. Including addendum for October 2008 to June Prepared for the National Preventative Health Taskforce by the Alcohol Working Group. Commonwealth of Australia, Canberra. 21 Collins, D.J., and Lapsley, H,M. (2008). The costs of tobacco, alcohol and illicit drug abuse to Australian society in 2004/05. Australian Department of Health and Ageing. Canberra 22 Laslett, A M, Room, R., Ferris, J., Wilkinson, C., Livingston, M. and Mugavin, J. (2011). Surveying the range and magnitude of alcohol s harm to others in Australia. Addiction 106: AIHW (2011), see 6 5

10 Figures 2 5: People at risk of alcohol-related harm in the short- and long-term, by age and sex. Propartion of the population Figure 2: Males aged 16 and over at risk of shortterm harm on a single drinking occassion at least monthy Proportion of the population Figure 3: Females aged 16 and over at risk of shortterm harm from a single drinking occasion at least monthly Age in years Age in years Figure 4: Males aged 16 years and over at risk of alcohol-related harm over a lifetime Figure 5: Females aged 16 years and over at risk of alcohol-related harm over a lifetime Proportion of the population Proportion of the population Age in years Age in years Source (figures 2 5): AIHW (2011) 13. In addition to differences in consumption by age and sex, there are differences in the social characteristics of people that drink at harmful levels at least weekly. 24 People living in remote or very remote areas were more likely to drink at levels that put them at risk of short- or long-term harm than those living in other areas (25.8% compared to 14.9% in major cities). Employed people were more likely than unemployed people and those not in the workforce to drink at levels that placed them at risk of short- or long-term harm. Those living in the Northern Territory were more likely to drink at levels that place them at risk of long-term harm (29.4%) and short-term harm (59.4% for males and 41.5% for females) than those living in other States and Territories. Indigenous Australians were 1.4 times as likely as non-indigenous Australians to abstain from alcohol; however, they were also 1.5 times as likely to drink at levels that placed them at risk of short- or long-term harm. Indigenous Australians 14. Indigenous Australians experience health and social problems resulting from alcohol use at a disproportionate rate compared to non-indigenous Australians. 25 In 2003, alcohol was associated with 7 per cent of all deaths and an estimated 6 per cent of the total burden of disease for Aboriginal and Torres Strait Islander people. 26 This is almost double the burden of disease experienced by other Australians. As previously noted, 24 AIHW (2011), see 6 25 Wilson, M., Sterane, A., Gray, D., Saggers, S. (2010). The harmful use of alcohol amongst Indigenous Australians. Retrieved 19 April 2012 from: risks/alcohol/reviews/our review 26 Australian Bureau of Statistics (2010). The Health and Welfare of Australia s Aboriginal and Torres Strait Islander Peoples. Retrieved 19 April 2012 from: 6

11 Indigenous Australians are more likely than non-indigenous Australians to abstain from alcohol; however, those that do drink are more likely to consume it at harmful levels. The 2008 National Aboriginal and Torres Strait Islander Social Survey (NATSISS) found that: per cent of Indigenous people (aged 15 years and older) were drinking at longterm risky/high-risk levels (see Box 3) in the last 12 months. Men were more likely to drink at long-term risky/high-risk levels than women and those aged years were more likely to drink at risky/high-risk levels than other age groups. 37 per cent of Indigenous people (aged 15 years and older) were drinking at acute (short-term) risky/high-risk levels (in the two weeks prior to interview). Men were more likely to drink at short-term risky/high-risk levels than women and those aged years were more likely to drink at risky/high-risk levels than other age groups. These rates are similar to those in reported in the 2002 NATSISS. Box 3: Risky/high risk alcohol consumption The definitions for risky/high-risk alcohol consumption used in the 2008 NATSISS are based on the 2001 National Health and Medical Research Council Australian Alcohol Guidelines: Health Risks and Benefits (These guidelines have now been superseded by the 2009 guidelines noted earlier). 28 The definitions for risky/highrisk consumption are presented in the table below. Table 1: Risky/high risk alcohol consumption as defined in the 2001 National Health and Medical Research Council Australian Alcohol Guidelines: Health Risks For risk of harm in the short-term For risk of harm in the long-term Risky (standard drinks) High-risk (standard drinks) Risky (standard drinks) High-risk (standard drinks) Males Females 7-10 on any one day 5-6 on any one day 11 or more on any 5-6 per day 7 or more per day one day per week 43 or more per week 7 or more on any 3-4 per day 5 or more per day one day per week 29 or more per week Source: 2001 National Health and Medical Research Council Australian Alcohol Guidelines 29 Alcohol and pregnancy 15. Drinking alcohol during pregnancy has been linked with preterm birth, low birth weight and Foetal Alcohol Spectrum Disorder (FASD). 30 FASD is an umbrella term that refers to a range of adverse effects caused by exposure to alcohol during pregnancy. FASD encompasses a range of clinically significant effects; some of which include growth retardation, facial anomalies and development abnormalities of the central nervous system. 16. The current Australian Guidelines to Reduce Health Risks from Drinking Alcohol recommend that for women who are pregnant or planning a pregnancy, not drinking is the safest option. 31 A recent report 32 based on data from the 2010 National Drug Strategy Household Survey found that: 27 Australian Bureau of Statistics (2010), see National Health and Medical Research Council (2001). Australian Alcohol Guidelines: Health Risks. Retrieved 19 April 2012 from: 29 National Health and Medical Research Council (2001), see Callinan, S and Room, R (2012). Alcohol consumption during pregnancy: Results from the 2010 National Drug Strategy Household Survey. Foundation for Alcohol Research and Education. 31 National Health and Medical Research Council (2009), see 12 7

12 47.3 per cent of women drank while pregnant, before knowledge of their pregnancy; 19.5 per cent of women drank while pregnant, after knowledge of their pregnancy; rates of drinking after knowledge of pregnancy increases with age and a range of socioeconomic variables; and age is thought to be a driving force in this trend with rates of drinking after knowledge of pregnancy increasing with age. 17. The House of Representatives Standing Committee on Social Policy and Legal Affairs is currently conducting an inquiry on Foetal Alcohol Spectrum Disorder. ANPHA recently submitted a submission to this inquiry. (Available online at: Alcohol Affordability 18. Over the past 20 years alcohol has become more affordable in Australia. While the overall per capita consumption of alcohol has remained relatively unchanged, the proportion of average weekly expenditure on alcoholic beverages decreased from 3.4 per cent in to 2.6 per cent in Analysis conducted by the New South Wales Bureau of Crime Statistics found that between 1995 and 2008 the affordability of alcohol increased by over 40 per cent. 34 The authors noted that since 1990, alcohol prices have increased 16 per cent more than the Consumer Price Index (CPI); however, real disposable income has increased at a faster rate. Spirits and beer have become more expensive (increasing in price at a higher rate than CPI), whilst wine has become substantially less expensive. This is consistent with data from the Australian Bureau of Statistics prepared for the National Preventative Health Taskforce (see figure 6) Callinan, S and Room, R. (2012), see Australian Bureau of Statistics (2011). Household Expenditure Survey, Summary of results Canberra: Australia Bureau of Statistics 34 Carragher, N and Chalmers, J (2011), see Australian Government (2009), see 20 8

13 Figure 6: Prices of alcoholic beverages relative to other consumption (June 1999 $1.00), Australia, September 1980 to March 2008 Source: Australian Government: Technical Report 3 Preventing alcohol-related harm, a window of opportunity (p9) Overseas evidence suggests that drinkers who have access to a large supply of cheap alcohol are likely to drink both more regularly and to consume a greater amount of alcohol, and that binge drinkers, harmful drinkers and younger drinkers tend to choose cheaper alcoholic beverages. 37,38 A study in the United States found that the top 10 per cent of drinkers spend $0.87 per drink compared with $4.75 per drink for the bottom 50 percent. 39 The Institute of Fiscal Studies (United Kingdom) reported a clear negative relationship between the amount of alcohol purchased and the average price paid per unit (standard drink). Those buying small amounts of alcohol, less than 2 units per adult, per week, pay on average more than 40 pence per unit compared to under 34 pence per unit for those buying 25 units or more. 40 In contrast, the Centre for Economics and Business Research (CEBR United Kingdom) argues that the evidence around young drinkers is not as clear, stating that there is some evidence that young drinkers pay more per unit than moderate drinkers. 41 While Australian evidence on this issue is limited, a recent study of long grassers (a homeless community in Darwin) found that men were consuming a median of 90.5 standard drinks per week and women were consuming 35. Port cheap and strong comprised 72 per cent of all the alcohol consumed, while beer comprised 23 per cent. One study participant commented that the doctor said don t drink port but beer is too expensive Australian Government (2009), see UK Home Office (2011). The likely impacts of increasing alcohol price: a summary review of the evidence base. Available at: drugs/alcohol/impacts alcohol price review?view=binary 38 ScHARR (2008) a. Independent Review of the effects of alcohol pricing and promotion. Part A: Systematic Reviews. Sheffield: ScHARR, University of Sheffield. 39 Hunt, P., Rabinovich, L. and Baumberg, B. (2010) Preliminary analysis of the economic impacts of alcohol pricing policy in the UK. London Home Office 40 Griffith, R. and Leicester, A. (2010). The impact of introducing a minimum price on alcohol in Britain. Institute for Fiscal Studies, IFS Briefing note Centre for Economics and Business Research (2009). Minimum Alcohol Pricing: A targeted Measure? Final Report. Available online at: content/uploads/minimum Pricing Final report June 2009.pdf Note: This report was commissioned by SABMiller 42 Taylor, P (2012, April 16). 90 grogs a week for men in long grass. The Australian. Retrieved from affairs/indigenous/grogs a week for men in long grass/story fn9hm1pm

14 Reducing harmful consumption 20. There are a number of policies and programs used in various countries to reduce the harmful consumption of alcohol. These include (but are not limited to), education and information programs, pricing and taxation policies, regulation of the availability of alcohol, drink-driving countermeasures, community programs, and restrictions on alcohol marketing. 43,44 The effectiveness of these different policies and programs has been examined in several published studies. 45 Overall, the evidence suggests that regulatory and fiscal policies (those focusing on economic and physical availability such as restricting the days and hours of sale, restricting outlet density and taxation), drink-driving countermeasures and policies that target the whole population are more effective than those targeting high-risk groups. 46,47,48 The National Preventative Health Taskforce technical report on alcohol found that regulation of physical availability of alcohol and taxation and pricing were the most effective policies, while regulating alcohol promotion and education and persuasion were less effective As noted above, evidence consistently suggests that the price of alcohol influences alcohol consumption and harms. Whilst the relationship between alcohol price and consumption of specific beverages can vary significantly, in general, an increase in the price of alcohol leads to a decrease in alcohol consumption and alcohol related harm. 50,51,52 The Preventative Health Taskforce s technical report on alcohol reviewed more than fifty studies from around the world indicating that when alcohol increases in price, consumption is reduced. 53 The World Health Organization states that increasing alcohol price is one of the most effective strategies for reducing alcohol consumption at the population level. 54 PRICING POLICIES 22. As previously discussed, pricing policies are not the only option available to influence harmful alcohol consumption; however, the evidence indicates that increasing prices is an effective lever in reducing harmful alcohol consumption. Examples of various pricing policy options include minimum pricing and taxation. A minimum (or floor) price sets a minimum price per standard drink (or unit of alcohol) that alcoholic beverages must be sold for. Minimum pricing is not a taxation measure, but rather a regulatory measure used to increase the price of the cheapest alcohol products and decrease discounting of cheaper products. Forms of taxation, such as excise, are another potential price option; taxation measures can be applied across the market or differentially by product category. The current Australian alcohol taxation measures are outlined at Attachment A. 43 Alcohol and Public Policy Group (2010). Alcohol: No Ordinary Commodity a summary of the second edition. Addiction, 105: Anderson, P., et al. (2009). Effectiveness and cost effectiveness of policies and programmes to reduce the harm caused by alcohol. The Lancet, 373: Anderson, P., et al (2009) and Alcohol and Public Policy Group (2010), see 44,43 46 Anderson, P., et al. (2009), see Alcohol and Public Policy Group (2010), see Australian Government (2009), see Australian Government (2009), see Anderson, P., et al. (2009), see ScHARR (2008) a, see Babor, T, Caetano, R, Casswell, S,Edwards, G, Giesbrecht, N, Graham, K, Grube, J, Hill, L, Holder, H, Homel, R,Livingston, M, Osterberg, E, Rehm, J, Room, R & Ingeborg, R (2010). Alcohol: No Ordinary Commodity in Research and Public Policy, 2nd Edition, UK: Oxford University Press. 53 Australian Government (2009), see World Health Organization. (2011), see 4 10

15 23. The magnitude of the effect of alcohol price increases on consumers consumption varies in different population groups. Factors that can affect this response include the consumer s age, income and drinking habits 55 which, in turn, affect price elasticity. 24. Price elasticity (or price elasticity of demand) is a method used to measure the way people respond to price changes of a product (see Box 4). These elasticities can be defined in different ways: Own price elasticity for demand is defined as the percentage change in the quantity consumed of a specific beverage that results from a 1 per cent change in price of that beverage. 56 Aggregate price elasticity: refers to the overall price elasticity of demand for a particular group of related products (in this case, alcoholic beverages). 57 Box 4: Price elasticity As a general rule if the price of a product increases, demand for that product decreases; however, the extent of this decrease can vary significantly. Price elasticities are used to measure this response to changes in price. Products can be described as (price) inelastic or (price) elastic depending on whether a change in price results is a small or large change in demand. If the price elasticity of a product is less than 1 (absolute value) it is usually described as price inelastic. If the price elasticity of a product is more than 1 it is usually described as price elastic. Alternatively price inelastic products could be described as not price sensitive, whilst price elastic products could be described as price sensitive. Price elasticity is calculated using the formula: Elasticity = % change in demand % change in price Example: A bottle of wine increases in price from $14 to $14.70, an increase of 5 per cent. - If demand for the bottle of wine decreases by 5 per cent, then the price elasticity is -1. The wine has unit elasticity. The percentage change in quantity demanded is equal to the percentage change in price. - If demand for the bottle of wine decreases by 2 per cent, then the price elasticity is Therefore the wine would be described as price inelastic, as demand for the wine is less responsive to a change in price. - If demand for the bottle of wine decreases by 8 per cent, then the price elasticity is Therefore the wine would be described as price elastic, as demand for the wine is more responsive to a change in price. 25. In relation to alcoholic beverages, estimates of price elasticities vary by beverage type, country, population group and quality of product. 58 Two recent meta-analyses 59,60 suggest that a 10 per cent increase in the price of alcohol is associated with a 5 per cent decline in overall consumption (price elasticity = -0.5). This suggests that while alcohol is price responsive, it is relatively price inelastic. Along with providing an overall price elasticity of demand for alcohol, the meta-analyses also demonstrate that there is 55 New Zealand Law Commission (2010). Chapter 17: Reducing demand: the role of price. Alcohol in our lives: curbing the harm. A report on the review of the regulatory framework for the sale and supply of liquor. Wellington, New Zealand. 56 Carragher, N and Chalmers, J (2011), see Centre for Economics and Business Research (2009), see ScHARR (2008) a, see Gallet, C.A. (2007). The demand for alcohol: a meta analysis of elasticities. The Australian Journal of Agricultural and Resource Economics. 51: Wagenaar, A.C., et al. (2009). Effects of beverage alcohol price and tax levels on drinking: a meta analysis of 1003 estimates from 112 studies. Addiction. 104:

16 a difference in demand for different alcoholic beverages, with demand for beer being more inelastic than demand for wine or spirits (see Table 2). 61 Factors that can affect elasticities include: the availability of substitute products (in this case other alcoholic beverages), proportion of income spent on the product and necessity. Table 2: Price elasticities for alcohol reported in three 62 meta-analyses Median price elasticity Study Alcohol (all) Beer Wine Spirits Wagenaar, et al (2009) Gallet (2007) Fogerty (2006) NA Source: Adapted from Babor, T., et al (2010). Table 8.1, p113 NA, not available 26. The School of Health and Related Research (ScHARR) at the University of Sheffield conducted a study into policy options for alcohol price regulation in the United Kingdom (the Sheffield Study). 63 The study calculated aggregate and own price elasticities for moderate, hazardous and harmful drinkers 64. These elasticities are provided in Tables 3 and 4 below. Table 3: Aggregate price elasticities calculated in the Sheffield Study Elasticity (all alcohol) Moderate drinker Hazardous/Harmful drinker Source: ScHARR (2008) b 27. As can be seen in Table 3, the aggregate price elasticities from the Sheffield Study suggest that harmful drinkers are less responsive to changes in price than moderate drinkers. This is consistent with evidence from two other studies; Manning et al 65 (1995) which indicated that the 95th percentile of drinkers have an elasticity not significantly different from zero; and Wagenaar et al (2009) which found heavy drinkers have a mean price elasticity of ,67 One suggestion advanced in relation to these findings is that a proportion of harmful drinkers have some dependency on alcohol. This dependency factor coupled with social factors (e.g. drinking more often socially than moderate drinkers) may make heavy drinkers more resistant to price changes. 68 Table 4: Own price elasticities calculated in the Sheffield Study Lower Upper Overall Moderate drinker Hazardous drinker Harmful drinker Source: ScHARR (2008) b 61 Carragher, N and Chalmers, J (2011), see This table includes results from Fogerty (2006) sourced from Babor, T., et al (2010), see ScHARR (2008) b. Independent Review of the effects of alcohol pricing and promotion. Part B: Modelling the Potential Impact of Pricing and Promotion Policies for Alcohol in England: Results from the Sheffield Alcohol Policy Model Version 2008(1 1). Sheffield: ScHARR, University of Sheffield. 64 The definitions of harmful, hazardous and moderate drinkers from the Sheffield Study are: Moderate drinker: 14 units for women; 21 units for men per week Hazardous drinker: units for women; units for men per week Harmful drinker: > 35 units for women; > 50 units for men per week 65 Manning, W.G., Blumberg, L., Moulton, L.H. (1995). The demand for alcohol: The differential response to price. Journal of Health Economics. 14: ScHARR (2008) b, see Wagenaar, A.C., et al. (2009), see Centre for Economics and Business Research (2009), see 41 12

17 28. In contrast to the aggregate price elasticities shown in Table 3, the own price elasticities calculated in the Sheffield Study suggest that hazardous and harmful drinkers are more responsive to changes in price than moderate drinkers. One reason that is proposed is that harmful drinkers may be more likely to switch between products than moderate drinkers. 69 For example, if the price of beer increases but the price of all other products remains the same, harmful drinkers may be more likely than moderate drinkers to switch their consumption from beer to alternative alcohol products which now provide a relatively cheaper option. Two examples of switching behaviour observed in Australia are the response to the Ready-to-Drink alcopops tax and the response to the removal from sale of four and five litre casks of wine in the Northern Territory (see Box 5). Box 5: Examples of switching behaviour in Australia Tennant Creek In March 1996, following a trial (and evaluation) of increased restrictions on the availability of alcohol in Tennant Creek, the Northern Territory Liquor Licensing Commission amended the licences of Tennant Creek hotels and takeaway outlets to include several restrictions. One of these restrictions was the prohibition of sales of all wine in casks >2 litres in volume. A review 70 conducted after two years found that in the period following the introduction of the restrictions, mean quarterly purchases for fortified wines increased by 573 litres (570 per cent) compared to the mean for the previous four quarters; however, it was noted that this switching behaviour offset only 14 per cent of the mean quarterly decline of 4,153 litres of pure alcohol purchased as cask wine. Alice Springs In March 2002 the Northern Territory Liquor Licensing Commission varied licence restrictions in Alice Springs. Similar to Tennant Creek, one of the restrictions was to prohibit the sales of all liquor in containers >2 litres in volume. In an evaluation of the trial it was noted that the aim of this restriction was to restrict the sale of four and five litre wine casks; however, the trial report stated It is clearly demonstrated within the reports and other material put before the Commission that those denied their drink of first choice shifted immediately to two-litre casks of port and that, at least in the early months of the trial, there were increased levels of alcohol-related harm and anti-social behaviour (p13). Following the trial evaluation the ban on containers > 2 litres in volume was lifted. 71 Ready-to-drink (RTD) alcohol beverages tax In the first full year that the RTD alcohol beverages tax (the alcopops tax) was in effect , there was a 30 per cent decrease in sales of RTDs. This was followed by a further decline in Over the same period there was an increase in the sales of other spirits; however, this increase accounted for less than half of the decrease in RTD sales The exact effects of a minimum price on switching behaviour, as distinct from a restriction on the availability of a particular size or type of product, may be less than these types of regulatory interventions. Effectively, a floor price increases the price of 69 ScHARR (2008) b, see Gray, D., et al. (1999). Beating the grog: an evaluation of the Tennant Creek liquor licensing restrictions. Australian and New Zealand Journal of Public Health. 24(1), Northern Territory Licensing Commission (2003). Trial Restrictions on the Sale of Liquor in Alice Springs, Decision on License Conditions following Evaluation of the trial. Retrieved from: Evaluation_Trial_Restrictions_0703.pdf 72 Skov, S.J., et al (2011). Is the alcopops tax working? Probably yes, but there is a bigger picture. Medical Journal of Australia. 195(2),

18 the cheapest available products and reduces the ability to loss lead or discount; thus, switching behaviour may be less available as an effective consumer strategy. 30. While the economic evidence for the effect of price policies on harmful drinkers is not certain, a clearer picture can be provided by studying the effects of pricing policy on health outcomes related to harmful alcohol use, such as liver cirrhosis. 73 Studies of cirrhosis mortality have found that tax increases reduce mortality, whilst a study of suicide rates found that increases in beer tax were associated with a reduced rate of male suicides (particularly among young males) 74. Conversely, when taxation levels in Finland were recently reduced there was an increase in alcohol-related sudden deaths, with an estimated 17 per cent increase in mortality. 75 CURRENT ALCOHOL PRICING/TAXATION IN AUSTRALIA 31. The alcohol taxation system in Australia is complex, with beer, wine and spirits being taxed in different ways. There are four different types of tax treatments affecting different alcohol products: Goods and Services Tax (GST) - imposed on most goods and services at a flat rate of 10%; The 5% ad valorem general customs duty applies to some imported alcohol; Excise and equivalent customs duties - collected as a set amount per litre of alcohol content, with rates varying by beverage type (beer, wine, spirits, etc); and Wine Equalisation Tax (WET). An overview of the current taxation system and recent proposed changes to that system can be found at Attachment A. MINIMUM (FLOOR) PRICES 32. As noted earlier, a minimum (or floor) price sets a minimum price per standard drink (or unit of alcohol) that alcoholic beverages must be sold for. The effect of a minimum price would be to increase takings and profits for some alcohol retailers and producers, unlike an alcohol tax increase in which the increased revenue would go to the Government. Unlike an increase in excise, a minimum price cannot be circumvented by discounting, loss-leading or below cost selling There are relatively few countries in which minimum pricing policy exists, although the interest in minimum pricing as a health policy tool appears to be growing worldwide. To date, the majority of research into minimum pricing has been conducted in the United Kingdom where minimum pricing policies are currently under consideration. Price policies and minimum price experience in Australia 34. Recent activity in the area of minimum pricing in Australia has centred around price as a mechanism to address the harmful consumption patterns associated with cheap alcohol. In June 2011, Coles pledged that it would no longer sell bottles of wine for less than $8 in its Alice Springs stores from July This policy set an effective floor price of $1.14 per standard drink for wine. 78 Woolworths followed suit, announcing that 73 Babor, T., et al. (2010), see Babor, T., et al. (2010), see Babor, T., et al. (2010), see Carragher, N and Chalmers, J (2011), see Coles also indicated that it would not longer stock two litre wine casks in Alice Springs. 78 Carragher, N and Chalmers, J (2011), see 17 14

19 it would no longer sell two-litre casks. IGA has trialled a minimum price of $1.15 per standard drink in one of its Alice Springs stores. 35. In the Northern Territory, the Living With Alcohol (LWA) program, introduced in 1991, aimed to reduce alcohol-related harm using strategies such as education, increased controls on alcohol availability and expanded treatment and rehabilitation services. The LWA program was funded by a special levy (introduced in 1992) on beverages with greater than 3 per cent alcohol content by volume; this added five cents to the cost of a standard drink. 79,80 The levy was removed in 1997 following a High Court ruling which disallowed States and Territories from using licensing fees to raise tax revenue; the Commonwealth Government continued to fund the program until An evaluation of the LWA program found that between 1992 and 1997 there was a significant decline in acute alcohol-attributable deaths in the Northern Territory. Furthermore there was a significant decline in chronic alcohol-attributable deaths between 1998 and The authors concluded that the impact of the program reduced the burden of alcoholattributable injury in the Northern Territory in the short term and may have contributed to a reduction in chronic illness in the longer term In 1995, in addition to the LWA levy, the Northern Territory Government introduced a $0.35 per litre levy on the sale of cask wine. The aim of the cask wine levy was to reduce alcohol consumption and to raise revenue for the LWA program. 82 As with the LWA levy, the cask wine levy was removed in Prior to the introduction of the levy, mean quarterly per capita consumption of cask wine was 0.73 litres (per person aged 15 years). This dropped to 0.49 litres per person following the introduction of the levy. During this time there was no corresponding shift (or switching) to other beverage types, such as beer. In the period after the removal of the levy, consumption increased to 0.58 litres per person No other governments at state or territory level appear to have used price policies as a tool to reduce levels of alcohol consumption and alcohol-related harm in Australia. Minimum pricing research and experience internationally Canada 38. Minimum pricing, also referred to a social reference pricing (SRP) has been in place in eight of the ten Canadian provinces (Nova Scotia, Newfoundland and Labrador, New Brunswick, Prince Edward Island, Ontario, Manitoba, British Columbia and Saskatchewan) since the 1990s In a submission to the Scottish Parliament in relation to the Alcohol etc (Scotland) Bill, the Brewers Association of Canada stated that social reference prices are established either through the regulations of provincial governments, under the authority of provincial liquor control/licensing statues or through the administrative policies/guidelines of provincial liquor regulators (Liquor Control Boards, Liquor Licensing Agencies) Chikritzhs, T., Stockwell, T., Pascal, R. (2005). The impact of the Northern Territory s Living With Alcohol program, : revisiting the evaluation. Addiction. 100: Skov, S.J. (2009). Alcohol taxation policy in Australia: public health imperatives for action. Medical Journal of Australia. 190 (8): Chikritzhs, T., et al (2005), see Gray, D., Chikritzhs, T., Stockwell, T. (1999). The Northern Territory s cask wine levy: health and taxation policy implications. Australian and New Zealand Journal of Public Health. 23 (6): Gray, D., et al. (1999), see Carragher, N and Chalmers, J (2011), see Brewers Association of Canada. Submission to the Scottish Parliament on the Alcohol etc (Scotland) Bill. Retrieved from: 15

20 40. Although SRP has been in place since the 1990s, there is very little publicly available information on the effectiveness of the policy. The small amount of evidence that is available suggests that SRP does have some effect on alcohol consumption: Evidence from a recent study of minimum pricing in the province of British Columbia suggests that a 10 per cent increase in the minimum price of an alcoholic beverage reduces consumption of all alcoholic drinks by 3.4 per cent. 86 As previously noted, price changes may have different effects on different alcoholic beverages. This effect was observed in this study. A 10 per cent increase in minimum price resulted in: o a reduction in the consumption of spirits and liqueurs by 6.8 per cent; o a reduction in the consumption of wine by 8.9 per cent; o a reduction in the price of alcoholic sodas and ciders by 13.9 per cent; and o a reduction in consumption of beer by 1.5 per cent The Centre for Economics and Business Research 87 examined data from Statistics Canada and compared trends on consumption, crime and health related data for those provinces with minimum pricing and those without. They found that alcohol consumption in provinces that have instituted minimum pricing has fallen relative to those that do not have minimum pricing. Scotland 41. In 2010 the Scottish National Party (SNP) proposed introducing a minimum alcohol price of 0.45 per unit of alcohol as part of its Alcohol etc (Scotland) Bill; however, as the party did not hold a majority of seats in parliament the proposal was defeated. Following removal of minimum pricing, the remainder of the Alcohol etc (Scotland) Bill was passed in In 2011, the SNP was re-elected and in November that year it introduced the Alcohol (Minimum Pricing) (Scotland) Bill. This Bill once again proposed the introduction of minimum pricing but did not specify a price. In May 2012 the Health Secretary Nicola Sturgeon announced that the preferred minimum price for alcohol would be 50 pence per unit. 88 On 24 May 2012 the Alcohol Minimum Pricing Bill was passed by Parliament. Implementation of the policy will not occur until April 2013 at the earliest The introduction of the Bill has led to a large amount of public debate on the issue of minimum pricing both within Scotland and the greater United Kingdom. 43. Proponents of the Bill argue that minimum pricing (as part of a comprehensive range of policies) will reduce the high rates of harmful drinking in Scotland as: there is strong evidence that the price of alcohol affects consumption and alcoholrelated harm; and that binge drinkers, harmful drinkers and younger drinkers are more likely to be responsive to price changes than moderate/responsible drinkers Opponents of minimum pricing argue that the policy: has not been tested in practice and therefore lacks an evidence base; will not affect consumption levels among harmful or hazardous drinkers; will unfairly punish the majority of responsible drinkers; will disproportionally affect individuals on low incomes; 86 Stockwell, T., et al. (2012). Does minimum pricing reduce alcohol consumption? The experience of a Canadian province. Addiction. 107(5): Centre for Economics and Business Research (2009), see Scottish National Party. (2012). Sturgeon announces minimum price for alcohol. Accessed May from centre/news/2012/may/sturgeon announces minimum price alcohol 89 Scottish Government (2012). Alcohol minimum pricing bill passed. Accessed 28 May 2012 from 90 Health and Sport Committee (2012). 2 nd Report, 2012 (session 4). Stage 1 Report on the Alcohol (Minimum Pricing) (Scotland) Bill. Scottish Parliament. 16

21 may cause industry job losses and cause damage to Scottish whisky exports; may result in illegal cross-border trade (e.g. between Scotland and England); will provide large windfalls to retailers; and may infringe European Union competition law. 91,92, The Health and Sports Committee of the Scottish Parliament conducted an inquiry into the Alcohol (Minimum Pricing) (Scotland) Bill. In its conclusion the report stated that 94 : A majority of the Committee are persuaded by the Scottish Government s assertion that the Bill will help reduce alcohol consumption in Scotland, because they consider the evidence received to be both overwhelming and compelling, in particular reducing the consumption of alcohol by harmful drinkers (p.58); Some members remain unconvinced by the efficacy of minimum pricing and believe a universal approach may penalise moderate drinkers and also those in lower income groups. They question whether the Bill s policy aspirations of reducing the harm and social cost associated with alcohol misuse can be achieved to the extent envisaged. (p.59). Concerns were also raised about the substantial windfall to retailers and the legality of the Bill within the EU. England and Wales 46. In March 2012 the United Kingdom Coalition Government released a new alcohol strategy The Government s Alcohol Strategy. 95 The strategy contains many proposals for reducing harmful alcohol consumption and alcohol-related harm in the United Kingdom, with a particular focus on binge drinking. One of these proposals is the introduction of minimum pricing. At this stage an actual minimum price has not been set, but a frequently cited amount is 40 pence per unit (approximately 63 cents). 96 The Prime Minister, David Cameron, stated that a 40 pence per unit minimum price could mean 50,000 fewer crimes each year and 900 fewer alcohol related deaths per year by the end of the decade As is the case in Scotland, the proposal has led to a significant amount of debate. The arguments presented for and against minimum pricing are similar to those mentioned above. Other countries 48. In 2008 the Ukraine introduced minimum pricing and in 2010 Russia, Uzbekistan and the Republic of Moldova followed suit. 98 Limited details are available at this point on the implementation or success of these strategies. Sheffield Study 49. In 2008, the School of Health and Related Research (ScHARR) at the University of Sheffield was commissioned by the National Institute for Health Research, Department of Health, to conduct a study into policy options for alcohol price regulation in the United Kingdom. 99 The study was done in two parts. Part A consisted of a systematic review of the evidence on the link between the price and promotion of alcohol and 91 Chick, J. (2010). What Price for an Extra ordinary Commodity? Alcohol and Alcoholism. 45(5), Carragher, N and Chalmers, J (2011), see Health and Sport Committee (2012), see Health and Sport Committee (2012), see HM Government (2012). The Government s Alcohol Strategy. London 96 HM Government, The official site of the British Prime Minister s Office (2012). Retrieved 20 April 2012 from: unit price for alcohol/ 97 HM Government (2012), see Carragher, N and Chalmers, J (2011), see ScHARR (2008) a, see 38 17

22 patterns of consumption and alcohol-related harm. In addition it examined the effectiveness of related policy interventions. Part B consisted of a model which sought to identify the potential implications of changes to current policies, especially the impact on health, crime, and employment The model used in the Sheffield Study compared the effects of setting a minimum price for alcohol, using general price increases, and banning of off-trade discounting altogether. The effect of a minimum price was analysed at a range of values between 30 pence and 70 pence. For example, a minimum price of 30 pence was shown to decrease consumption by 0.6 per cent, while a general price increase of 10 per cent was predicted to reduce consumption by 4.4 per cent. A total ban in off-trade discounting was predicted to result in a 2.8 per cent decrease in consumption. 51. In early 2012, at the request of the Scottish Parliament, an updated version of the Sheffield Study was released. The aim was to re-examine the effect of a 45 pence minimum price. The findings are summarised below: 101 Overall weekly alcohol consumption would decrease by 3.5 per cent. This is an estimated decrease of 25.3 units per drinker per year. The decrease in consumption would be greater for harmful drinkers than moderate drinkers. Harmful drinkers would consume less units per year compared to 4.8 less units for moderate drinkers. Alcohol-attributable deaths would reduce by approximately 36 within the first year, increasing to 196 fewer deaths per annum after 10 years. There would be a decrease in crime (2,160 fewer offences per annum), workplace harm (909 fewer people unemployed) and sick days (19,646 fewer sick days per year). A 0.45 minimum price would increase a moderate drinker s annual alcohol expenditure by 6, but a harmful drinker s by 98. The decrease in consumption is likely to be greatest for beer, cider and spirits bought off-trade (sold outside of pubs/clubs). There would be a substantial absolute increase in on-trade beer and cider (sold within pubs/clubs). The estimated increase in revenue by retailers is 69 million (split 70:30 off-trade and on-trade) 100 ScHARR (2008) a, see ScHARR (2012). Model based appraisal of alcohol minimum pricing and off licensed trade discount bans in Scotland: A Scottish adaptation of the Sheffield Alcohol Policy Model version 2. Sheffield: ScHARR, University of Sheffield. 18

23 SUMMARY OF KEY ISSUES 52. The following arguments are raised in discussions about the role of a minimum price in reducing harmful alcohol consumption. Note: Harmful, hazardous and moderate drinkers are defined in this section based on the UK definitions used by the Sheffield Study. These levels are different to those recommended by the NHMRC in Australia. Moderate drinker: 14 units for women; 21 units for men per week Hazardous drinker: units for women; units for men per week Harmful drinker: > 35 units for women; > 50 units for men per week 1 unit = 8 grams of alcohol The minimum price generally referred to in relation to total costs is On-trade/On-license: refers to alcoholic beverages purchased in pubs, clubs, bars, etc Off-trade/Off-license: refers to alcoholic beverages purchased in bottle shops, supermarkets, liquor barns, etc A minimum price would adversely affect sensible, moderate drinkers 53. One of the main arguments against minimum pricing is that it would unfairly affect the majority of people who drink in moderation. 102 The level at which a minimum price is set is a significant factor in relation to the increases or otherwise of particular beverage prices and thus the increased costs (or otherwise) to consumers. While the cost of the lowest priced alcohol, such as cask wine and cider, should increase in line with the policy intent of putting a minimum price into the market the price of spirits and premium brand products could remain unchanged. There is some suggestion however, that an increase in the price of the lowest cost products could result in an increase in price of higher cost products in order to allow producers to maintain the image of a premium product. 103 Evidence 54. Some research supports the proposition that moderate drinkers (rather than heavy drinkers) would be the group primarily disadvantaged by a minimum price. Expenditure data from the United Kingdom suggest that all income groups tend to purchase low-price off sales (off licence) alcohol and that middle income earners tend to purchase the most low-price alcohol. 104 In their paper on minimum pricing Minimum Alcohol Pricing: A targeted Measure the CEBR (United Kingdom) concluded that whilst minimum pricing would have the effect of targeting heavier drinkers due to their preference for cheaper, stronger alcohol products, it is likely to have a similar proportionate effect on moderate and harmful drinkers in terms of consumption levels (pg 49). 105 Influencing the price of the cheapest drinks on the market by raising floor prices appears to have a greater impact on total consumption than does increasing the prices of more expensive drinks Distilled Spirits Industry Council of Australia Inc (2012). Pre budget Submission UK Home Office (2011), see Carragher, N and Chalmers, J (2011), see Centre for Economics and Business Research (2009), see ScHARR (2008) a, see 38 19

24 In the UK, almost 85 per cent of off-trade alcohol units sold in 2007 retailed at less than 45 pence, therefore a national minimum price at that level would affect most households A significant proportion of the available evidence, however, suggests that moderate drinkers may only be marginally affected by a minimum price. Binge drinkers, harmful drinkers and younger drinkers appear in general to choose cheaper alcoholic beverages than moderate drinkers. 108,109 Modelling analysis from the updated Sheffield Study (2012) indicates that a 0.45 minimum price would increase a moderate drinker s annual alcohol expenditure by 6 and a harmful drinker s by Record and Day (2009) 111 examined the effect of introducing a minimum price of 0.50 per unit on off-trade alcohol purchasing in the United Kingdom. Using data from the 2006 General Household Survey the authors found that a minimum price would have the largest effect on the 30 per cent of the population who consume 80 per cent of the alcohol. For the top 30 per cent of consumers, off-trade alcohol purchasing would decrease by 16 units per week (32 per cent) compared to an overall fall of 3.4 units per week (for all consumers). 112 The World Health Organization research indicates that: Younger drinkers are affected by price, and heavy drinkers are more affected than light drinkers; in fact, if a minimum price were established per gram of alcohol, light drinkers would hardly be affected at all. (p1) 113 A minimum price would adversely affect individuals/households with low incomes 56. The evidence for the effect of minimum pricing on low income individuals/households is unclear. The following elements are drawn from various research studies. Data from the Australian Household Expenditure Survey (HES) suggests that the lowest income households have a lower weekly average expenditure on alcoholic beverages than the highest income households, 1.9 per cent compared to 2.7 per cent (proportion of total goods and services expenditure). 114 As noted above, expenditure data from the United Kingdom suggests that all income groups tend to purchase low-price off sales (off licence) alcohol but that it is middle income earners that tend to purchase the most low-price alcohol. 115 Research by Griffith and Leicester (2010) 116 in the United Kingdom, found that the lowest income households are less likely to buy alcohol overall, but do pay lower prices per unit than richer households when they do. There is some concern that if the price of alcohol increases, individuals or households with lower incomes could spend money on alcohol rather than other goods, at the expense of themselves or their families 117 and that the economic wellbeing of those drinkers who continue to drink at hazardous/harmful levels would be adversely affected. When alcohol price decreases, lower socioeconomic groups experience greater harm than other groups. For example, when the price of alcohol in Finland was 107 Griffith, R. and Leicester, A. (2010), see UK Home Office (2011), see ScHARR (2008) a, see ScHARR (2012), see Record, C. and Day, C. (2009). Britain s alcohol market: how minimum alcohol prices could stop moderate drinkers subsidising those drinking at hazardous and harmful levels. Clinical Medicine. 9:5, Record, C. and Day, C. (2009), see World Health Organization, Regional Office for Europe (2009). Evidence for the effectiveness and cost effectiveness of interventions to reduce alcohol related harm. World Health Organisation, Copenhagen, Australian Bureau of Statistics (2011), see Carragher, N and Chalmers, J (2011), see Griffith, R. and Leicester, A. (2010), see Chick, J. (2010), see 91 20

25 substantially reduced (a 33 per cent tax cut), the associated increase in alcoholrelated mortality primarily affected the unemployed, early retired or those with low education or income. 118,119 Assuming an own price elasticity of demand of -0.5 across all households, a minimum price of 45 pence per unit would reduce the off-licence consumption of alcohol in poorer households (incomes below 10,000) by almost 25 per cent compared to households with incomes over 60,000 that would see their consumption fall about 12 per cent. 120 (There is no comparative modelling for Australia.) A minimum price would have little effect on heavy drinkers and young drinkers 57. There is some disagreement in relation to the effect of pricing policies on young drinkers (binge drinking) and heavy drinkers. 121 Evidence Young people and heavy drinkers are more responsive to increases in alcohol prices than moderate drinkers. 122 Furthermore, increasing alcohol prices reduces the consumption of alcohol by young people with a greater impact on more frequent and heavier drinkers. 123 Heavy drinkers tend to purchase alcohol at a lower price per unit than moderate drinkers. For example a study in the United States found that the top 10 per cent of drinkers spend $0.87 per drink compared with $4.75 per drink for the bottom 50 per cent. 124 The Institute of Fiscal Studies (United Kingdom) reported a clear negative relationship between the amount of alcohol purchased and the average price paid per unit (standard drink). Those buying small amounts of alcohol, less than 2 units per adult, per week, pay on average more than 40 pence per unit compared to under 34 pence per unit for those buying 25 units or more. 125 The Centre for Economics and Business Research (United Kingdom) argues that the evidence around young drinkers is not clear, stating that there is some evidence that young drinkers pay more per unit than moderate drinkers. 126 Griffith and Leicester (2010) found that the estimated reduction in consumption, following the introduction of a minimum price, would be 25 per cent for adults drinking more than 35 units per week compared to per cent for those drinking fewer than 9 units per week. 127 The Sheffield Study (2012) found that the decrease in consumption following the introduction of a 45 pence minimum price would be greater for harmful drinkers than moderate drinkers. Harmful drinkers would consume less units per year compared to 4.8 less units for moderate drinkers. 128 The Sheffield Study found that heavy drinkers have a lower aggregate price elasticity 0.21 to than the mean (-0.4 to -0.54), suggesting they are less responsive to price changes than moderate drinkers. However, when looking at own price elasticity, heavy drinkers have a wider range than moderate drinkers Chick, J. (2010), see Ludbrook, A. (2009). Minimum Pricing of Alcohol. Health Economics. 18: Griffith, R. and Leicester, A. (2010), see Winemakers Federation of Australia (2011). Overview of Minimum Floor Price Issue Carragher, N and Chalmers, J (2011), see UK Home Office (2011), see UK Home Office (2011), see Griffith, R. and Leicester, A. (2010), see Centre for Economics and Business Research (2009), see Griffith, R. and Leicester, A. (2010), see ScHARR (2012), see Centre for Economics and Business Research (2009), see 41 21

26 One suggestion that has been made in relation to these findings is that there may be a proportion of harmful drinkers who have some dependency on alcohol. This dependency factor coupled with social factors (e.g. drinking more often socially than moderate drinkers) may make heavy drinkers more resistant to price changes. 130 While the economic evidence for the effect of price policies on harmful drinkers is unclear, there is evidence that an increase in alcohol price leads to a reduction in alcohol-related harm As can be seen by the variety of results from studies in Australia and elsewhere, the precise effect of a minimum price in a market depends significantly on the price point selected and the subsequent behaviour of various groups. While the preponderance of the evidence supports the proposition that binge and heavier drinkers tend, in general, to purchase cheaper alcohol than light and moderate drinkers, and that lower income groups purchase less alcohol than higher income groups, the potential magnitude of the price effects on each group requires sophisticated economic modelling. The Agency does not intend to commission such modelling at this time, but would welcome submissions from any stakeholders who have undertaken robust work in this area. The effects of minimum pricing on retailers and trade 59. With no alteration in taxation designed to capture the increased profitability, any additional profits made as a result of a minimum pricing policy would not be collected by Government, but would be collected by retailers and producers (although it is important to note that the GST would be impacted). The largest beneficiaries of a minimum price would likely be off-licence retailers. Griffith and Leicester (2010) estimated that in the UK a minimum price of 45 pence would provide alcohol retailers and producers with 700 million, the majority of which would go to the large supermarket chains. 132 The Centre for Economics and Business Research (United Kingdom) estimates that the profits for retailers could be worth billion per annum. It also notes there may be job losses in industry as a result of reduced consumption and demand. 133 Preliminary analysis of the UK alcohol market appears to indicate that major retailers of alcohol (supermarkets) have a stronger bargaining position than producers and will therefore be able to negotiate prices and volumes in their favour. o During interviews with the alcohol industry, interviewees stated that if these (pricing) policies led to increased profits it would be difficult for producers to increase prices because: a) major retailers would know that producer costs have not increased; and b) due to the large volumes sold through these few major retailers, retailers know that producers will agree not to raise prices. 134 Similar concerns have been raised in relation to the Australian market. In their Pre-Budget Submission 135 the Distilled Spirits Industry Council of Australia stated: o In light of the negotiating position and leverage that the two major retailers have in Australia, it is unlikely that the additional margins produced by a statutory minimum floor price will flow through to manufacturers and wholesalers (p20). On-trade premises (pubs, clubs, etc) may see benefits with the introduction of minimum pricing. It is likely that beverages sold on-trade are already priced above 130 Centre for Economics and Business Research (2009), see Babor, T., et al. (2010), see Griffith, R. and Leicester, A. (2010), see Centre for Economics and Business Research (2009), see UK Home Office (2011), see Distilled Spirits Industry Council of Australia Inc (2012), see

27 any expected minimum price. Increases in taxation are usually passed on by ontrade premises but can be absorbed by off-trade retailers, resulting in increasing price differences between alcohol purchased at the pub and alcohol purchased at a bottle shop. As retailers cannot absorb or avoid a minimum price, this price difference may be reduced, benefitting on-trade business. Concluding comments 60. The above discussion is not intended as an exhaustive list of the issues surrounding minimum pricing. This Issues Paper is addressing the specific matter raised by the Commonwealth Government in its response to the Preventative Health Taskforce Report to develop further the concept of the public interest case for a minimum (floor) price of alcohol. As a result, not all economic or industry issues are being examined; matters not be addressed are, inter alia: the effect of a minimum price on industry employment and product innovation; the legal issues of minimum pricing in relation to competition/trade law; the effect of the implementation of minimum pricing on business regulatory burdens; and responsibility for administering a minimum price if it were to be introduced. 61. This paper provides a range of background material and highlights the issues of significance identified by the Agency. It is not intended to either promote or oppose the introduction of a minimum (floor) price on alcohol but to serve as information and assistance to those who will be participating in the inquiry by making a submission. 23

28 ATTACHMENT A Current alcohol taxation in Australia 1. This section of the paper provides a brief overview of the current alcohol taxation system in Australia and the recent work proposing changes to it. 2. The alcohol taxation system in Australia is complex with four different types of tax treatments affecting different alcohol products in different ways: Goods and Services Tax (GST) - imposed on most goods and services at a flat rate of 10%; The 5% ad valorem general customs duty applies to some imported alcohol; Excise and equivalent customs duties - collected as a set amount per litre of alcohol content, with rates varying by beverage type (beer, wine, spirits, etc); and Wine Equalisation Tax (WET). 3. Excise rates are increased in February and August every year in line with CPI. It is unclear to what extent these taxes are passed on to consumers. It is thought that licensed premises are more likely to pass on increases while bottle shops and retailers (particularly large groups) are more likely to absorb an increase or a proportion of it. 136 Beer 4. Beer is subject to excise and GST and is taxed at eight different rates. Excise duties vary according to alcohol strength, packaging type (bottles or kegs) and the purpose of sale (commercial or non-commercial). The first 1.15% of alcohol in beer is excise-free. Table 1: Excise rates for beer as of 1 February 2012 Product Alcohol by Volume Excise rate per litre of alcohol Not exceeding 3% $ Exceeding 3% but not 3.5% $ Beer packaged in an individual container not exceeding 48 litres Exceeding 3.5% $ Beer packaged in an Not exceeding 3% $ 7.56 individual container Exceeding 3% but not 3.5% $ exceeding 48 litres Exceeding 3.5% $ Beer produced for noncommercial Not exceeding 3% $ 2.66 purposes using commercial facilities or equipment Exceeding 3% $ 3.07 Source: Australian Tax Office 137 Spirits 5. Bottled spirits and pre-mixed spirits (otherwise known as Ready-To-Drink (RTDs) or Alcopops ) are subject to excise and GST. They are taxed at the rate of $74.72 per litre of alcohol. 6. Brandy is taxed at a concessional rate compared to other spirits, attracting an excise rate of $69.77 per litre of alcohol. 136 Carragher, N and Chalmers, J (2011), see Australian Tax Office: 24

29 Table 2: Excise rates for spirits as of 1 February 2012 Product Alcohol by Volume Excise rate per litre of alcohol Brandy All $ Spirits and RTDs All $ Other excisable beverages Exceeding 10% $ Source: Australian Tax Office Box 1: Ready-to-drink alcohol tax Prior to 2008, Ready-to-drink (RTD) alcoholic beverages or alcopops were taxed at an equivalent rate to full strength packaged beer (without the 1.15 percent alcohol by volume excise free threshold), i.e. RTDs were taxed at approximately half the rate (per litre of alcohol) of bottled spirits. In 2008, in response to concerns about the role of RTDs in binge drinking, particularly among youth, the Australian Government introduced the RTD alcohol or alcopops tax which increased the tax on spirit-based RTDs by 70 per cent, bringing it in line with bottled spirits. The introduction of the tax resulted in significant community and political debate, including two Senate inquiries. Media coverage of the tax was substantial as those individuals and groups both for and against the tax aimed to highlight their case. An analysis of the media coverage between the introduction of the tax and its assent in parliament found that 52.4 per cent of news items were supportive or neutral in presenting the tax, while 47.6 per cent of news items were explicitly against the tax. Only 22.2 per cent of all media statements included in the study contained evidence relating to the effect of the tax on consumption and sales. 138 In general, those in support of the tax believed that an increase in price would lead to a decrease in consumption, while those opposed believed that the tax would be ineffective or counterproductive, resulting in a shift of consumption to other alcoholic beverages. 139 Has the alcopops tax worked? Since the introduction of the tax, studies of alcohol consumption and sales have been used by various groups to claim either that the tax did or did not work. 140 Excise data show that in , the first full year the tax was in effect, RTD sales fell by 30 per cent. There was a further decline in sales in During this period there was an increase in the sale of other spirits and beer; however, this increase accounted for less than half the decrease in RTD sales. 141 More recently the consumption of RTDs has stabilised; however, consumption is still lower than that observed prior to the introduction of the tax. 142 In relation to alcohol-related harm, a study conducted of young people presenting to Emergency Departments on the Gold Coast, found that the increase in tax on RTDs was not associated with any reduction in alcohol-related harm among patients aged years. 143 Recently, it has been suggested that cider has become a substitute product for readyto-drink alcoholic beverages. Following the introduction of the ready-to-drink alcohol ( alcopop ) tax in 2008 there was an 18 per cent increase in the consumption of cider. 144,145, Fogarty, A.S., Chapman, S. (2010). Framing and the marginalisation of evidence in media reportage of policy debate about alcopops, Australia : Implications for advocacy. Drug and Alcohol Review. 30(6): Fogarty, A.S., Chapman, S. (2010), see Skov, S.J., et al (2011), see Skov, S.J., et al (2011), see Australian Bureau of Statistics (2012), see Kisely, S.R., Pais, J., White, A., Connor, J., Quek, L H., Crilly, J.L., Lawrence, D. (2011). Effect of the increase in alcopops tax on alcohol related harms in young people: a controlled interrupted time series. Medical Journal of Australia. 195: Alcohol Policy Coalition (2012). Leading health groups call for Federal Budget to equalise alcohol taxation. APC calling for: volumetric taxation, abolition of Wine Equaliation Tax & Introduction of floor price. Accessed 15 May 2012 from Distilled Spirits Industry Council of Australia Inc (2012). Pre budget Submission

30 Wine 7. Wine is subject to GST and the Wine Equalisation Tax (WET). The WET is collected at a rate of 29 per cent of wholesale price according to the value of the wine (ad valorem tax) rather than the alcohol content. Because wine is taxed on a value basis, wines with the same alcohol content are subject to different levels of taxation. The cheaper the wine, the less it is taxed. The WET favours cheaper wines which are often made by large producers. In 2004 a WET rebate was introduced for wineries on the first $1.7 million of sales. The rebate of up to $500,000 per annum essentially exempts small wineries from the WET. 8. The WET applies to the following beverages, provided they contain more than 1.15% by volume of ethyl alcohol: grape wine, including sparkling and fortified wine grape wine products (such as marsala) fruit wines or vegetable wines cider, perry, mead and sake. Cider 9. Cider can be classified as traditional cider (apple and pear cider) or flavoured cider (cider that has additional flavouring or alcohol added, such as blackcurrant or lemon). These different cider products attract a different tax regimen. Traditional cider is taxed under the WET and pays approximately 23 cents per standard drink, while flavoured cider is taxed at the equivalent rate to ready-to-drink alcoholic beverages. 147,148 Proposed changes considered to alcohol taxation Henry Review 10. A recent comprehensive review of the Australian Tax System Australia s Future Tax System (the Henry Review) 149 recommended that changes should be made to alcohol taxation in Australia. The Review concluded that the social costs associated with alcohol abuse were not effectively targeted by current taxation and subsidy arrangements. It was recommended that the social harms related to alcohol would be better addressed through a common volumetric tax, whereby all alcoholic beverages would be taxed at a common rate according to alcohol content. The first 1.15 per cent of alcohol would remain tax free. 150 The effect of a common volumetric tax on alcohol prices can be seen in Figure 1 below. 146 Robotham, J., Davey, M (2012). Call to lift tax on cider to rein in alcohol abuse. Sydney Morning Herald. Retrieved 15 May 2012 from to lift tax on cider to rein in alcohol abuse u89f.html 147 Australian Tax Office. Wine equalisation tax: the operation of the wine equalisation tax system. Accessed 29 May at See also, Spirits and other excisable beverages. Accessed 29 May at Alcohol Policy Coalition (2012), see Henry Review. (2010) Australia s future tax system: Report to the Treasurer, part two: detailed analysis, volume 2 of 2. Canberra: Commonwealth of Australia. 150 Henry Review. (2010), see

31 11. Figure 1: Relative taxation of alcohol under a common alcohol tax (a) By beverage type (alcohol by volume) a. The tax per unit of alcohol is measured relative to full strength packaged beer. Source: Henry Review 2010, p A common rate of tax would increase the price of cheap wine, but would also increase the price of low-strength beer and decrease the price of sprits and RTDs. The Henry Review noted that a while a common volumetric tax would effectively set a floor price for alcohol, it would not prevent alcohol being sold below cost The review acknowledged that determining the rate at which a volumetric tax would be set is difficult, and that further modelling would be required. Furthermore, any transition would need to be managed appropriately to reduce the impact on consumers and existing industry arrangements In its response to the Henry Review, the Government stated that it would not be making any changes to alcohol taxation during the middle of a wine glut and industry restructure. This decision was reiterated at the Federal Tax Forum in October National Preventative Health Taskforce 15. In its report Australia: the healthiest country by 2020, the National Preventative Health Taskforce 154 recommended a tiered volumetric taxation approach. Unlike a common volumetric tax, a tiered volumetric tax increases the tax rate both within and between beverages. This approach would result in spirits remaining more heavily taxed than wine and beer. Additionally, the Taskforce indicated that tiered volumetric taxation would produce incentives to increase production of low-strength alcoholic beverages Henry Review. (2010), see Henry Review. (2010), see Carragher, N and Chalmers, J (2011), see National Preventative Health Taskforce. (2009). Australia: the healthiest country by 2020 National Preventative Health Strategy the roadmap for action. Canberra: Commonwealth of Australia. 155 Carragher, N and Chalmers, J (2011), see 17 27

32 ATTACHMENT B Submission cover sheet Exploring the public interest case for a minimum (floor) price for alcohol SUBMISSION COVER SHEET Please complete and submit this form with your submission to: minimumprice@anpha.gov.au Post: Minimum (floor) price Australian National Preventive Health Agency GPO Box 462 Canberra ACT 2601 Phone: (02) Organisation or individual (this will appear on our website) Contact person (name of person wishing to receive confirmation of submission and future updates) address: Phone: Mobile (optional) Physical address Suburb/City State Postcode Postal address Suburb/City State Postcode Please note: For submissions made by individuals, all personal details other than your name and the State or Territory in which you reside will be removed from your submission before it is published on the ANPHA website. If possible, it is preferable that all submissions are provided as public documents; however, ANPHA can accept confidential submissions if requested (for example: submissions containing sensitive information of a personal or commercially confidential nature). If you wish to make a confidential submission please contact ANPHA prior to sending any material and mark the submission as confidential. Submissions will be placed on the ANPHA website shortly after receipt, unless ANPHA has been previously informed about material supplied in confidence. Submissions will remain on the ANPHA website indefinitely. 28