Table 1. Summary of the types of alcohol taxes applied by category of alcohol product. 12

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1 Alcohol Policy Coalition Position Statement July 2009 ALCOHOL PRICING AND TAXATION The issues Link between price, consumption and harm There is a strong link between alcohol price, consumption and resulting harms. When prices increase, alcohol consumption and harms decrease. This effect is seen in overall consumption as well as in measures of heavy or problem drinking, and in harms to the drinker as well as to others. 1,2,3,4 A price increase of 10 per cent (%) reduces consumption by an average of 5%. 5,6,7 The price of alcohol can be efficiently controlled by taxation. Numerous international studies and reviews have found alcohol taxation to be effective in reducing alcohol consumption and related harm. 7,8,9 Alcohol taxation is also highly cost-effective. A recent Australian study found that taxation measures could reduce social costs of alcohol in Australia by between 14 and 39 per cent (%) (or between $2.19 and $5.94 billion in dollars). 10 Another study of a range of interventions found that alcohol taxation based on alcohol content had the lowest intervention costs and provided the greatest benefits in terms of disability-adjusted life years. 11 Alcohol taxes received by government can further assist the reduction of alcohol-related harms by funding or recovering the costs of prevention and treatment programs. Current alcohol pricing/tax policy in Australia Alcohol prices in Australia are controlled by three different federal taxes: the Excise; the Wine Equalization Tax (WET), and Customs. In addition to these, the 10% Goods & Services Tax (GST) is applied to all retail alcohol sales. Under this system, different products wine, spirits, beer, ciders and fortified wines - are taxed differently. The Excise tax (applying to beer and spirits) is based on the volume of alcohol contained in the product, while the WET (applying to wine) is an ad valorem tax (based on the value of the product). Customs duties are a combination of both per-unit of alcohol and ad valorem levies (see Table 1). Table 1. Summary of the types of alcohol taxes applied by category of alcohol product. 12 Beer Spirits & RTDs Wine GST Excise duty WET Customs duty (ad valorem) Customs duty (per unit of alcohol) Cider Limitations of current policy 1 of 6

2 This taxation system is not based on public health or harm minimisation principles. Its incremental development has resulted in a medley of inconsistencies and disparities. Figure 2 shows the different amounts of tax payable by consumers per standard drink for different types of alcoholic beverages. $0.90 $0.80 $0.79 $0.84 $0.84 Excise or WET payable per standard drink: $0.70 $0.60 $0.50 $0.40 $0.30 $0.20 $0.16 $0.17 $0.18 $0.26 $0.26 $0.27 $0.38 $0.52 $0.10 $0.04 $0.05 $- Light beer on tap Cask Wine Port, Sherry Mid beer on tap Packaged light beer Bottled Wine 1 Packaged mid beer Full beer on tap Packaged full beer Bottled Wine 2 Brandy Pre-mixed spirits / RTDs Whistky, Rum, Vodka, Liqueurs Typical ABV: te: WET payable per standard drink of wine is based on a 4 litre cask of wine selling for $13.00 (incl. GST), a 750 bottle of wine selling for $15.00 (incl. GST) [ Bottled Wine 1 ], a 750 bottle of wine selling for $30.00 (incl. GST) [ Bottled Wine 2 ], and a 750 bottle of port selling for $13.00 (incl. GST). * A standard drink is equal to litres (or 10 grams) of pure alcohol. Figure 1. Tax payable per standard drink* of alcohol, various products, Australia, June From a public health perspective, some of these disparities are desirable, such as the reduced tax on low- beer as an incentive for its production and consumption. Other disparities are highly problematic as they provide incentives for the production and consumption of some higher products. For example, the tax payable per standard drink for cheap cask wine with an alcohol content of 12.5% is only $0.05, whereas the tax payable per standard drink of mid- beer in a can/stubbie with an alcohol content of just 3% is $ Another problem with the current system is that it does not address the minimum (or floor) price of alcohol products. Some products are inherently cheaper to produce and distribute than others, so can be sold at significantly cheaper prices, irrespective of alcohol content. Alcohol is also able to be heavily discounted to below cost prices and used to lure customers into stores. Cheaper alcohol tends to be bought more by harmful drinkers than moderate drinkers, and is attractive to young people. Minimum pricing aims to counter such sales and consumption. 2 of 6

3 Price increases at the cheapest end of the price spectrum are most likely to result in reduced consumption, so a government-set minimum price for a unit of alcohol may be an effective strategy that targets highest risk drinkers. Minimum pricing has been introduced in some Canadian provinces but has not been evaluated. Some remote communities in Australia have introduced price restrictions on, or banned the sale of cheap wines. Such policies act as a de facto increase in the minimum price of alcohol. An evaluation has found reductions in overall harm 14, but significant substitution to fortified wines (the next cheapest beverage). 15 Support for alcohol taxation The 2009 Vichealth Community Attitudes survey on Alcohol Policies 16 found good support for the following changes to alcohol taxation in Australia. 67% of respondents agreed that the tax rate should be set according to how much alcohol the product contains 61% agreed that the tax rate should be highest for alcoholic products that cause the most violence 79% of respondents agreed that the government should set a minimum selling price for alcoholic beverages sold in bottles or other containers to ensure that alcohol is not cheaper than bottled water or soft drinks Just over two thirds of respondents (67%) agree that an additional tax should be levied on alcohol products to fund more alcohol treatment and education programs 84% of respondent agreed that alcohol retailers should be required to release their figures to government on the quantity and type of alcohol sold. 17 These findings show increased support since the 2004 National Drug Strategy Household Survey which showed that 39% of respondents supported increasing the tax on alcohol to pay for health, education and treatment of alcohol-related problems. 18 The Coalition s position The Coalition welcomes the comprehensive review of Australia s Tax System established by the Australian Government in May Alcohol is a hazardous and special commodity. Consumer products containing alcohol warrant specific taxation in addition to that applied generally to consumer products and services. An alcohol taxation system should be coherent, consistent and based on public health (harm minimisation) principles. An alcohol taxation system should moderate drinking as well as raise revenue to prevent and recover the social, health and economic costs of alcohol. The harm from alcoholic beverages primarily comes from alcohol content, in whatever form it is consumed. From a public health and public order perspective, alcohol should therefore be taxed according to alcohol content, with targeted initiatives for specific products. Products requiring special taxation arrangements are those that cause greatest harm, such as very strong spirits or beverages that appeals to vulnerable consumers in need of protection, such as 3 of 6

4 underage drinkers. Therefore, the Coalition supports the Federal Government s tax increase on Ready-To-Drink (RTD) products as an important step towards an effective tax system. Products causing the least harm, such as low beer, should also be taxed differently, as an incentive for their production and consumption. Ongoing data collection and analysis is necessary to ensure the capacity to monitor the impact of changes in taxation and any relationship to patterns of consumption and associated costs and harm. The Coalition s recommendations 1. A taxation system that taxes products according to their alcohol content, with targeted initiatives for specific products. In general, there should be equivalent tax rates for different beverages with the same % alcohol content. Such a system should include economic incentives for the production and consumption of lower alcohol products, and disincentives for the production and consumption of highest-risk alcohol products.: a. a lower or zero rate on very low alcohol products b. a higher rate on heavy spirits c. an intermediate rate on fortified wines d. built in flexibility for special products (a temporary discretionary penalty excise rate to give it an ability to target a brand or type of beverage on a rapid-reaction basis) 2. Regulation of the minimum price of all product categories in order to achieve real shifts in per capita consumption, rather than just shifts in product preference. 3. Use of a proportion of tax revenue to fund or recover costs of alcohol prevention and treatment programs. 4. Continuation of the current Australian practice of adjusting the excise taxes every six months. 5. Continual monitoring and evaluation of the alcohol taxation system, and research into potential improvements. To enable thorough evaluation, legislation needs to be changed to allow access to wholesale (sales) data, as an indicator also of consumption. This research and evaluation also needs to be done independently of vested interests Centralised governance of Australia s alcohol taxation system. 4 of 6

5 About the Alcohol Policy Coalition A new Coalition of health agencies who share a concern about the level of alcohol misuse and the health and social consequences in the community have come together to develop and promote policy responses that are evidence-based and known to be effective in preventing and reducing alcohol related problems. Members of the new Coalition, which include the Australian Drug Foundation, the Cancer Council Victoria, Turning Point Alcohol and Drug Centre, and VicHealth, have a strong track record in tackling major health issues in the community. The impetus for the Coalition is the need for a consolidated and coordinated approach and effort by key agencies in preventing and reducing alcohol related problems. The Coalition believes that finding a solution to the problem of alcohol misuse requires governments, the community, individuals and the alcohol industry to all play a part. The Coalition s long-term goal is to promote a safer drinking culture in the community. 1 Babor T, Caetano R, Casswell S, et al. Alcohol: no ordinary commodity research and public policy. Oxford: Oxford University Press, Anderson P and Baumberg B. Alcohol in Europe: a public health perspective. A report for the European Commission. London: Institute of Alcohol Studies, World Health Organisation. WHO Expert Committee on Problems Related to Alcohol Consumption: second report. WHO Technical Report Series Geneva: WHO, Booth et al (2008) Independent review of the effects of alcohol pricing and promotion: Part A. Systematic Reviews University of Sheffield, England. 5 Fogarty J. The nature of the demand for alcohol: understanding elasticity. British Food Journal 2006; 108: Gallet CA. The demand for alcohol: a meta-analysis of elasticities, Australian Journal of Agricultural and Resource Economics 2007; 51: Wagenaar AC, Salois MJ and Komro KA. Effects of beverage alcohol price and tax levels on drinking: a meta-analysis of 1003 estimates from 112 studies. Addiction 2009; 104: Markowitz S. The Price of Alcohol, Wife Abuse, and Husband Abuse. National Bureau of Economic Research, Working Paper Series. 6916, Chaloupka FJ, Grossman M, et al. The effects of price on alcohol consumption and alcohol-related problems. Alcohol Res Health 2002; 26: Collins DJ and Lapsley HM. The avoidable costs of alcohol abuse in Australia and the potential benefits of effective policies to reduce the social costs of alcohol. National Drug Strategy Monograph Series. 70. Canberra: Australian Government Department of Health and Ageing, Doran C, Vos T, Cobiac L, et al. Identifying cost effective interventions to reduce the burden of harm associated with alcohol misuse in Australia. Canberra: Alcohol Education and Rehabilitation Foundation, National Preventative Health Taskforce (2008) Technical Report 3: Preventing alcohol-related harm in Australia: a window of opportunity, Australian Government, Canberra. 13 Vandenberg B, Livingston M and Hamilton M. (2008) Beyond cheap shots: reforming alcohol taxation in Australia, Drug and Alcohol Review, 27:6, Gray, D., Saggers, S., Atkinson, D., Sputore, B. and Bourbon, D. (2000). Beating the grog: an evaluation of the Tennant Creek liquor licensing restrictions. Australian and New Zealand Journal of Public Health; 24(1): Hogan et al. What price do we pay to prevent alcohol related harms in Aboriginal communities? The Alice Springs Trial of Liquor Licensing restrictions., Drug and Alcohol Review, 2006, (25), of 6

6 17 The VicHealth Community Attitude Survey to Alcohol Policy was a state-wide telephone survey to a random sample of 1523 Victorians aged 16 years and over. Respondents were asked a series of questions about their views on alcohol policy. The survey was conducted between February and March National Drug Strategy Household Survey First Results. Drug Statistics Series Number 13. Australian Institute of Health and Welfare, Canberra, April Miller PG, Kypri K, Chikritzhs TN, et al. Health experts reject industry-backed funding for alcohol research. MJA 2009; 190 (12): of 6