Pre-budget Submission. The Distilled Spirits Industry Council of Australia Inc (DSICA) April Prepared by:

Pre-budget Submission 2004-05 Prepared by: The Distilled Spirits Industry Council of Australia Inc (DSICA) April 2004 Contact: Gordon Broderick, Executive Director, DSICA Ph: 03-9696 4466 Fax: 03-9696 6648 Email: gordonb@dsica.com.au Website: www.dsica.com.au

Pre-budget Submission 2004-05 Contents Table of contents 1 EXECUTIVE SUMMARY (1 PAGE)...1 2 SUMMARY OF RECOMMENDATIONS (4 PAGES)...2 3 WHO IS DSICA?...6 4 ALCOHOL CONSUMPTION AND RTD FACTS...8 5 PATTERNS OF ALCOHOL CONSUMPTION AMONG YOUNG PEOPLE...13 6 ALCOHOL TAXATION ISSUES...20 7 CUSTOMS AND TAXATION ADMINISTRATION PROPOSALS...24 8 CONCLUSION...26 Attachments Attachment 1: Submission Attachment 2: Alcohol market and RTD facts Attachment 3: Alcohol market data (2002-03) Attachment 4: Alcohol consumption among adolescents and young adults, Professor Ian McAllister (August 2003) Attachment 5: Standard Drink and Risk Guidelines, Australian Alcohol Guidelines (NHMRC) Attachment 6: 2001 National Drug Strategy Household Survey, Detailed Findings, AIHW Attachment 7: DSICA summary of National Alcohol Campaign, Alcohol Consumption Patterns Among Australian 15-17 year olds (February 2000 to February 2002), DHA Attachment 8: DSICA Taxation Policy Proposals Attachment 9: DSICA Standard Drink and Effective Tax Rate Calculations (February 2004) Attachment 10: DSICA Budget Revenue Estimates 2002-03, 2003-04F, 2004-05F Attachment 11: DSICA Taxation Policy Proposals Revenue Calculations Attachment 12: Customs and Taxation Administration Proposals April 2004 Page (i)

Pre-budget Submission 2004-05 Contents Acknowledgement: This submission, and Attachments 5, 6 and 7, include cover page photos and extracts from Australian Alcohol Guidelines, NHMRC, October 2001, 2001 National Drug Strategy Household Survey: Detailed Findings, December 2002, AIHW, copyright Commonwealth of Australia reproduced by permission. Acknowledgement: Attachment 7 contains graphs constructed from Commonwealth data published in Alcohol Consumption among Australian 15-17 year olds from February 2000 to February 2002, Department of Health and Ageing, August 2003, Ball et al, copyright Commonwealth of Australia reproduced by permission. Document details: DSICA04-RTD2-W06-RC-PBS0405NoGraphs-13Apr-CTR.doc April 2004 Page (ii)

Pre-budget Submission 2004-05 1. Executive Summary 1 Executive Summary (1 page) DSICA is the peak industry body representing the interests of distilled spirit manufacturers and importers in Australia. DSICA s recommendations include: Evidence-based policy making DSICA strongly supports the principles of evidence-based policy making. The 2004-05 Budget should not make any taxation changes on alcohol products unless: those changes are based on the best available evidence; and there is reliable evidence that the changes will achieve the Government s objectives. There is no reliable evidence that justifies an increase in the tax on ready to drink alcohol products (RTDs). Health issues There is no reliable evidence that the tax changes under the New Tax System (implemented on 1 July 2000) have either (a) led to increased numbers of young people drinking or (b) have led to increased levels of alcohol consumption by young drinkers. On the contrary, it is possible that the increasing substitution of RTDs for full strength spirits and beer has resulted in a reduction in the average number of standard drinks consumed in each drinking session by young people drinking at risky or high risk levels. A sufficiently reliable analysis of trends in underage drinking will not be available until the results of the 2004 NDSH survey are analysed in early 2005. Taxation issues Australia s alcohol taxation system unfairly discriminates against spirits (which comprises 12% of the alcohol market, but pays 27% of non-gst revenue). Spirits pays an unsustainably high 75 cents (non-gst) tax per standard drink compared with full strength packaged beer (33 cents). The 5% ad valorem protective tariff for imported spirits and RTDs should be abolished. The effective tax rates for beer and RTD s are diverging in favour of beer. In the medium to long-term, RTDs should obtain complete taxation equivalence with beer; In the medium to long-term, cider should be taxed on the same basis as RTDs. Any future revenue gained from taxing cider at the RTD rate, should be used to provide RTDs with a revenue neutral 0.1% alcohol by volume (abv) concession, similar (but smaller) than that which beer currently receives. Customs and Taxation Administration issues The Australian Taxation Office (ATO) should be the single government agency responsible for the collection of revenue and the administration of imported and locally produced spirits, RTDs and beer. April 2004 Page 1

2 Summary of recommendations (4 pages) Pre-budget Submission 2004-05 2. Summary of recommendations 2.1 Evidence-based policy making (see section 3) DSICA strongly supports the principles of evidence-based policy making. The 2004-05 Budget should not make any taxation changes on alcohol products unless: those changes are based on the best available evidence; and there is reliable evidence that the changes will achieve the Government s objectives. There is no reliable evidence that justifies an increase in the tax on ready to drink alcohol products (RTDs). 2.2 Alcohol consumption and RTD facts (see section 4) Adult per capita alcohol consumption in Australia has fallen below 1970 s levels. There has been no significant increase in adult per capita alcohol consumption after tax reform (1 July 2000). Adult per capita consumption of RTDs has been growing as adult per capita consumption of beer and spirits has been falling. RTDs are similar alcohol content as beer. RTDs comprise only 8% of the Australian alcohol market. 67% of RTDs are dark spirit-based, and preferred by males 24 years and over. The market share of white spirit-based RTDs is falling, with a 9% decline in the 2003 calendar year. Only dark spirit-based RTDs are experiencing significant growth. 2.3 Patterns of alcohol consumption among young people (see section 5) There is no reliable evidence that the tax changes under the New Tax System (NTS) (implemented on 1 July 2000) have either (a) led to increased numbers of young people drinking or (b) have led to increased levels of alcohol consumption by young drinkers. On the contrary, it is possible that the increasing substitution of RTDs for full strength spirits and beer has resulted in a reduction in the average number of standard drinks consumed in each drinking session by young people drinking at risky or high risk levels. National Drug Strategy Household (NDSH) Survey results (2001) The National Drug Strategy Household (NDSH) surveys are the most reliable surveys of alcohol consumption in Australia. Male teenagers (14-19 years) drinking at low, risky and high-risk levels for harm in the short or long term most commonly drank regular strength beer (AIHW finding) 1. Female teenagers (14-19 years) drinking at risky or high-risk levels in the short or long term most commonly drank bottled spirits and liqueurs (AIHW finding) 2. 1 2001 National Drug Strategy Household Survey: Detailed Findings, AIHW, December 2002, p.29 April 2004 Page 2

Pre-budget Submission 2004-05 2. Summary of recommendations Long-term high risk drinkers represent 4% of 14-17 year old females (Professor Ian McAllister finding). The highest degree of (short-term) risk for young people occurs just after the legal drinking age, at age 18-19 (McAllister). The 1998 NDSH survey did not include a sufficiently large number of respondents in the 14-17 year age group to allow reliable analysis of trends in numbers of underage drinkers drinking at risky or high risk levels. A sufficiently reliable analysis of trends in underage drinking will not be available until the results of the 2004 NDSH survey are analysed in early 2005. National Alcohol Campaign findings, 15-17 year olds (Feb 2000 to Feb 2002) The National Alcohol Campaign (NAC), conducted by the Department of Health and Ageing (DHA), has found a reduction in higher risk drinking by 15-17 year olds between February 2000 and February 2002. Key findings regarding trends in underage drinking patterns spanning the implementation of the New Tax System include: The proportion of underage respondents who are drinkers is falling. The proportion of higher risk drinkers has remained constant. The majority of drinkers drink at lower risk levels. The average number of standard drinks consumed by higher risk drinkers has fallen 10%. Beer is the most popular drink amongst higher risk male drinkers. RTD s are not significantly preferred by higher risk female drinkers. Clear substitution occurs from beer and spirits towards RTDs. UK Alcohol Harm Reduction Strategy (2004) The UK Alcohol Harm Reduction Strategy for England found that There is no evidence that they [RTDs] raised the number of young people drinking. 2.4 Alcohol taxation issues (see section 6) Taxation of spirits Australia s alcohol taxation system unfairly discriminates against spirits (which comprises 12% of the alcohol market, but pays 27% of non-gst revenue); The overall future level of taxation of spirits should be reduced, in particular, at least to remove the effect of the 1978 80% increase in the taxation of spirits; The future rate of excise duty 3 for spirits should be reduced at least by a dollar amount equivalent to the NTS component of the 1 February 2001 indexation increase [Estimated revenue cost: -$26.1m] 4 The 5% ad valorem protective tariff for imported spirits and RTDs should be abolished. [Estimated revenue cost: $20.1m]; 2 Ibid, p.29. 3 All references to excise duty include references to the volumetric component of customs duty. 4 All revenue estimates, or estimates of risk to revenue, are for 2004-05. April 2004 Page 3

Pre-budget Submission 2004-05 2. Summary of recommendations Freezing indexation of spirits excise In the absence of a one-off reduction in spirits excise, DSICA proposes a number of changes to the current alcohol indexation system which would see a freezing of indexation on spirits excise for a period until an alcohol taxation inquiry could be conducted; Taxation of ready to drink alcohol products (RTDs) The effective tax rates for beer and RTD s are diverging in favour of beer. In the medium to long-term, packaged RTDs below 10% abv should be subject to excise duty at exactly the same tiered rates as packaged beer. [Estimated revenue cost: low alcohol packaged RTDs negligible; mid-strength packaged RTDs - $1.4m; full strength packaged RTDs - $105m. The change for full strength packaged RTDs could be introduced on a phased basis, with the first phase being the introduction of a 0.1% abv excise free threshold for full strength packaged RTDs, funded by the revenue to be collected from taxing cider at the RTD rate (see below).] In the medium to long-term, tap RTDs below 10% abv should be subject to excise duty at exactly the same three tiered rates as tap beer. [Estimated revenue cost: Negligible] In the medium to long-term, traditional cider should be subject to a similar tiered excise regime as beer, and other RTD products. [Estimated additional revenue: +$9m pa] The additional revenue that the Government receives from cider being taxed at the same rate as RTDs, should then be used to provide full strength packaged RTDs and cider with a 0.1% abv excise free threshold, similar to the 1.15% abv concession received by beer. [Estimated revenue cost: Revenue neutral] 2.5 Customs and Taxation Administration issues (see section 7) Single jurisdiction The Australian Taxation Office (ATO) should be the single government agency responsible for the collection of revenue and the administrative arrangements relating to excise equivalent goods, such as imported spirits and imported RTD alcohol products. [Estimated cost to revenue: Nil] Generic government licensing issued by the ATO should replace multiple licences now required by both the ATO and the Australian Customs Service (Customs). Entity licensing should be introduced under which a single licence is sufficient for an entire distribution network. There should be appropriate alignment and linkages between relevant electronic and business systems in Customs and the ATO to facilitate increased effectiveness of the administrative processes imposed on industry. Customs should continue to have responsibility for the border management aspects relating to the importation of excise equivalent goods. Streaming of revenue payments on an estimated basis with deferred reconciliation and acquittal should be implemented. April 2004 Page 4

Pre-budget Submission 2004-05 2. Summary of recommendations Amendment of customs duty drawback Regulations Customs Regulations 134 and 135 should be amended to remove the drafting flaw that prevents duty drawback being paid under the imputation formula in relation to reexported spirits products which were bottled in Australia after the reduction of imported bulk spirit. 2.6 Budget presentation recommendations Revenue estimates The Budget should include separate excise duty revenue estimates for: full strength spirits (including brandy); and RTDs (i.e. other excisable beverages not exceeding 10% abv). The Budget should include separate customs duty revenue estimates for: Beer; Full strength spirits (including brandy); RTDs (i.e. products equivalent to the other excisable beverages not exceeding 10% abv). The Budget should identify the estimates for: Customs duty drawback to be paid on beer, spirits and RTDs; Excise duty drawback to be paid on beer, spirits and RTDs; and Cellar door and other WET rebates to be paid on wine and wine products. April 2004 Page 5

Pre-budget Submission 2004-05 3. Who is DSICA? 3 Who is DSICA? The Distilled Spirits Industry Council of Australia Inc (DSICA) is the peak body representing the interests of distilled spirit manufacturers and importers in Australia. DSICA was formed in 1982, and the current member companies are: Allied Domecq Spirits & Wine (Australia) Pty Ltd Brown-Forman Beverages Australia Pty Ltd Bundaberg Distilling Co Pty Ltd Diageo Australia Ltd Jim Beam Brands (Australia) Pty Ltd Maxxium Australia Pty Ltd Quality Brands International (Aust) Pty Ltd Suntory (Australia) Pty Ltd Swift and Moore Pty Ltd William Grant & Sons International Ltd. DSICA s goals are: to create informed political and social environments that recognise the benefits of moderate alcohol intake and provide opportunities for balanced community discussion on alcohol issues; and to ensure public alcohol policies are soundly and objectively formed, that they include alcohol industry input, that they are based on the latest national and international scientific research and that they do not unfairly disadvantage the spirits sector. DSICA members are committed to: responsible marketing and promotion of distilled spirits; supporting social programs aimed at reducing the harm associated with the excessive or inappropriate consumption of distilled alcohol; self-regulation and pre-vetting of all advertising; and making a significant contribution to Australian industry through primary production, manufacturing, distribution and sales activities. 3.1 Evidence-based policy making DSICA strongly supports the principles of evidence-based policy making: policy making should be based upon the best available evidence and should include rational analysis of the evidence about what works. While this is a laudable aim, research evidence does not always, or even often, enter the policy process as part of a rational consideration of policy options. 5 (Our emphasis) 5 Sandra Nutley, Reader in Public Policy and Management, University of St Andrews, UK, Bridging the policy/research divide Reflections and lessons from the UK, presented to the National Institute of Governance Conference, Canberra, 23-24 April 2003, p.2. April 2004 Page 6

Pre-budget Submission 2004-05 3. Who is DSICA? The key steps to improving the quality of evidence-based policy making include: identify and plug key gaps in research knowledge; agree and develop appropriate research and evaluation methods; and develop mechanisms for bringing research and policy closer to one another 6. DSICA supports each of these 3 steps being followed in relation to policy-making on the future taxation of alcohol products. DSICA s approach is to address each of these 3 key issues as follows: Research gaps: DSICA has undertaken a detailed analysis of the Australian alcohol market (section 4) and the existing research in relation to alcohol consumption patterns (especially among young people) in order to identify any research gaps (see section 5). Research and evaluation methods: DSICA proposes that agreed research and evaluation methods are required, particularly in the area of measuring alcohol consumption by young people (see section 5). Bringing research and policy closer together: DSICA believes that the 2004-05 Budget should not make any taxation changes on alcohol products unless: those changes are based on the best available evidence; and there is reliable evidence that the changes will achieve the Government s objectives. The best available evidence DSICA has sought to identify the best available evidence in relation to: alcohol consumption and RTD facts (see section 4); and patterns of alcohol consumption among young people (see section 5). Each of these issues is discussed in the following sections. 6 Ibid. April 2004 Page 7

Pre-budget Submission 2004-05 4. Alcohol consumption and RTD facts 4 Alcohol consumption and RTD facts 4.1 Per capita alcohol consumption Alcohol plays an important role in Australian society, and is legally accepted in our culture as a relaxing way of socialising with friends and family. The majority of Australians drink alcohol in a responsible manner without harm to themselves or to others. In 2001, 1.3 million Australians consumed alcohol daily, 6.2 million on a weekly basis and a further 5.4 million on a less than weekly basis 7. The World Drink Trends 2003, shows Australia s alcohol consumption ranking, which has fallen from 19 th in 1999 to 23 rd in the world. On average, Australians have not increased their levels of alcohol consumption over the past four years. In terms of different beverage categories, Australia is ranked at 35 th in the world for spirits consumption, 9 th for beer consumption and 17 th for wine consumption 8. Australia s alcohol consumption fell 13.1 per cent during the 1990 s, the greatest decline of consumption for any region in the world 8. From an alcohol consumption peak in the early 1980 s, current consumption rates have fallen to levels of consumption in the 1960 s and 1970 s. Stable trend in adult per capita alcohol consumption DSICA has summarised a number of key facts in relation to overall alcohol consumption trends as follows: Fact 1: Adult per capita alcohol consumption has fallen below 1970 s levels; Fact 2: There has been no significant increase in adult per capita alcohol consumption after tax reform (1 July 2000); Fact 3: Total alcohol consumption has been increasing at a lower rate than the 15 years and over population; As set out in Figure 1 below, it can be seen that per capita alcohol consumption has not increased significantly between 1999-00 (9.6 adult per capita Lals) and 2002-03 (9.64 adult per capita Lals) and previous years. See Attachment 2 for DSICA s detailed analysis of the changes in the alcohol market and RTD facts in Australia. 7 2001 National Drug Strategy Household Survey: First Results, AIHW, May 2002. 8 World Drink Trends 2003, Commission for Distilled Spirits Netherlands. April 2004 Page 8

Pre-budget Submission 2004-05 4. Alcohol consumption and RTD facts Figure 1: Historical Alcohol Adult per Capita Consumption (Lals) 1969-70 to 2002-03 4.2 Current market shares by alcohol category 9 DSICA estimates that, in 2002-03, the most recent completed financial year, beer comprised almost 50% of the total alcohol market, and wine (including fortified wine) comprised 30%. The measure adopted for comparison purposes is litres of alcohol (Lals) rather than litres of product. Full strength bottled spirits (spirits) continues to comprise a very small 12% of the total market, and RTDs account for a only 8% of the market. The respective market share of the key alcohol product categories in Australia is illustrated in Figure 2 below 10. See Attachment 3 for DSICA s detailed data regarding Australia s alcohol market by alcohol category. 9 Industry estimates derived from statistics supplied by the Liquor Merchants Association. April 2004 Page 9

Pre-budget Submission 2004-05 4. Alcohol consumption and RTD facts Figure 2: Australian Alcohol Beverage Market - % share in Lals (2002-03 10 ) 4.3 Trends in alcohol consumption by product category The key trends in Australia for the first three years under the New Tax System have been as follows: Fact 4: Adult per capita consumption of RTDs has been growing as adult per capita consumption of beer and spirits has been falling; See Attachment 2. As can be seen from Figure 3 below, there is reliable evidence that increases in per capita consumption of RTDs have been growing at the expense of adult per capita consumption of beer and spirits. April 2004 Page 10

Pre-budget Submission 2004-05 4. Alcohol consumption and RTD facts Figure 3: Australia s adult per capita alcohol consumption by alcohol category (1970-71 to 2002-03) Decline in full strength spirits market Full strength spirits (spirits) consumption in more recent years has seen a significant decline. For example, in the five years from 1998-99 to 2002-03, spirits consumption saw a decline of 13%. For a period of nearly 30 years (i.e. between 1969-70 and 1997-98), spirits consumption has only grown at an average annual rate of 1.7%. DSICA estimates that spirits consumption will decline by 1.5% in 2004-05 in line with trends over the past five years. This illustrates the fact that a significant proportion of the growth in RTDs is at the expense of full strength spirits. 4.4 RTD market facts DSICA wishes to provide the best available industry data regarding the key features of the RTD market in Australia. Although not a new product, with UDL first being produced in Australia in 1962, RTD product availability and consumption has undergone significant growth, from a very low base, over the past decade. The early 1990 s saw strong growth in RTD sales through the introduction of Stolichnaya Lemon Ruski. Since the introduction of this product, tastes, trends and fashion have created demand for an increased variety of RTDs. The best available evidence is that this growth has been at the expense of full strength beer and full strength bottled spirits. RTDs previously using a fermented alcohol base have switched to using spirits (such as vodka) as a result of the removal on 1 July 2000 of the tax incentive to use fermented alcohol. April 2004 Page 11

Pre-budget Submission 2004-05 4. Alcohol consumption and RTD facts A number of key facts regarding the RTD market, obtained from spirits industry sources, are set out below: Fact 5: RTDs are similar alcohol content as beer Fact 6: RTDs comprise only 8% of the Australian alcohol market Fact 7: 67% of RTDs are dark spirit-based, and are preferred by males 24 years and older Fact 8: The market share of white spirit-based RTDs is falling, with a 9% decline in the 2003 calendar year. Fact 9: Only dark spirit-based RTDs are experiencing significant growth. The growth in RTDs is building on a very low base and has not yet reached a point where its market share has matured in Australia. The recent fall in sales of white spirit-based RTDs is evidence of that. A detailed analysis of each of these RTD market facts is set out in Attachment 2. Some media commentators use the term alcopops as an alternative to the term RTDs. The alcohol industry does not endorse the use of the term alcopops. This is a term not in general use in Australia. It has been borrowed from overseas countries and is ambiguous and misleading. As can be seen from the RTD market facts above, 67% of RTDs are dark spirit-based products, such as rum or bourbon and cola. It is misleading to describe these products, which are preferred by over 24 year old males, as alcopops. Insight: The increase in the popularity of RTDs has been at the expense of bottled spirits and full strength beer, and is not due to an overall increase in consumption. April 2004 Page 12

Pre-budget Submission 2004-05 5. Patterns of alcohol consumption among young people 5 Patterns of alcohol consumption among young people 5.1 The perception DSICA acknowledges that there is a perception in some quarters, that there are increasing levels of abuse of alcohol by young (especially underage) drinkers, and that the increasing popularity of RTDs among young drinkers is contributing to (if not causing) the increased levels of abuse. This perception has arisen partly as a result of several widely publicised occasional surveys of drinking behaviour which are not reliable (see further discussion below). DSICA s position on underage drinking DSICA acknowledges that there is a problem with underage drinking. Misuse of alcohol as evidenced by high-risk drinking patterns, particularly amongst underage drinkers, is a problem that we must collectively address. The industry has demonstrated a long history of responsible self-regulation and has continually developed and implemented improvements to the existing system. The industry is capable of ensuring its products are manufactured and developed responsibly and in line with community expectations through the self-regulatory systems. However, the dimensions and causes of underage drinking require further examination. The perception that an increased level of underage drinking is product-driven, is not supported by reliable evidence. Policy options to address underage drinking need to consider broad youth issues and should be backed by sound research into effective delivery of initiatives that have real impacts on reducing problematic behaviour. DSICA is concerned to ensure that policy options to address underage drinking are based on the best available evidence. 5.2 The best available evidence DSICA engaged Professor Ian McAllister from the Australian National University (ANU) to evaluate the most reliable surveys on alcohol consumption in Australia. Professor McAllister was, until recently, the Director of the Research School of Social Sciences at the ANU. He has had a distinguished career in the area of drug research and analysis. There are two major surveys regarding patterns of alcohol consumption by young people. These surveys are: The 2001 National Drug Strategy Household (NDSH) Survey; and The 1999 Australian Secondary Students Use of Alcohol (ASSA) Survey. Professor McAllister confirmed that the NDSH survey is the most reliable survey of alcohol consumption patterns. It uses a large sample size of 26,744 people (2001), a common set of questions and a cross-time component enabling the examination of attitudes and behaviours over time. The ASSA survey is of limited policy influence because the unit record files are not publicly available. This severely limits the amount of secondary analysis (and replication analysis) which can be conducted. A copy of Professor McAllister s report Alcohol Consumption among Adolescents and Young Adults (20 August 2003) is attached at Attachment 4. April 2004 Page 13

Pre-budget Submission 2004-05 5. Patterns of alcohol consumption among young people Unreliable surveys Professor McAllister found that the quality and reliability of occasional surveys on underage drinking have varied considerably. Many of the occasional surveys which are regularly cited in the media are not reliable, because of a range of factors, including: Biased (or inadequate) sample size; Biased (or unacceptable) survey methodology; Use of misleading, ambiguous or undefined terms (such as binge drinking ); Use of reporting methods that substantially inflate the incidence of alcohol use amongst young people (see further discussion below). 5.3 2001 National Drug Strategy Household Survey AIHW analysis The Australian Institute of Health and Welfare (AIHW) conducts the NDSH surveys. The AIHW released the Detailed Findings of the 2001 NDSH survey in December 2002. 10 The AIHW used the risk guidelines endorsed by the National Health and Medical Research Council (NHMRC) in conducting its analysis (see copy at Attachment 5). The AIHW Detailed Findings included the following conclusions: Male teenagers (14-19 years) drinking at low, risky and high-risk levels for harm in the short or long term most commonly drank regular strength beer; Female teenagers (14-19 years) drinking at low risk levels in the short or long term most commonly drank pre-mixed spirits (bottles); Female teenagers (14-19 years) drinking at risky or high-risk levels in the short or long term most commonly drank bottled spirits and liqueurs. 11 (See copy at Attachment 6.) However, the AIHW findings did not report separately on the underage drinking group (ie 14-17 years) and the legal drinking age group (ie 18 and 19 years). Insights: Male teenagers (14-19 years) drinking at low or risky and high-risk levels for harm in the short or long term most commonly drank regular strength beer. Female teenagers (14-19 years) drinking at risky or high-risk levels in the short or long term most commonly drank bottled spirits and liqueurs (2001 NDSH survey). Trends in underage drinking - National Drug Strategy Household Surveys (1998 and 2001) Professor McAllister has analysed the unit record files of the 1998 and the 2001 NDSH surveys, and his findings are contained in the paper Patterns of Risk in Alcohol Consumption Across the Australian Population (unpublished). The key insight identified in this paper is that while the results for the 2001 NDSH survey are based on a sufficiently large number of respondents to allow reliable analysis, the 1998 survey results were not. For example, the 1998 NDSH survey estimates for underage females are based on 350 respondents, of whom just four respondents are in the 10 2001 National Drug Strategy Household Survey: Detailed Findings, AIHW. 11 Ibid, p.29. April 2004 Page 14

Pre-budget Submission 2004-05 5. Patterns of alcohol consumption among young people risky and high risk categories. For males, the risky and high risk estimates are based on just eight respondents. These 1998 NDSH survey numbers of risky and high risk drinkers are too low to allow reliable estimation. Professor McAllister also concludes that a reliable examination of trends in underage drinking will have to await the results of the 2004 NDSH survey (which will be available for analysis in early 2005). The sample size for 14-17 year olds for the 2001 NDSH survey was twice the size of the 1998 NDSH survey, as follows: 1998 NDSH survey: Males 14-17 years old (N = 341), with 2% categorised as drinking at risky levels and less than 0.5% as high risk. That is, 8 respondents make up the combined risky and high risk groups; 1998 NDSH survey: Females 14-17 years (N = 350), with 1% categorised as drinking at risky levels and less than 0.5% as high risk. That is, 2 respondents make up the combined risky and high risk groups; 2001 NDSH survey: Males 14-17 years old (N = 775); and 2001 NDSH survey: Females 14-17 years old (N = 735). Insights: The 1998 NDSH survey did not include a sufficiently large number of respondents in the 14-17 year age group to allow reliable analysis of trends in numbers of underage drinkers drinking at risky or high risk levels. A sufficiently reliable analysis of trends in underage drinking will not be available until the results of the 2004 NDSH survey are analysed in early 2005. Levels of risky and high risk drinking Professor McAllister s key findings regarding long-term risk for females aged 14 17 years (in 2001), are as follows: High risk drinkers represent 4% of the age group; Risky drinkers represent 7% of the age group; Low risk drinkers represent 61% of the age group; and Abstainers represent 28% of the age group. This analysis shows that 11% of underage females are drinking at risky or high risk levels in the long-term. It is increasingly common for reports on underage alcohol consumption to group these two categories of risk together, and call them higher risk drinkers (for example, see the results of the National Alcohol Campaign (NAC) below). Professor McAllister s analysis of the 1998 and 2001 NDSH surveys confirm findings reported elsewhere that there has been an increase in the levels of risk among underage females. However, his analysis shows that the greater proportionate increase is in the risky rather than the high risk category, so it is important to differentiate between the two groups of drinkers in any analysis. Insight: It is important to differentiate between risky and high risk drinkers in any analysis of drinking patterns amongst adolescents and young adults. April 2004 Page 15

Pre-budget Submission 2004-05 5. Patterns of alcohol consumption among young people Other findings Other findings by Professor McAllister include: The NDS surveys indicate no substantial increase in lifetime prevalence in alcohol use in the last decade, despite claims to the contrary; Age of initiation into alcohol use shows no clear trend in terms of younger or older initiation; The highest degree of risk occurs just after the legal drinking age, at age 18 or 19; There are generally higher levels of risk among females than males among those at or slightly over the legal drinking age; Among underage drinkers, calculating high risk drinkers as a proportion of those who had consumed alcohol in the previous 12 months results in a significant over-estimate of the proportion of the total age group at high risk. This is because the proportion of under-18 year olds who are abstainers is significantly higher than for the total population. For example, over 55% of 14 year olds are abstainers; References to binge drinking are inaccurate and misleading, and the term should not be used (see Attachment 4). 5.4 National Alcohol Campaign, Feb 2000 to Feb 2002 Another more recent set of surveys was undertaken as part of the National Alcohol Campaign conducted by the Commonwealth Department of Health and Ageing (DHA). Four tracking studies for the National Alcohol Campaign were conducted between February 2000 and February 2002. DHA has released a key report on alcohol consumption patterns among Australian 15 17 year olds 12. This key Government report dispels a number of myths about alcohol consumption by young people. The report demonstrates the negligible impact of the alcohol tax changes under the New Tax System, which commenced on 1 July 2000. The DHA report shows that the average levels of alcohol consumption by 15 17 year olds are declining (or at worst, remaining steady) amongst both lower risk and higher risk drinkers. Insight It is possible that the increasing substitution of RTDs for full strength spirits and beer has resulted in a reduction in the average number of standard drinks consumed in each drinking session by young people drinking at risky or high risk levels. The sample sizes for the four NAC tracking studies were as follows: Males 15-17 years old (N = 403, 404, 399 and 406); and Females 15-17 years old (N = 405, 396, 407, 396). DSICA has prepared a detailed summary of the key findings of the DHA report (see Attachment 7). Several key facts which should be noted by the Review include: Fact 1: Fact 2: Fact 3: The proportion of underage respondents who are drinkers is falling The proportion of higher risk drinkers has remained constant The majority of drinkers drink at low risk levels 12 Alcohol Consumption Patterns among Australian 15-17 year olds from February 2000 to February 2002, Department of Health and Ageing, August 2003. April 2004 Page 16

Pre-budget Submission 2004-05 5. Patterns of alcohol consumption among young people Fact 4: Fact 5: Fact 6: Fact 7: Fact 8: The average number of standard drinks consumed by higher risk drinkers has fallen 10% Beer is the most popular drink amongst higher risk male drinkers RTD s are not significantly preferred by higher risk female drinkers RTD s are the most popular drink of low risk female drinkers Beer and spirits are the most popular drinks of low risk male drinkers It is clear from the DHA Report that there is no evidence that the increased popularity of RTDs between early 2000 and early 2002 has resulted in increased levels of risky or high risk drinking among 15 17 year olds. Insight: There is no reliable evidence that the tax changes under the New Tax System (implemented on 1 July 2000) have either (a) led to increased numbers of young people drinking or (b) have led to increased levels of alcohol consumption by young drinkers. 5.5 Health benefits of a measured amount of alcohol in RTDs There are a number of distinct health benefits in a harm minimisation context resulting from the development and increased popularity of RTDs. In the past, concern has been focused on the tendency of young people to free pour full strength spirits into mixes with the result being a beverage that has a far higher alcohol content than pre-packaged RTDs and beer. With the increased popularity of RTDs has come the ability for the consumer to clearly understand the amount of alcohol being consumed through a measured amount of alcohol, combined with clear packaging that highlights alcohol content in terms of number of standard drinks. There is evidence that with the increase in popularity of the more expensive RTDs there is a reduction in the average number of standard drinks being consumed by underage drinkers (see NAC results discussed above). Alcohol Content Every alcohol product is required to have the alcohol strength by volume printed on the label. This is a requirement under the Food Standards Code issued by Food Standards Australia New Zealand (FSANZ). The consumer is therefore informed of the alcohol strength of the product prior to purchase. Standard Drink Content Every alcohol product container is required to have on its label the number of standard drinks that are contained in it. One standard drink is equivalent to 12.67 ml of pure alcohol (see Attachment 5 for a comparison of the number of standard drinks in several alcohol products). For example, one standard drink is: A 285ml pot/middy of full strength beer at 4.9% alcohol content by volume (abv) A 30ml nip of spirits at 40% abv A 100ml small glass of wine at 12% abv The standard drink information on each alcohol drink label, informs the consumer of the number of standard drinks in the container. This allows the consumer to compare the April 2004 Page 17

Pre-budget Submission 2004-05 5. Patterns of alcohol consumption among young people number of standard drinks in a container compared with the number of standard drinks in other alternative alcohol products. New Standard Drink Logo A recent innovation from one of DSICA s member companies, Diageo, has been the development of a standard drink logo. The logo, as seen below, is in the first stage of being introduced onto labelling and packaging for the company s products. The logo clearly indicates to the consumer the number of standard drinks in the container in the most simple form. The logo has been made available to other drink companies to utilise and has been introduced by Maxxium and Swift and Moore. Other benefits of RTDs Drink spiking has become an issue of concern in the community. One of the precautions that is being encouraged by authorities to help prevent young people becoming victims of drink spiking, is to drink from sealed containers 13. RTDs are packaged and served in sealed containers and are less likely to be tampered with, in comparison with other drinks that are served in open glasses. 5.6 International Findings UK Alcohol Harm Reduction Strategy (2004) The UK Prime Minister s Strategy Unit has recently released an Alcohol Harm Reduction Strategy for England. The Strategy document observes that: There is no evidence that they [RTDs] raised the number of young people drinking. However, they [RTDs] may have contributed to the increase in the amount drunk 14 (Emphasis added) DSICA submits that the NAC results referred to earlier confirm that in Australia (for 15-17 year olds, between February 2000 and February 2002): As found in the UK, there is no reliable evidence that the growing popularity of RTDs has resulted in more young people drinking; and 13 Stop Drink Spikers, Herald Sun, 30 June 2003, p.6. 14 Alcohol Harm Reduction Strategy for England, Prime Minister s Strategy Unit, Cabinet Office, March 2004, p.65. April 2004 Page 18

Pre-budget Submission 2004-05 5. Patterns of alcohol consumption among young people On the contrary to the possible evidence in the UK, there is reliable evidence in Australia that the increasing substitution of RTDs for full strength spirits and beer may have resulted in a reduction in the average number of standard drinks consumed in each drinking session by those drinking at risky or high risk levels (see Attachment 7). DSICA submits that the strong evidence-based policy making approach reflected in the UK Alcohol Harm Reduction Strategy should be followed in the 2004-05 Budget. April 2004 Page 19

Pre-budget Submission 2004-05 6. Alcohol taxation issues 6 Alcohol taxation issues 6.1 Overview DSICA believes that the current system of Commonwealth alcohol taxation: unfairly discriminates against spirits; fails to tax alcohol products of similar alcohol content at a similar rate; fails to provide adequate incentives to encourage the production of lower alcohol products; and fails to provide adequate incentives for drinkers to choose those alcohol products that are least associated with harm. DSICA s policy position on the taxation of spirits, RTDs and beer was set out in detail in the association s 2003-04 Pre-budget Submission. The key arguments (and revenue estimates) in relation to those taxation policy proposals have been updated and are now set out as follows: Attachment 8: DSICA Taxation Policy Proposals Attachment 9: DSICA Standard Drink and Effective Tax Rate Calculations (February 2004) Attachment 10: DSICA Budget Revenue Estimates 2002-03, 2003-04F, 2004-05F Attachment 11: DSICA Taxation Policy Proposals Revenue Calculations Those attachments take account of DSICA s revised estimates for the alcohol market volumes and revenue collections for 2002-03 (the latest completed financial year) as well as forecasts for 2003-04 and 2004-05. 6.2 Comparison of non-gst taxation per standard drink DSICA has prepared a comparison of the amount of non-gst taxation revenue collected on a per standard drink 15 basis for each category of alcohol product 16. In Australia, a standard drink contains 10 grams of pure alcohol (equivalent to 12.67mls). The concept of a standard drink allows a uniform means of comparison of the amount of pure alcohol in various alcohol beverages of different alcohol strengths. DSICA s taxation per standard drink comparison highlights: the unsustainably high level of spirits taxation (75 cents per standard drink); and the continued anomaly in the taxation of RTDs (44 cents) compared with full strength packaged beer of the same alcohol content (33 cents). 15 In Australia, a standard drink is 10g of pure alcohol. See page 27 of the Australian Alcohol Guidelines (Endorsed by the National Health and Medical Research Council, October 2001). The Guidelines refer to a standard drink as comprising 12.5mls of pure alcohol, however, this is incorrect. The more accurate measure is 12.67mls (this is calculated by dividing 10g by the specific gravity of pure alcohol (0.789g/ml)). See page 19, Queensland Health Department, Standard Drinks Calculator, 1997. 16 See Attachment 9. April 2004 Page 20

Pre-budget Submission 2004-05 6. Alcohol taxation issues Figure 4: Non-GST Tax Per Standard Drink as at 1 February 2004 6.3 Summary of alcohol taxation proposals A summary of DSICA s alcohol taxation proposals is set out below. Taxation of spirits Australia s alcohol taxation system unfairly discriminates against spirits (which comprise 12% of the alcohol market, but pay 27% of non-gst revenue); The overall future level of taxation of spirits should be reduced, in particular, at least to remove the effect of the 1978 80% increase in the taxation of spirits; The future rate of excise duty for spirits should be reduced at least by a dollar amount equivalent to the NTS component of the 1 February 2001 indexation increase [Estimated revenue cost: -$26.1m] The 5% ad valorem protective tariff for imported spirits and RTDs should be abolished. [Estimated revenue cost: $20.1m] Freezing indexation of spirits excise In the absence of a one-off reduction in spirits excise, DSICA proposes a number of changes to the current alcohol indexation system which would see a freezing of indexation on spirits excise for a period until an alcohol taxation inquiry could be conducted. Taxation of ready to drink alcohol products (RTDs) The effective tax rates of beer and RTD s are diverging in favour of beer (this is a new insight, see further discussion below). In the medium to long-term, packaged RTDs below 10% abv should be subject to excise duty at exactly the same tiered rates as packaged beer. [Estimated revenue cost: low alcohol packaged RTDs negligible; mid-strength packaged RTDs - $1.3m; full strength packaged RTDs - $105m. The change for full strength packaged RTDs could be April 2004 Page 21

Pre-budget Submission 2004-05 6. Alcohol taxation issues introduced on a phased basis, with the first phase being the introduction of a 0.1% abv excise free threshold for full strength packaged RTDs, funded by the revenue to be collected from taxing cider at the RTD rate (see below).] In the medium to long-term, tap RTDs below 10% abv be subject to excise duty at exactly the same three tiered rates as tap beer. [Estimated revenue cost: Negligible] In the medium to long-term, traditional cider be subject to a similar tiered excise regime as beer, and other RTD products. [Estimated additional revenue: +$9m pa] The additional revenue that the Government receives from cider being taxed at the same rate as RTDs, should then be used to provide full strength packaged RTDs and cider with a 0.1% abv excise free threshold, similar to the 1.15% abv concession received by beer. [Estimated revenue cost: Revenue neutral] April 2004 Page 22

Pre-budget Submission 2004-05 6. Alcohol taxation issues 6.4 Diverging effective tax rates of beer and RTDs DSICA has observed that the effective tax rates for full strength packaged beer and RTD s are diverging. A number of major full strength beer brands such as Carlton Draught and Carlton Cold have had the alcohol content reduced from 4.9% abv to 4.6% abv. This means that the effect of the 1.15% abv excise exemption threshold for beer is increased. This is because a smaller quantity of the beer (3.25% abv rather than 3.65% abv) is subject to the volumetric excise rate, which is subject to 6 monthly indexation increases. RTDs do not enjoy a 1.15% abv excise exemption. This means that all of the alcohol in RTDs is subject to the volumetric excise rate, which is subject to 6 monthly indexation increases. As the volumetric rate increases (with indexation) the economic benefit of the 1.15% abv excise exemption threshold is effectively increasing. This widening gap can be seen in Figure 5 below. Figure 5: Effective rates of Non-GST tax on beer and RTD s This widening gap between the effective rate of taxation of RTDs (over time) and the effective rate of taxation on full strength beer is another reason why RTDs should obtain full taxation equivalence with beer, in the medium to long term. Insight: The effective tax rates for beer and RTD s are diverging in favour of beer. April 2004 Page 23

Pre-budget Submission 2004-05 7. Customs and taxation administration proposals 7 Customs and taxation administration proposals 7.1 Summary of administration issues DSICA s policy proposals on a range of customs and taxation administration issues were set out in detail in the association s 2003-04 Pre-budget submission. The key arguments in relation to those proposals are now set out in: Attachment 12: Customs and Taxation Administration Proposals The key recommendations relating to these issues include: That the Australian Taxation Office (ATO) should be the single government agency responsible for the collection of revenue and the administrative arrangements relating to excise equivalent goods, such as imported spirits and imported RTD alcohol products. [Estimated cost to revenue: Nil] That generic government licensing issued by the ATO should replace multiple licences now required by both the ATO and the Australian Customs Service (Customs); That entity licensing should be introduced under which a single licence is sufficient for an entire distribution network; That there should be appropriate alignment and linkages between relevant electronic and business systems in Customs and the ATO to facilitate increased effectiveness of the administrative processes imposed on industry; That Customs should continue to have responsibility for the border management aspects relating to the importation of excise equivalent goods; That streaming of revenue payments on an estimated basis with deferred reconciliation and acquittal should be implemented. Amendment of customs duty drawback Regulations DSICA recommends that Customs Regulations 134 and 135 be amended to remove the drafting flaw that prevents duty drawback being paid under the imputation formula in relation to re-exported spirits products which were bottled in Australia after the reduction of imported bulk spirit (see Attachment 12 for more details). 7.2 Budget presentation recommendations DSICA has a number of recommendations regarding possible improvements to the presentation of the Budget papers in relation to alcohol taxation issues. These recommendations include: The Budget should include separate excise duty revenue estimates for: full strength spirits (including brandy); and RTDs (i.e. other excisable beverages not exceeding 10% abv). The Budget should include separate customs duty revenue estimates for: Beer; Full strength spirits (including brandy); RTDs (i.e. products equivalent to the other excisable beverages not exceeding 10% abv). The Budget should identify the estimates for: April 2004 Page 24

Pre-budget Submission 2004-05 7. Customs and taxation administration proposals Customs duty drawback to be paid on beer, spirits and RTDs; Excise duty drawback to be paid on beer, spirits and RTDs; and Cellar door and other WET rebates to be paid on wine and wine products. April 2004 Page 25

Pre-budget Submission 2004-05 8. Conclusion 8 Conclusion DSICA strongly supports the principles of evidence-based policy making. DSICA believes that the 2004-05 Budget should not make any taxation changes on alcohol products unless: those changes are based on the best available evidence; and there is reliable evidence that the changes will achieve the Government s objectives. In particular, there is no reliable evidence that justifies an increase in the tax on RTDs. There is no reliable evidence that the tax changes under the New Tax System (implemented on 1 July 2000) have either (a) led to increased numbers of young people drinking or (b) have led to increased levels of alcohol consumption by young drinkers. On the contrary, it is possible that the increasing substitution of RTDs for full strength spirits and beer has resulted in a reduction in the average number of standard drinks consumed in each drinking session by young people drinking at risky or high risk levels. A sufficiently reliable analysis of trends in underage drinking will not be available until the results of the 2004 NDSH survey are analysed in early 2005. The effective tax rates for beer and RTD s are diverging in favour of beer. April 2004 April 2004 Page 26

Pre-budget Submission Prepared by the Distilled Spirits Industry Council of Australia Inc Attachment 2: Alcohol market and RTD facts April 2004 Contact: Gordon Broderick, Executive Director, DSICA Ph: 03-9696 4466 Fax: 03-9696 6648 Email: gordonb@dsica.com.au Website: www.dsica.com.au

Alcohol market and RTD facts Introduction Alcohol plays an important role in Australian society and is legally accepted in our culture as a relaxing way of socialising with friends and family. The majority of Australians drink alcohol in a responsible manner without harm to themselves or others. There are a number of myths which abound in relation to the alcohol market, particularly in relation to Ready to Drink products (RTD s) which are not supported by facts. In an effort to ensure that alcohol policy is based on the best available evidence, DSICA believes it is vital to consider the facts which lie behind these common myths. A summary of these facts may be found in Section 4 of the submission (see Attachment 1). Overview Some relevant facts regarding the alcohol market in Australia, and RTDs in particular, are summarised below: Fact 1: Adult per capita alcohol consumption in Australia has fallen below 1970 s levels Fact 2: There has been no significant increase in adult per capita alcohol consumption after tax reform (1 July 2000) Fact 3: Total alcohol consumption has been increasing at a lower rate than the 15 years and over population Fact 4: Adult per capita consumption of RTDs has been growing as adult per capita consumption of beer and spirits has been falling Fact 5 Fact 6 Fact 7 RTDs are similar alcohol content as beer RTDs comprise only 8% of the Australian alcohol market 67% of RTDs are dark spirit-based, and are preferred by males 24 years and older Fact 8 The market share of white spirit-based 1 RTDs fell 9% in 2003 Fact 9 Only dark spirit-based RTDs are experiencing significant growth A detailed discussion of each of these facts is set out on the following pages. 1 White spirit based alcohol base refers to Vodka, Liqueur, Ouzo, Gin, Tequila and white Rum based RTD s. It does not connote that these RTD s are any stronger or less strong than RTD s based on dark spirits. April 2004 Page 2

DSICA Alcohol market and RTD Facts Fact 1: Adult per capita alcohol consumption in Australia has fallen below 1970 s levels Methodology World Drink Trends 2 uses the total population when calculating alcohol consumption on a per capita basis. All country comparisons contained in World Drink Trends use this approach, and also apply to calendar years. For example, World Drink Trends states that in 2003, [all] Australians consumed 7.4 litres of pure alcohol (Lals) per capita. That is, the total Lals consumed in that year divided by the entire population. However, the accepted methodology endorsed by the World Health Organisation (WHO) is to use the population of 15 year olds and over. The terminology that applies to these calculations is adult per capita consumption. This is the methodology which DSICA has applied in analysing the changes in adult per capita consumption in alcohol in Australia. DSICA s analysis is also prepared on a financial year basis, in order to provide consistency with taxation estimates, which are undertaken on a financial year basis. For example, DSICA s analysis shows that in 2002-03, the adult per capita consumption was 9.64 Lals. DSICA s sources for this data include ABS statistics, as well as statistics obtained from the Liquor Merchants Association (LMA) and other relevant spirits industry sources. Conclusions Fact: Adult per capita consumption of alcohol has fallen from a high of 11.88 Lals in 1977-78 to its current static level of around 9.64 in 2002-03; This is a level of adult per capital alcohol consumption which is lower than 1970 levels (See Figure 1 below). Figure 1: Adult per capita alcohol consumption in Australia (1970-71 to 2002-03) 2 Commission for Distilled Spirits Netherlands, World Drink Trends 2003 April 2004 Page 3

DSICA Alcohol market and RTD Facts Fact 2: There has been no significant increase in adult per capita alcohol consumption after tax reform (1 July 2000) There is reliable evidence that the taxation changes under the New Tax System (effective from 1 July 2000) have not resulted in increased alcohol consumption in Australia on a per capita basis. Adult per capita consumption of alcohol in Australia has not significantly increased since tax reform, as seen in Figure 2 below: Adult per capita consumption of alcohol has only deviated from a four year average of 9.6 by a maximum of 0.08 adult per capita lals in the years since tax reform; The adult per capita consumption figures for the last six financial years include: 1997-98: 9.74 Lals 1998-99: 9.49 Lals 1999-00: 9.60 Lals 2000-01: 9.59 Lals (first year after tax reform) 2001-02: 9.52 Lals 2002-03: 9.64 Lals Figure 2: Adult per capita alcohol consumption in Australia (1997-98 to 2002-03) April 2004 Page 4

DSICA Alcohol market and RTD Facts Fact 3: Total alcohol consumption has been increasing at a lower rate than the 15 years and over population There is reliable evidence that total consumption of alcohol in Australia has been increasing at a lower rate than the 15 years and over population since 1992-93: Prior to 1992-93, total alcohol consumption was growing at a faster rate than the 15 years and over population; However, since 1992-93 the growth in Australia s total alcohol consumption has fallen below the rate of increase of the 15 years and over population (see Figure 3 below); This means that, for the last 10 years, adult per capita alcohol consumption rates in Australia have been falling slightly. Figure 3: Australia s total alcohol market (Lals) vs Population 15 years and over (1970-71 to 2002-03) April 2004 Page 5

DSICA Alcohol market and RTD Facts Fact 4: Adult per capita consumption of RTDs has been growing as adult per capita consumption of beer and spirits has been falling There is reliable evidence that increases in adult per capita consumption of RTD s have been growing at the expense of adult per capita consumption of beer and spirits: The most dramatic change in alcohol consumption in the last 30 years has been the substitution of wine for beer. Beer consumption dropped from 7.18 Lals per capita in 1970-71 to 4.78 Lals per capita in 2002-3; Wine consumption increased from 1.37 to 2.96 Lals per capita during the same period; Comparatively, consumers in 2002-03 are more likely to choose wine to drink than spirits or RTDs compared with consumers in 1970-71. Since the beginning of rapid growth in RTD consumption around 1999-2000, full-strength spirits consumption has fallen, negating RTD growth (see Figure 4 below). Figure 4: Australia s adult per capita alcohol consumption by alcohol category (1970-71 to 2002-03) Fact 5: RTDs are similar alcohol content as beer Fact: RTDs are approximately the same alcohol content as full strength beer: Most RTDs are approximately 5.0% alcohol by volume (abv); Some of the largest selling RTD brands are 4.6% alcohol by volume; Full strength beer is generally between 4.6% abv and 4.9% abv; April 2004 Page 6

DSICA Alcohol market and RTD Facts There are some higher alcohol content RTDs, just as there are some higher alcohol content beers. Fact: Mid-strength RTDs are approximately the same alcohol content as mid-strength beer: Bundaberg Gold is a 3.5% abv RTD, comprising Bundaberg rum and cola; This is the same alcohol strength as mid-strength beers, such as XXXX Gold. A summary of the size of the low, mid and full strength RTD market volume in comparison to the rest of the alcohol market is given in Table 1 below. Table 1: Alcohol Market Changes April 2004 Page 7

DSICA Alcohol market and RTD Facts Fact 6: RTDs comprise only 8% of the Australian alcohol market Fact: RTDs comprise only 8% of the alcohol market in Australia: RTDs comprised 8% of the alcohol market in 2002-03 (measured in Lals); Beer comprises 50% of the market; wine comprises 30%; and bottled spirits comprises 12% (see Figure 5 below). Figure 5: Australia s alcohol market by volume (Lals), 2002-03 April 2004 Page 8

DSICA Alcohol market and RTD Facts Fact 7: 67% of RTDs are dark spirit-based, and are preferred by males 24 years and older Fact: RTDs have not been coloured or flavoured to target underage drinkers: More than 67% of total RTDs consumed in Australia are dark spirit-based, which are typically dark coloured products (eg bourbon, rum and scotch whisky-based products). The colour and flavour profile of these products are preferred by over 24 year old males; Industry research into preferred taste profiles for new RTD products targets over 18 year olds only; No underage drinkers are included in focus groups who taste potential new products (the approach of developing new products through focus group taste tests is called sensormetrics); The industry cannot produce products of varying colours and flavours that only appeal to consumers over the legal drinking age (eg 18-24 year olds, 24-29 year olds, 29-35 year olds) without some underage people also finding the products attractive. Figure 6: Australia s RTD market by alcohol base (Lals), 2002-03 April 2004 Page 9

DSICA Alcohol market and RTD Facts Fact 8: The market share of white spirit-based 3 RTDs fell 9% in 2003 Fact: The market share of white spirit-based RTD s is declining White spirit-based RTDs currently account for 29% of the total RTD market; White spirit-based RTDs have had consistently negative growth throughout 2003 resulting in a 8.6% growth over the entire year; Dark spirit based RTDs are the fastest growing category in the RTD market, averaging +25.9% growth over 2003; Dark RTDs are the major contributor to overall RTD market growth of 14% in calendar 2003 (see Figure 7 below). Figure 7: RTD market growth by alcohol base (Lals), 2002-03 vs 2003 3 White spirit-based RTDs refers to vodka, liqueur, gin, tequila and white rum-based RTD s. It does not connote that these RTD s are any higher alcohol content than RTD s based on dark spirits. April 2004 Page 10

DSICA Alcohol market and RTD Facts Fact 9: Only dark spirit-based RTDs are experiencing significant growth Fact: White spirit-based spirit based RTDs are becoming less popular Bourbon, vodka, dark rum, scotch whisky and white-rum based RTDs make up over 95% of the total RTD market; Of these, only the dark spirit-based RTDs are experiencing significant growth; Vodka and white rum-based RTDs experienced negative growths of 6.9% and 35.1% over 2003 (see Figure 8 below). Figure 8: RTD market growth by spirit base, 2003 vs 2002 DSICA04-RTD5-FD-W03-Attach1-10pgs-5Apr-WR-CTS.doc April 2004 Page 11

DSICA PRE-BUDGET SUBMISSION 2004-05 Attachment 3: DSICA Australian Alcohol Market Data (2002-03) TABLE OF CONTENTS 3.1 Summary Tables of Current Australian Alcohol Market: Litres of Alcohol 3.2 Historical Australian Alcohol Market (Lals) and Australian Population aged 15 and over 1969/70 to 2002-03 3.3 RTD Market (Lals) 1999-00 3.4 RTD Market (Lals) 2000-01 3.5 RTD Market (Lals) 2001-02 3.6 RTD Market (Lals) 2002-03 3.7 RTD Market (Lals) 2003-04F 3.8 RTD Market (Lals) 2004-05F 3.9 Spirits Market (Lals) 1999-00 3.10 Spirits Market (Lals) 2000-01 3.11 Spirits Market (Lals) 2001-02 3.12 Spirits Market (Lals) 2002-03 3.13 Spirits Market (Lals) 2003-04F 3.14 Spirits Market (Lals) 2004-05F 13/04/20045:16 PM

3.1 Summary Tables of Current Australian Alcohol Market: Litres of alcohol (LALs) (millions) FY99-00 FY00-01 vol % chg FY01-02 vol % chg FY02-03 vol % chg change 99-00 to 00-01 change 00-1 to 01-02 change 01-02 to 02-03 EXCISE Beer Premium [4.9% abv] 4.6 5.3 0.7 14.3% 6.6 1.3 25.0% 7.1 0.5 6.9% Full Strength [4.9% abv]; [4.6% wef 01-07-03] 57.1 55.5 (1.6) (2.8%) 53.8 (1.7) (3.0%) 55.3 1.4 2.6% Mid Strength [3.5% abv] 9.3 8.2 (1.0) (11.3%) 8.5 0.3 3.8% 7.1 (1.4) (17.0%) Low Strength [2.8% abv]; [2.7% wef 01-07-03] 6.1 6.7 0.5 8.7% 6.4 (0.3) (4.9%) 6.6 0.3 4.0% Total (m) 77.2 75.7 (1.4) (1.9%) 75.3 (0.4) (0.5%) 76.0 0.7 0.9% Full Bottled Spirits (m) [18.0-43.0% abv] 19.9 19.6 (0.3) (1.5%) 18.5 (1.1) (5.7%) 18.1 (0.4) (2.0%) RTDs Full Strength [4.0-5.5% abv] 5.0 7.6 2.6 50.7% 10.2 2.6 34.8% 12.0 1.7 17.1% Mid Strength [3.5% abv] - 0.03 0.03 0.0% 0.1 0.05 143.2% 0.1 0.02 30.5% Low Strength [2.8% abv] - - - 0.0% - - 0.0% - - 0.0% Total (m) 5.0 7.6 2.6 51.3% 10.3 2.7 35.3% 12.1 1.8 17.2% WET Wine Red Bottled [13.0-14.0% abv] 8.6 9.2 0.7 7.6% 9.6 0.3 3.7% 10.4 0.8 8.8% White Bottled [11.0-14.0% abv] 8.7 9.0 0.4 4.1% 9.1 0.1 0.8% 9.8 0.7 8.2% Cask [10.0% abv] 16.8 17.6 0.8 4.6% 17.9 0.3 1.7% 18.2 0.3 1.5% Sparkling [12.0% abv] 4.3 4.1 (0.2) (5.8%) 3.9 (0.2) (4.1%) 4.1 0.2 5.7% Fortified [18.0% abv] 4.2 4.0 (0.2) (5.6%) 3.7 (0.3) (8.2%) 3.8 0.1 3.6% Other [6.0% abv] 0.5 0.4 (0.0) (6.8%) 0.2 (0.2) (44.7%) 0.2 (0.1) (26.6%) Total (m) 43.1 44.3 1.3 3.0% 44.4 0.0 0.0% 46.5 2.2 4.9% Cider (m) [5.0% abv] 0.7 0.6 (0.02) (3.4%) 0.6 (0.1) (12.1%) 0.5 (0.1) (10.6%) Total LALs (m) 145.8 147.9 2.1 1.4% 149.1 1.2 0.8% 153.2 4.2 2.8% Source: DSICA estimates Feb 2004 and ABS and MRE data. DSICA04-RTD2-FD-Attach3AlcoholMktData-13Apr-CTX 2

3.2 Historical Australian Alcohol Market (Lals) and Australian Population aged 15 and over 1969-70 to 2002-03 Year (1) (2) Beer (000 lals) Wine (000 lals)(4) FSBS (000 Lals) RTDs (000 Lals) Total Spirits (000 Lals) TOTAL (000 lals) Growth (%) Population aged 15 and over (3) LALs Per Capita 1969-70 64,732 12,792 12,657 12,657 90,181 n/a n/a 1970-71 66,915 12,750 13,124 13,124 92,789 2.9% 9,319,988 9.96 1971-72 69,704 13,337 14,253 14,253 97,294 4.9% 9,510,934 10.23 1972-73 72,353 15,003 16,384 16,384 103,740 6.6% 9,691,778 10.70 1973-74 79,791 17,087 16,752 16,752 113,630 9.5% 9,898,311 11.48 1974-75 82,442 19,388 16,284 16,284 118,114 3.9% 10,073,371 11.73 1975-76 81,484 20,859 15,901 15,901 118,244 0.1% 10,245,988 11.54 1976-77 82,712 22,049 17,725 17,725 122,486 3.6% 10,428,589 11.75 1977-78 84,102 23,331 18,700 18,700 126,132 3.0% 10,616,188 11.88 1978-79 82,536 27,263 15,326 15,326 125,125 (0.8%) 10,797,294 11.59 1979-80 84,445 29,126 14,458 14,458 128,029 2.3% 10,984,362 11.66 1980-81 83,712 31,087 16,180 16,180 130,979 2.3% 11,197,720 11.70 1981-82 84,612 33,124 17,994 17,994 135,730 3.6% 11,439,261 11.87 1982-83 81,247 34,754 17,771 17,771 133,773 (1.4%) 11,642,452 11.49 1983-84 79,605 36,381 17,332 17,332 133,318 (0.3%) 11,843,586 11.26 1984-85 78,322 38,397 17,986 778 18,764 135,483 1.6% 12,062,771 11.23 1985-86 80,067 39,593 18,064 2,083 20,147 139,807 3.2% 12,318,832 11.35 1986-87 78,274 38,956 16,823 2,174 18,997 136,227 (2.6%) 12,576,530 10.83 1987-88 79,397 39,200 18,446 1,829 20,275 138,872 1.9% 12,833,133 10.82 1988-89 82,514 36,798 19,891 1,597 21,488 140,800 1.4% 13,089,498 10.76 1989-90 82,694 35,895 19,966 1,663 21,629 140,218 (0.4%) 13,310,134 10.53 1990-91 81,374 35,010 18,645 1,587 20,232 136,615 (2.6%) 13,498,506 10.12 1991-92 79,008 37,483 17,831 1,619 19,450 135,941 (0.5%) 13,678,327 9.94 1992-93 75,714 36,874 18,796 1,715 20,511 133,099 (2.1%) 13,829,567 9.62 1993-94 76,403 37,751 22,141 2,143 24,284 138,438 4.0% 13,994,701 9.89 1994-95 76,332 37,805 20,000 2,645 22,645 136,782 (1.2%) 14,183,640 9.64 1995-96 75,715 38,122 21,369 3,251 24,620 138,457 1.2% 14,399,399 9.62 1996-97 76,535 39,753 20,151 3,443 23,594 139,882 1.0% 14,591,069 9.59 1997-98 76,236 41,901 21,525 4,288 25,813 143,950 2.9% 14,775,394 9.74 1998-99 73,629 43,080 20,810 4,558 25,368 142,077 (1.3%) 14,974,983 9.49 1999-00 77,153 43,728 19,879 5,035 24,914 145,795 2.6% 15,187,313 9.60 2000-01 75,713 44,978 19,588 7,620 27,207 147,898 1.4% 15,426,042 9.59 2001-02 75,348 44,914 18,478 10,310 28,788 149,050 0.8% 15,656,801 9.52 2002-03 76,036 47,017 18,108 12,084 30,192 153,245 2.8% 15,902,059 9.64 Notes: (1) All data from 1969-70 to 1998-99 comes from AAI's work with LMA data, the "DSICAID02-RTD-W-LMAconversion-0109-CTX" file and DSICAID03-RTD1-WP-X8-RTDhistory-0320-CTX. (2) Beer, Wine, FSBS & RTD data from 1999-00 to 2004-05 comes from DSICA's latest estimates of the alcohol market in the file "DSICA04-RTD-PF-X01-MktReview-22Sep-CTX". (3) Population data comes from the ABS table 3201.09 (4) Wine figures include Cider DSICA04-RTD2-FD-Attach3AlcoholMktData-13Apr-CTX 3

3.3 Current RTD Market (Lals) 1999-00 Product Category 99-00 Ave LMA Data non-lma Data Total Volume Total ABV (%) Cases(1) Cases(2) Cases(3) Percentage Lals RTDs Scotch Base 5.0% 531,879 150,017 681,896 306,853 Bourbon Base 5.5% 3,506,116 769,635 4,275,751 2,116,497 Brandy Base 5.0% 21,362 1,364 22,726 10,226 Rum Base 5.5% 1,243,559 79,376 1,322,935 654,853 SUB TOTAL - Dark Spirits 5,302,916 1,000,392 6,303,308 59% 3,088,429 Gin Base 5.5% 89,043 5,684 94,727 46,890 Vodka Base 5.0% 623,130 136,785 759,915 341,962 Tequila Base 5.5% 11,361 725 12,086 5,983 Ouzo Base 5.5% 48,473 3,094 51,567 25,526 Liquers Pre-Mixers 4.0% 272,440 17,390 289,830 104,339 Other Distilled 5.5% 24,548 1,567 26,115 12,927 SUB TOTAL - Light Spirits 1,068,995 165,244 1,234,239 12% 537,625 SUB TOTAL - Dark & Light Spirits 6,371,911 1,165,636 7,537,547 3,626,055 Total Cider/Other Fermented Base(4,5) 4,581,317 4,581,317 minus (Traditional Cider) (1,450,000) (1,450,000) SUB TOTAL - Fermented Alcohol Base 5.0% 3,131,317 3,131,317 29% 1,409,093 TOTAL RTDs 9,503,228 1,165,636 10,668,864 100% 5,035,147 Notes: (1) LMA Data is a compilation of non-scaled LMA data for each respective year taken from DSICA04-RTD1-PF-X01-MktReview-22Sep-CTX "LMA 02-03". (2) Non-LMA data is taken from the June Monthly RTD Review produced by a DSICA member. The review contains RTD sales by product, sales by liquor type and sales by producer. These last figures allow for the calculation of non-lma sales as the LMA data does not cover the whole market. It should also be noted that the non-lma figures are uplifted by 15% as research shows these figures underestimate sales by 10-15%. Industry sources believe this is due to the fact off-premise sales are not included in these figures. Data based on individual RTD brand sales can found in DSICA04-RTD1-PF-X01-MktReview-22Sep-CTX "Brands". (3) For the financial year forecast of 2003-04 a growth rate of 15% is applied and for 2004-05 a growth rate of 13% is applied. [OS Feb 18] (4) For the 'Fermented' category, sales that relate to traditional cider are removed because they are not subject to excise. For example, 99-00 total figures for the Fermented Category is 4.6 million cases however, 1.45 million cases are cider leaving 3.1 million cases. Industry sources on the correct cider amount to subtract from this category have been revised for all periods. All the variations made amount to less than 5% of the forecast RTD totals. (5) Fermented Alcohol is assumed to consist of products such as West Coast Cooler, Two-Dogs and other cider based RTDs. Estimated from industry sources. (6) DSICA Estimate for Traditional Cider (7) Prior to 2002-03 Light and Dark Rum was not separated, therefore a growth figure could be calculated. Industry sources indicate that dark Rum growth was approximately 62.4% whilst light Rum growth was -21.1% and these figures have been used above. (8) Figures for "Mid-strength RTDs" are included in "Total RTDs" figures since they are incorporated in the LMA data. [OS Jan23] DSICA04-RTD2-FD-Attach3AlcoholMktData-13Apr-CTX 4

3.4 Current RTD Market (Lals) 2000-01 Product Category 99-0 to 00-01 00-01 Growth LMA Data non-lma Data Total Volume Total Cases Cases Cases Percentage Lals RTDs Scotch Base 57% 733,028 338,000 1,071,028 481,963 Bourbon Base 81% 5,650,765 2,071,000 7,721,765 3,822,274 Brandy Base 28% 29,061 29,061 13,077 Rum Base 95% 2,553,813 32,000 2,585,813 1,279,977 SUB TOTAL - Dark Spirits 81% 8,966,667 2,441,000 11,407,667 72% 5,597,291 Gin Base 54% 146,344 146,344 72,440 Vodka Base 303% 1,978,300 1,083,000 3,061,300 1,377,585 Tequila Base -90% 1,245 1,245 616 Ouzo Base 38% 71,210 71,210 35,249 Liquers Pre-Mixers 23% 357,028 357,028 128,530 Other Distilled 256% 92,910 92,910 45,990 SUB TOTAL - Light Spirits 209% 2,647,037 1,083,000 3,730,037 23% 1,660,411 SUB TOTAL - Dark & Light Spirits 100% 11,613,704 3,524,000 15,137,704 7,257,702 Total Cider/Other Fermented Base(4,5) 2,204,384 2,204,384 minus (Traditional Cider) (1,400,000) (1,400,000) SUB TOTAL - Fermented Alcohol Base -74% 804,384 804,384 5% 361,973 TOTAL RTDs 51% 12,418,088 3,524,000 15,942,088 100% 7,619,675 Notes: (1) LMA Data is a compilation of non-scaled LMA data for each respective year taken from DSICA04-RTD1-PF-X01-MktReview-22Sep-CTX "LMA 02-03" (2) Non-LMA data is taken from the June Monthly RTD Review produced by a DSICA member. The review contains RTD sales by product, sales by liquo type and sales by producer. These last figures allow for the calculation of non-lma sales as the LMA data does not cover the whole market. It should also be noted that the non-lma figures are uplifted by 15% as research shows these figures underestimate sales by 10-15%. Industry sources believe this is due to the fact off-premise sales are not included in these figures. Data based on individual RTD brand sales can found in DSICA04-RTD1-PF-X01-MktReview-22Sep-CTX "Brands". (3) For the financial year forecast of 2003-04 a growth rate of 15% is applied and for 2004-05 a growth rate of 13% is applied. [OS Feb 18 (4) For the 'Fermented' category, sales that relate to traditional cider are removed because they are not subject to excise. For example, 99-00 total figures for the Fermented Category is 4.6 million cases however, 1.45 million cases are cider leaving 3.1 million cases. Industry sources on the correct cider amount to subtract from this category have been revised for all periods. All the variations made amount to less than 5% of the forecast RTD totals. (5) Fermented Alcohol is assumed to consist of products such as West Coast Cooler, Two-Dogs and other cider based RTDs. Estimated from industry sources (6) DSICA Estimate for Traditional Cider (7) Prior to 2002-03 Light and Dark Rum was not separated, therefore a growth figure could be calculated. Industry sources indicate tha dark Rum growth was approximately 62.4% whilst light Rum growth was -21.1% and these figures have been used above (8) Figures for "Mid-strength RTDs" are included in "Total RTDs" figures since they are incorporated in the LMA data. [OS Jan23

3.5 Current RTD Market (Lals) 2001-02 Product Category 00-01 to 01-02 01-02 Growth LMA Data non-lma Data Total Volume Total Cases Cases Cases Percentage Lals RTDs Scotch Base 31% 889,860 518,000 1,407,860 633,537 Bourbon Base 28% 6,805,738 3,091,000 9,896,738 4,898,885 Brandy Base 26% 36,494 36,494 16,422 Rum Base 38% 3,463,324 106,000 3,569,324 1,766,815 SUB TOTAL - Dark Spirits 31% 11,195,416 3,715,000 14,910,416 69% 7,315,660 Gin Base 21% 177,228 177,228 87,728 Vodka Base 70% 2,355,543 2,843,000 5,198,543 2,339,344 Tequila Base 643% 9,252 9,252 4,580 Ouzo Base 18% 84,193 84,193 41,676 Liquers Pre-Mixers 53% 546,338 546,338 196,682 Other Distilled 194% 272,969 272,969 135,120 SUB TOTAL - Light Spirits 69% 3,445,523 2,843,000 6,288,523 29% 2,805,129 SUB TOTAL - Dark & Light Spirits 39% 14,640,939 6,558,000 21,198,939 10,120,789 Total Cider/Other Fermented Base(4,5) 1,651,238 1,651,238 minus (Traditional Cider) (1,230,000) (1,230,000) SUB TOTAL - Fermented Alcohol Base -48% 421,238 421,238 2% 189,557 TOTAL RTDs 35% 15,062,177 6,558,000 21,620,177 100% 10,310,346 Notes: (1) LMA Data is a compilation of non-scaled LMA data for each respective year taken from DSICA04-RTD1-PF-X01-MktReview-22Sep-CTX "LMA 02-03" (2) Non-LMA data is taken from the June Monthly RTD Review produced by a DSICA member. The review contains RTD sales by product, sales by liquo type and sales by producer. These last figures allow for the calculation of non-lma sales as the LMA data does not cover the whole market. It should also be noted that the non-lma figures are uplifted by 15% as research shows these figures underestimate sales by 10-15%. Industry sources believe this is due to the fact off-premise sales are not included in these figures. Data based on individual RTD brand sales can found in DSICA04-RTD1-PF-X01-MktReview-22Sep-CTX "Brands". (3) For the financial year forecast of 2003-04 a growth rate of 15% is applied and for 2004-05 a growth rate of 13% is applied. [OS Feb 18 (4) For the 'Fermented' category, sales that relate to traditional cider are removed because they are not subject to excise. For example, 99-00 total figures for the Fermented Category is 4.6 million cases however, 1.45 million cases are cider leaving 3.1 million cases. Industry sources on the correct cider amount to subtract from this category have been revised for all periods. All the variations made amount to less than 5% of the forecast RTD totals. (5) Fermented Alcohol is assumed to consist of products such as West Coast Cooler, Two-Dogs and other cider based RTDs. Estimated from industry sources (6) DSICA Estimate for Traditional Cider (7) Prior to 2002-03 Light and Dark Rum was not separated, therefore a growth figure could be calculated. Industry sources indicate tha dark Rum growth was approximately 62.4% whilst light Rum growth was -21.1% and these figures have been used above (8) Figures for "Mid-strength RTDs" are included in "Total RTDs" figures since they are incorporated in the LMA data. [OS Jan23

3.6 Current RTD Market (Lals) 2002-03 Product Category 01-02 to 02-03 02-03 Growth LMA Data non-lma Data Total Volume Total Cases(1) Cases(2) Cases(3) Percentage LALs RTDs Scotch Base 33.58% 1,167,772 712,885 1,880,657 846,296 Bourbon Base 15.06% 7,447,615 3,939,440 11,387,055 5,636,592 Brandy Base -56.30% 15,947 15,947 7,176 Rum Base - Dark (7) 62.40% 3,392,130 67,965 3,460,095 1,712,747 SUB TOTAL - Dark Spirits 12.13% 12,023,464 4,720,290 16,743,754 66% 8,202,811 Rum Base - Light -21.10% 720,000 720,000 356,400 Gin Base 11.29% 197,238 197,238 97,633 Vodka Base 2.25% 2,276,490 3,039,220 5,315,710 2,392,070 Tequila Base -46.30% 4,968 4,968 2,459 Ouzo Base 7.62% 90,607 90,607 44,850 Liquers Pre-Mixers 35.53% 563,105 177,330 740,435 266,557 Other Distilled 113.20% 581,977 581,977 288,079 SUB TOTAL - Light Spirits 22.92% 4,434,385 3,216,550 7,650,935 30% 3,448,047 SUB TOTAL - Dark & Light Spirits 15.12% 16,457,849 7,936,840 24,394,689 11,650,858 Total Cider/Other Fermented Base 1,474,020 588,505 2,062,525 minus (Traditional Cider) (1,100,000) (1,100,000) SUB TOTAL - Fermented Alcohol Base 128.50% 374,020 962,525 4% 433,136 TOTAL RTDs 17.20% 16,831,869 8,525,345 25,357,214 100% 12,083,994 Notes: (1) LMA Data is a compilation of non-scaled LMA data for each respective year taken from DSICA04-RTD1-PF-X01-MktReview-22Sep-CTX "LMA 02-03" (2) Non-LMA data is taken from the June Monthly RTD Review produced by a DSICA member. The review contains RTD sales by product, sales by liquo type and sales by producer. These last figures allow for the calculation of non-lma sales as the LMA data does not cover the whole market. It should also be noted that the non-lma figures are uplifted by 15% as research shows these figures underestimate sales by 10-15%. Industry sources believe this is due to the fact off-premise sales are not included in these figures. Data based on individual RTD brand sales can found in DSICA04-RTD1-PF-X01-MktReview-22Sep-CTX "Brands". (3) For the financial year forecast of 2003-04 a growth rate of 15% is applied and for 2004-05 a growth rate of 13% is applied. [OS Feb 18 (4) For the 'Fermented' category, sales that relate to traditional cider are removed because they are not subject to excise For example, 99-00 total figures for the Fermented Category is 4.6 million cases however, 1.45 million cases are cider leaving 3.1 million cases Industry sources on the correct cider amount to subtract from this category have been revised for all periods. All the variations made amount to less than 5% of the forecast RTD totals. (5) Fermented Alcohol is assumed to consist of products such as West Coast Cooler, Two-Dogs and other cider based RTDs. Estimated from industry sources (6) DSICA Estimate for Traditional Cider (7) Prior to 2002-03 Light and Dark Rum was not separated, therefore a growth figure could be calculated. Industry sources indicate tha dark Rum growth was approximately 62.4% whilst light Rum growth was -21.1% and these figures have been used above (8) Figures for "Mid-strength RTDs" are included in "Total RTDs" figures since they are incorporated in the LMA data. [OS Jan23

3.7 Current RTD Market (Lals) 2003-04F Product Category 02-03 to 03-04 Forecast 03-04 Growth LMA Data non-lma Data Total Volume Total Cases Cases Cases Percentage LALs RTDs Scotch Base 15.00% 1,342,938 819,818 2,162,756 973,240 Bourbon Base 15.00% 8,564,757 4,530,356 13,095,113 6,482,081 Brandy Base 15.00% 18,339 18,339 8,253 Rum Base - Dark 15.00% 3,900,950 78,160 3,979,109 1,969,659 SUB TOTAL - Dark Spirits 15.00% 13,826,984 5,428,334 19,255,317 66% 9,433,233 Rum Base - Light 15.00% 828,000 828,000 409,860 Gin Base 15.00% 226,824 226,824 112,278 Vodka Base 15.00% 2,617,964 3,495,103 6,113,067 2,750,880 Tequila Base 15.00% 5,713 5,713 2,828 Ouzo Base 15.00% 104,198 104,198 51,578 Liquers Pre-Mixers 15.00% 647,571 203,930 851,500 306,540 Other Distilled 15.00% 669,274 669,274 331,290 SUB TOTAL - Light Spirits 15.00% 5,099,543 3,699,033 8,798,575 30% 3,965,254 SUB TOTAL - Dark & Light Spirits 15.00% 18,926,526 9,127,366 28,053,892 13,398,487 Total Cider/Other Fermented Base 1,695,123 588,505 2,283,628 minus (Traditional Cider) (1,100,000) (1,100,000) SUB TOTAL - Fermented Alcohol Base 22.97% 595,123 1,183,628 4% 532,633 TOTAL RTDs 15.00% 19,521,649 9,127,366 29,237,520 13,931,120 Notes: (1) LMA Data is a compilation of non-scaled LMA data for each respective year taken from DSICA04-RTD1-PF-X01-MktReview-22Sep-CTX "LMA 02-03" (2) Non-LMA data is taken from the June Monthly RTD Review produced by a DSICA member. The review contains RTD sales by product, sales by liquo type and sales by producer. These last figures allow for the calculation of non-lma sales as the LMA data does not cover the whole market. It should also be noted that the non-lma figures are uplifted by 15% as research shows these figures underestimate sales by 10-15%. Industry sources believe this is due to the fact off-premise sales are not included in these figures. Data based on individual RTD brand sales can found in DSICA04-RTD1-PF-X01-MktReview-22Sep-CTX "Brands". (3) For the financial year forecast of 2003-04 a growth rate of 15% is applied and for 2004-05 a growth rate of 13% is applied. [OS Feb 18 (4) For the 'Fermented' category, sales that relate to traditional cider are removed because they are not subject to excise. For example, 99-00 total figures for the Fermented Category is 4.6 million cases however, 1.45 million cases are cider leaving 3.1 million cases. Industry sources on the correct cider amount to subtract from this category have been revised for all periods. All the variations made amount to less than 5% of the forecast RTD totals. (5) Fermented Alcohol is assumed to consist of products such as West Coast Cooler, Two-Dogs and other cider based RTDs. Estimated from industry sources (6) DSICA Estimate for Traditional Cider (7) Prior to 2002-03 Light and Dark Rum was not separated, therefore a growth figure could be calculated. Industry sources indicate tha dark Rum growth was approximately 62.4% whilst light Rum growth was -21.1% and these figures have been used above (8) Figures for "Mid-strength RTDs" are included in "Total RTDs" figures since they are incorporated in the LMA data. [OS Jan23

3.8 Current RTD Market (Lals) 2004-05F Product Category 03-04 to 04-05 Forecast 04-05 Growth LMA Data non-lma Data Total Volume Total Cases Cases Cases Percentage LALs RTDs Scotch Base 13.00% 1,517,520 926,394 2,443,914 1,099,761 Bourbon Base 13.00% 9,678,176 5,119,302 14,797,478 7,324,752 Brandy Base 13.00% 20,723 20,723 9,325 Rum Base - Dark 13.00% 4,408,073 88,321 4,496,393 2,225,715 SUB TOTAL - Dark Spirits 13.00% 15,624,491 6,134,017 21,758,508 66% 10,659,553 Rum Base - Light 13.00% 935,640 935,640 463,142 Gin Base 13.00% 256,311 256,311 126,874 Vodka Base 13.00% 2,958,299 3,949,466 6,907,765 3,108,494 Tequila Base 13.00% 6,456 6,456 3,196 Ouzo Base 13.00% 117,744 117,744 58,283 Liquers Pre-Mixers 13.00% 731,755 230,440 962,195 346,390 Other Distilled 13.00% 756,279 756,279 374,358 SUB TOTAL - Light Spirits 13.00% 5,762,483 4,179,907 9,942,390 30% 4,480,737 SUB TOTAL - Dark & Light Spirits 13.00% 21,386,975 10,313,924 31,700,898 15,140,290 Total Cider/Other Fermented Base 1,915,489 588,505 2,503,994 minus (Traditional Cider) (1,100,000) (1,100,000) SUB TOTAL - Fermented Alcohol Base 18.62% 815,489 1,403,994 4% 631,797 TOTAL RTDs 13.00% 22,202,464 10,313,924 33,104,892 15,772,088 Notes: (1) LMA Data is a compilation of non-scaled LMA data for each respective year taken from DSICA04-RTD1-PF-X01-MktReview-22Sep-CTX "LMA 02-03" (2) Non-LMA data is taken from the June Monthly RTD Review produced by a DSICA member. The review contains RTD sales by product, sales by liquo type and sales by producer. These last figures allow for the calculation of non-lma sales as the LMA data does not cover the whole market. It should also be noted that the non-lma figures are uplifted by 15% as research shows these figures underestimate sales by 10-15%. Industry sources believe this is due to the fact off-premise sales are not included in these figures. Data based on individual RTD brand sales can found in DSICA04-RTD1-PF-X01-MktReview-22Sep-CTX "Brands". (3) For the financial year forecast of 2003-04 a growth rate of 15% is applied and for 2004-05 a growth rate of 13% is applied. [OS Feb 18 (4) For the 'Fermented' category, sales that relate to traditional cider are removed because they are not subject to excise. For example, 99-00 total figures for the Fermented Category is 4.6 million cases however, 1.45 million cases are cider leaving 3.1 million cases. Industry sources on the correct cider amount to subtract from this category have been revised for all periods. All the variations made amount to less than 5% of the forecast RTD totals. (5) Fermented Alcohol is assumed to consist of products such as West Coast Cooler, Two-Dogs and other cider based RTDs. Estimated from industry sources (6) DSICA Estimate for Traditional Cider (7) Prior to 2002-03 Light and Dark Rum was not separated, therefore a growth figure could be calculated. Industry sources indicate tha dark Rum growth was approximately 62.4% whilst light Rum growth was -21.1% and these figures have been used above (8) Figures for "Mid-strength RTDs" are included in "Total RTDs" figures since they are incorporated in the LMA data. [OS Jan23

3.9 Current Spirits Market (Lals) 1999-00 Product Category 99-00 Ave ABV (%) Litres Cases(1) Lals SCOTCH Standard 40% 15,259,369 1,695,485 6,103,747 Deluxe(3) 43% 861,357 95,706 370,384 TOTAL Scotch 16,120,726 1,791,192 6,474,131 BOURBON Standard 37% 10,492,564 1,165,840 3,882,249 Deluxe(3) 37% 2,631,501 292,389 973,655 TOTAL Bourbon 13,124,065 1,458,229 4,855,904 OTHER WHISKY Standard 40% 560,430 62,270 224,172 Deluxe 43% 59,004 6,556 25,372 TOTAL Other Whisky 619,434 68,826 249,544 RUM Imported/Light 38% 1,456,818 161,869 546,307 Domestic/Dark 37% 5,928,564 658,729 2,193,569 TOTAL Rum 7,385,382 820,598 2,739,875 VODKA 38% 4,746,335 527,371 1,779,876 LIQUEURS High ABV Not Sambuca(4) 22% 5,061,808 562,423 1,113,598 Low ABV Not Sambuca 18% 1,265,452 140,606 227,781 Sambuca 37% 402,255 44,695 148,834 TOTAL Liqueurs 6,729,515 747,724 1,490,213 GIN 37% 1,838,034 204,226 680,073 OTHER Tequila 38% 449,658 49,962 170,870 Ouzo 37% 374,749 41,639 138,657 other (schnapps) 22% 244,359 27,151 53,759 TOTAL Other 1,068,766 118,752 363,286 SUB-TOTAL FSBS (excl. Brandy) 51,632,256 5,736,917 18,632,902 BRANDY Imported(5) 37% 813,753 90,417 301,089 Domestic 37% 2,441,259 271,251 903,266 Total Brandy 3,255,012 361,668 1,204,354 COGNAC 37% 111,669 12,408 41,318 SUB-TOTAL BRANDY/COGNAC 3,366,681 374,076 1,245,672 TOTAL FSBS 54,998,937 6,110,993 19,878,574 Notes: (1) 1999-00 to 2004-05 cases have been sourced from LMA data. This includes scaling up to include the percentage of the market that the LMA claims not to cover. (2) Growth rates are assumed to be consistent for 2003-04 and 2004-05. (3) Deluxe Scotch includes Pure Malt Scotch. Deluxe Bourbon includes Pure Malt Bourbon. (4) We work on the assumption that High abv Not Sambuca makes up 80% of the market. (5) We work on the assumption that 25% of Brandy is imported.

3.10 Current Spirits Market (Lals) 2000-01 Product Category 99-00 to 00-01 00-01 Growth (Lals) Litres Cases Lals SCOTCH Standard -5.4% 14,431,197 1,603,466 5,772,479 Deluxe(3) 32.1% 1,138,094 126,455 489,381 TOTAL Scotch -3.3% 15,569,291 1,729,921 6,261,859 BOURBON Standard -6.0% 9,868,098 1,096,455 3,651,196 Deluxe(3) 3.6% 2,725,101 302,789 1,008,287 TOTAL Bourbon -4.0% 12,593,199 1,399,244 4,659,484 OTHER WHISKY Standard 2.2% 572,625 63,625 229,050 Deluxe 20.8% 71,298 7,922 30,658 TOTAL Other Whisky 4.1% 643,923 71,547 259,708 RUM Imported/Light 0.4% 1,462,591 162,510 548,472 Domestic/Dark -3.6% 5,718,064 635,340 2,115,684 TOTAL Rum -2.8% 7,180,655 797,851 2,664,155 VODKA 12.3% 5,331,568 592,396 1,999,338 LIQUEURS High ABV Not Sambuca(4) 2.7% 5,198,448 577,605 1,143,659 Low ABV Not Sambuca 2.7% 1,299,612 144,401 233,930 Sambuca -1.5% 396,209 44,023 146,597 TOTAL Liqueurs 2.3% 6,894,269 766,030 1,524,186 GIN 2.2% 1,878,947 208,772 695,210 OTHER Tequila -23.4% 344,504 38,278 130,912 Ouzo -3.0% 363,361 40,373 134,444 other (schnapps) 91.0% 466,776 51,864 102,691 TOTAL Other 1.3% 1,174,642 130,516 368,046 SUB-TOTAL FSBS (excl. Brandy) -1.1% 51,266,493 5,696,277 18,431,987 BRANDY Imported(5) -8.6% 743,798 82,644 275,205 Domestic -8.6% 2,231,395 247,933 825,616 Total Brandy -8.6% 2,975,193 330,577 1,100,821 COGNAC 32.7% 148,203 16,467 54,835 SUB-TOTAL BRANDY/COGNAC -7.2% 3,123,396 347,044 1,155,657 TOTAL FSBS -1.5% 54,389,889 6,043,321 19,587,643 Notes: (1) 1999-00 to 2004-05 cases have been sourced from LMA data. This includes scaling up to include the percentage of the market that the LMA claims not to cover. (2) Growth rates are assumed to be consistent for 2003-04 and 2004-05. (3) Deluxe Scotch includes Pure Malt Scotch. Deluxe Bourbon includes Pure Malt Bourbon. (4) We work on the assumption that High abv Not Sambuca makes up 80% of the market. (5) We work on the assumption that 25% of Brandy is imported.

3.11 Current Spirits Market (Lals) 2001-02 Product Category 00-01 to 01-02 01-02 Growth (Lals)(2) Litres Cases Lals SCOTCH Standard -4.8% 13,731,745 1,525,749 5,492,698 Deluxe(3) -2.2% 1,113,431 123,715 478,775 TOTAL Scotch -4.6% 14,845,176 1,649,464 5,971,473 BOURBON Standard -11.7% 8,712,412 968,046 3,223,592 Deluxe(3) -1.5% 2,684,007 298,223 993,083 TOTAL Bourbon -9.5% 11,396,419 1,266,269 4,216,675 OTHER WHISKY Standard 24.7% 713,835 79,315 285,534 Deluxe -17.3% 58,950 6,550 25,349 TOTAL Other Whisky 19.7% 772,785 85,865 310,883 RUM Imported/Light -18.2% 1,195,936 132,882 448,476 Domestic/Dark -6.4% 5,353,800 594,867 1,980,906 TOTAL Rum -8.8% 6,549,736 727,748 2,429,382 VODKA -0.5% 5,305,013 589,446 1,989,380 LIQUEURS High ABV Not Sambuca(4) -1.2% 5,134,760 570,529 1,129,647 Low ABV Not Sambuca -1.2% 1,283,690 142,632 231,064 Sambuca -9.8% 357,309 39,701 132,204 TOTAL Liqueurs -2.1% 6,775,759 752,862 1,492,916 GIN -3.4% 1,814,550 201,617 671,384 OTHER Tequila -19.1% 278,667 30,963 105,894 Ouzo -12.7% 317,204 35,245 117,366 other (schnapps) -1.5% 459,702 51,078 101,134 TOTAL Other -11.9% 1,055,573 117,286 324,394 SUB-TOTAL FSBS (excl. Brandy) -5.6% 48,515,012 5,390,557 17,406,486 BRANDY Imported(5) -7.7% 686,828 76,314 254,126 Domestic -7.7% 2,060,485 228,943 762,379 Total Brandy -7.7% 2,747,313 305,257 1,016,506 COGNAC 0.3% 148,688 16,521 55,015 SUB-TOTAL BRANDY/COGNAC -7.3% 2,896,001 321,778 1,071,520 TOTAL FSBS -5.7% 51,411,013 5,712,335 18,478,006 Notes: (1) 1999-00 to 2004-05 cases have been sourced from LMA data. This includes scaling up to include the percentage of the market that the LMA claims not to cover. (2) Growth rates are assumed to be consistent for 2003-04 and 2004-05. (3) Deluxe Scotch includes Pure Malt Scotch. Deluxe Bourbon includes Pure Malt Bourbon. (4) We work on the assumption that High abv Not Sambuca makes up 80% of the market. (5) We work on the assumption that 25% of Brandy is imported.

3.12 Current Spirits Market (Lals) 2002-03 Product Category 01-02 to 02-03 02-03 Growth (Lals) Litres Cases Lals SCOTCH Standard -1.3% 13,549,045 1,505,449 5,419,618 Deluxe(3) 34.3% 1,495,738 166,193 643,167 TOTAL Scotch 1.5% 15,044,783 1,671,643 6,062,785 BOURBON Standard -14.7% 7,435,293 826,144 2,751,058 Deluxe(3) -3.1% 2,600,640 288,960 962,237 TOTAL Bourbon -11.9% 10,035,933 1,115,104 3,713,295 OTHER WHISKY Standard 19.1% 850,518 94,502 340,207 Deluxe 10.0% 64,827 7,203 27,876 TOTAL Other Whisky 18.4% 915,345 101,705 368,083 RUM Imported/Light -6.9% 1,113,836 123,760 417,689 Domestic/Dark -6.7% 4,994,400 554,933 1,847,928 TOTAL Rum -6.7% 6,108,236 678,693 2,265,617 VODKA 5.8% 5,613,618 623,735 2,105,107 LIQUEURS High ABV Not Sambuca(4) 1.5% 5,213,296 579,255 1,146,925 Low ABV Not Sambuca 1.5% 1,303,324 144,814 234,598 Sambuca -3.7% 344,000 38,222 127,280 TOTAL Liqueurs 1.1% 6,860,620 762,291 1,508,803 GIN 15.9% 2,102,250 233,583 777,833 OTHER Tequila 18.8% 330,936 36,771 125,756 Ouzo -10.2% 284,868 31,652 105,401 other (schnapps) -28.4% 329,013 36,557 72,383 TOTAL Other -6.4% 944,817 104,980 303,540 SUB-TOTAL FSBS (excl. Brandy) -1.7% 47,625,602 5,291,734 17,105,062 BRANDY Imported(5) -10.3% 615,807 68,423 227,849 Domestic -10.3% 1,847,421 205,269 683,546 Total Brandy -10.3% 2,463,228 273,692 911,394 COGNAC 65.8% 246,521 27,391 91,213 SUB-TOTAL BRANDY/COGNAC -6.4% 2,709,749 301,083 1,002,607 TOTAL FSBS -2.1% 50,335,351 5,592,817 18,107,669 Notes: (1) 1999-00 to 2004-05 cases have been sourced from LMA data. This includes scaling up to include the percentage of the market that the LMA claims not to cover. (2) Growth rates are assumed to be consistent for 2003-04 and 2004-05. (3) Deluxe Scotch includes Pure Malt Scotch. Deluxe Bourbon includes Pure Malt Bourbon. (4) We work on the assumption that High abv Not Sambuca makes up 80% of the market. (5) We work on the assumption that 25% of Brandy is imported.

3.13 Current Spirits Market (Lals) 2003-04F Product Category 02-03 to 03-04 Forecast 03-04 Forecast Growth Litres Cases Lals SCOTCH Standard -2.0% 13,278,064 1,475,340 5,311,226 Deluxe(3) -2.0% 1,465,823 162,869 630,304 TOTAL Scotch -2.0% 14,743,887 1,638,210 5,941,530 BOURBON Standard -2.0% 7,286,587 809,621 2,696,037 Deluxe(3) -2.0% 2,548,627 283,181 942,992 TOTAL Bourbon -2.0% 9,835,214 1,092,802 3,639,029 OTHER WHISKY Standard -2.0% 833,508 92,612 333,403 Deluxe -2.0% 63,530 7,059 27,318 TOTAL Other Whisky -2.0% 897,038 99,671 360,721 RUM Imported/Light -2.0% 1,091,560 121,284 409,335 Domestic/Dark -2.0% 4,894,512 543,835 1,810,969 TOTAL Rum -2.0% 5,986,072 665,119 2,220,304 VODKA -2.0% 5,501,345 611,261 2,063,004 LIQUEURS High ABV Not Sambuca(4) -2.0% 5,109,030 567,670 1,123,987 Low ABV Not Sambuca -2.0% 1,277,258 141,918 229,906 Sambuca -2.0% 337,120 37,458 124,734 TOTAL Liqueurs -2.0% 6,723,408 747,045 1,478,627 GIN -2.0% 2,060,205 228,912 762,276 OTHER Tequila -2.0% 324,317 36,035 123,241 Ouzo -2.0% 279,171 31,019 103,293 other (schnapps) -2.0% 322,433 35,826 70,935 TOTAL Other -2.0% 925,921 102,880 297,469 SUB-TOTAL FSBS (excl. Brandy) -2.0% 46,673,090 5,185,899 16,762,961 BRANDY Imported(5) -2.0% 603,491 67,055 223,292 Domestic -2.0% 1,810,473 201,164 669,875 Total Brandy -2.0% 2,413,963 268,218 893,166 COGNAC -2.0% 241,590 26,843 89,388 SUB-TOTAL BRANDY/COGNAC -2.0% 2,655,554 295,062 982,555 TOTAL FSBS -2.0% 49,328,644 5,480,960 17,745,516 Notes: (1) 1999-00 to 2004-05 cases have been sourced from LMA data. This includes scaling up to include the percentage of the market that the LMA claims not to cover. (2) Growth rates are assumed to be consistent for 2003-04 and 2004-05. (3) Deluxe Scotch includes Pure Malt Scotch. Deluxe Bourbon includes Pure Malt Bourbon. (4) We work on the assumption that High abv Not Sambuca makes up 80% of the market. (5) We work on the assumption that 25% of Brandy is imported.

3.14 Current Spirits Market (Lals) 2004-05F Product Category 03-04 to 04-05 Forecast 04-05 Forecast Growth Litres Cases Lals SCOTCH Standard -1.5% 13,078,893 1,453,210 5,231,557 Deluxe(3) -1.5% 1,443,836 160,426 620,849 TOTAL Scotch -1.5% 14,522,729 1,613,637 5,852,407 BOURBON Standard -1.5% 7,177,288 797,476 2,655,597 Deluxe(3) -1.5% 2,510,398 278,933 928,847 TOTAL Bourbon -1.5% 9,687,686 1,076,410 3,584,444 OTHER WHISKY Standard -1.5% 821,005 91,223 328,402 Deluxe -1.5% 62,578 6,953 26,908 TOTAL Other Whisky -1.5% 883,583 98,176 355,310 RUM Imported/Light -1.5% 1,075,186 119,465 403,195 Domestic/Dark -1.5% 4,821,094 535,677 1,783,805 TOTAL Rum -1.5% 5,896,281 655,142 2,187,000 VODKA -1.5% 5,418,825 602,092 2,032,059 LIQUEURS High ABV Not Sambuca(4) -1.5% 5,032,395 559,155 1,107,127 Low ABV Not Sambuca -1.5% 1,258,099 139,789 226,458 Sambuca -1.5% 332,063 36,896 122,863 TOTAL Liqueurs -1.5% 6,622,556 735,840 1,456,448 GIN -1.5% 2,029,302 225,478 750,842 OTHER Tequila -1.5% 319,452 35,495 121,392 Ouzo -1.5% 274,983 30,554 101,744 other (schnapps) -1.5% 317,596 35,288 69,871 TOTAL Other -1.5% 912,032 101,337 293,007 SUB-TOTAL FSBS (excl. Brandy) -1.5% 45,972,993 5,108,110 16,511,517 BRANDY Imported(5) -1.5% 594,438 66,049 219,942 Domestic -1.5% 1,783,315 198,146 659,827 Total Brandy -1.5% 2,377,754 264,195 879,769 COGNAC -1.5% 237,967 26,441 88,048 SUB-TOTAL BRANDY/COGNAC -1.5% 2,615,721 290,636 967,817 TOTAL FSBS -1.5% 48,588,714 5,398,746 17,479,333 Notes: (1) 1999-00 to 2004-05 cases have been sourced from LMA data. This includes scaling up to include the percentage of the market that the LMA claims not to cove (2) Growth rates are assumed to be consistent for 2003-04 and 2004-05 (3) Deluxe Scotch includes Pure Malt Scotch. Deluxe Bourbon includes Pure Malt Bourbon (4) We work on the assumption that High abv Not Sambuca makes up 80% of the market. (5) We work on the assumption that 25% of Brandy is imported

Type of alcohol consumed Those who had consumed alcohol in the last 12 months were asked in 2001 what type of alcohol they usually drank: Males drinking at low or risky and high-risk levels of harm in the long term most commonly consumed regular strength beer, except for those aged 40 years and over who commonly drank bottled wine (Table 5.3). For females, the type of drink most commonly consumed by those at low or risky and high risk of harm in the short term was the same as for those who consumed at low or risky or high risk of harm in the long term. The types of drink ranged from pre-mixed bottles to bottled spirits and liqueurs to bottled wine. Male teenagers drinking at low or risky and high-risk levels for harm in the short or long term most commonly drank regular strength beer. Female teenagers drinking at low-risk levels of harm in the short or long term most commonly drank premixed bottles, whereas those who drank at risky or high-risk levels most commonly drank bottled spirits and liqueurs. Table 5.3: Type of alcohol consumed, recent drinkers aged 14 years and over, by long-term risk status, Australia, 2001 Long-term risk Age group Low risk Risky and high risk Males 14 19 Regular strength beer Regular strength beer 20 29 Regular strength beer Regular strength beer 30 39 Regular strength beer Regular strength beer 40+ Bottled wine Regular strength beer Females 14 19 Pre-mixed bottles Bottled spirits and liqueurs 20 29 Bottled spirits and liqueurs Bottled spirits and liqueurs 30 39 Bottled wine Bottled wine 40+ Bottled wine Bottled wine Note: Base equals recent drinkers. The type of alcohol usually drunk by each sex, age group and risk level did not vary between risk of harm in the short term and risk in the long term, with the exception of males aged 20 29 years who preferred bottled spirits and liqueurs. 29

Pre-Budget Submission Prepared by the Distilled Spirits Industry Council of Australia Inc Attachment 7: Alcohol consumption patterns among Australian 15-17 year olds, National Alcohol Campaign (Feb 2000 Feb 2002) April 2004 Contact: Gordon Broderick, Executive Director, DSICA Ph: 03-9696 4466 Fax: 03-9696 6648 Email: gordonb@dsica.com.au Website: www.dsica.com.au

Alcohol Consumption Patterns Among Australian 15-17 year olds, National Alcohol Campaign (Feb 2000 Feb 2002) Overview Alcohol policy, like all government policy, should be based on facts supported by the best available evidence. Considering the large number of occasional surveys on alcohol consumption which are of highly variable analytical and methodological reliability, DSICA considers it vital to base policy on research which is clear and reliable. DSICA believes the Department of Health and Ageing s (DHA) research report Alcohol Consumption Patterns among Australian 15-17 year olds from February 2000 to February 2002 (the Report) provides clear and reliable research and is therefore vitally important to alcohol policy formulation. The report is based on a number of recent surveys undertaken as part of the National Alcohol Campaign (NAC) conducted by the DHA. Four tracking studies for the National Alcohol Campaign were conducted between February 2000 and February 2002. DHA released the report based on these studies. This key Government report dispels a number of myths about alcohol consumption by young people. The report demonstrates the negligible impact of the alcohol tax changes under the New Tax System, which commenced on 1 July 2000. The DHA report shows that the average levels of alcohol consumption by 15 17 year olds are declining amongst both lower risk and higher risk drinkers. The myth around ready to drink alcohol products (RTDs) being the most abused beverage is not correct. The increase in the popularity of the higher priced RTDs has coincided with a reduction in the average levels of consumption by both higher and lower risk drinkers. There is no significant difference in the amount of RTDs, spirits and cider consumed by higher risk female drinkers. Increased RTD consumption has occurred in direct substitution for beer and full strength spirits. Several key facts which should be noted include: Fact 1: The proportion of underage respondents who are drinkers is falling Fact 2: The proportion of higher risk drinkers has remained constant Fact 3: The majority of drinkers drink at low risk levels Fact 4: The average number of standard drinks consumed by higher risk drinkers has fallen 10% Fact 5: Beer is the most popular drink amongst higher risk male drinkers Fact 6: RTDs are not significantly preferred by higher risk female drinkers Fact 7: RTDs are the most popular drink of low risk female drinkers Fact 8: Beer and spirits are the most popular drinks of lower risk male drinkers [Note: The figures included in the following pages of this DSICA report are cross-referenced to the figures in the DHA report.] April 2004 Page 2

DSICA Alcohol Consumption Patterns Among Australian 15-17 year olds Fact 1: The proportion of underage respondents who had recently consumed alcohol is FALLING Overall numbers of underage drinkers is falling. The report found that the percentage of respondents who had consumed alcohol in the last 3 months had fallen between February 2000 and February 2002 (see Figure 1 below). MALES: For males, the percentage of respondents who had consumed alcohol in the last 3 months ( drinkers ) had fallen from 70% in February 2000 to 63% in February 2002. Figure 1: Proportion of 15-17 year old male drinkers (Feb 2000 Feb 2002) FEMALES: For females the percentage of respondents who had consumed alcohol in the last 3 months had fallen from 66% in February 2000 to 64% in February 2002 (see Figure2). Figure 2: Proportion of 15-17 year old female drinkers (Feb 2000 Feb 2002) April 2004 Page 3

DSICA Alcohol Consumption Patterns Among Australian 15-17 year olds Fact 2: The proportion of higher risk drinkers has REMAINED CONSTANT The proportion of underage drinkers who are higher risk has remained relatively constant. The report found that the proportion of higher risk drinkers has not undergone any significant change between February 2000 and February 2002: Higher risk is defined in the NAC survey as 7 standard (std) drinks or more for males. This is consistent with the Australian Alcohol Guidelines preferred risk categories of: Risky (7 to 10) and high risk (11 or more std drinks) per day. Higher risk is defined in the NAC survey as 5 std drinks or more for females. This is consistent with the Australian Alcohol Guidelines preferred risk categories of: Risky (5 to 6) and high risk (7 or more std drinks) per day. MALES: For males, the proportion of higher risk drinkers increased only 1% from 43% in February 2000 to 44% in February 2002 (see Figure 3). Figure 3: Proportion of 15-17 year old males drinking at various risk levels (Feb 2000 Feb 2002) April 2004 Page 4

DSICA Alcohol Consumption Patterns Among Australian 15-17 year olds FEMALES: For females, the proportion of higher risk drinkers increased only 1% from 42% in February 2000 to 43% in February 2002 (see Figure 4 below). Figure 4: Proportion of 15-17 year old females drinking at various risk levels (Feb 2000 Feb 2002) Fact 3: LOW RISK drinkers are the majority of drinkers Low risk drinkers are the majority: The majority of both male and female drinkers across all surveys consumed alcohol at low risk levels. April 2004 Page 5

DSICA Alcohol Consumption Patterns Among Australian 15-17 year olds Fact 4: The average number of standard drinks consumed by higher risk drinkers has fallen 10% Reduced alcohol consumption by higher risk drinkers: The report found that the average number of standard (std) drinks consumed by higher risk drinkers, has fallen significantly for both males and females: MALES: For males, the average number of standard drinks has fallen almost 10%, from an average of 12.5 std drinks to 11.3 std drinks (see Figure 5 below). Figure 5: The average number of standard drinks consumed by 15-17 year old males drinking at low and higher risk levels (Feb 2000 Feb 2002) FEMALES: For females the decline was more than 11%, from 9.5 std drinks to 8.4 std drinks (see Figure 6 below). Figure 6: The average number of standard drinks consumed by 15-17 year old females drinking at low and higher risk levels (Feb 2000 Feb 2002) April 2004 Page 6

DSICA Alcohol Consumption Patterns Among Australian 15-17 year olds Fact 5: Beer is the most popular drink of HIGHER RISK male drinkers 58% of the total quantity of alcohol consumed by higher risk male drinkers was beer. This was a significantly higher percentage than spirits (22%), pre-mixed spirits (13%), and cider (6%) and wine (2%) (see Figure 7 below). Figure 7: The share of consumption by beverage category amongst 15-17 year old males drinking at higher risk levels (Feb 2000 Feb 2002) The average number of standard drinks consumed by this group has fallen almost 10%, from an average of 12.5 std drinks to 11.3 std drinks (see Figure 5). Fact 6: RTDs are NOT significantly preferred by HIGHER RISK female drinkers 27% of the alcohol consumed by higher risk female drinkers was pre-mixed spirits. This is not significantly higher than for cider (26%), spirits (23%) and beer (19%) (see Figure 8). Figure 8: The share of consumption by beverage category amongst 15-17 year old females drinking at higher risk levels (Feb 2000 Feb 2002) April 2004 Page 7

DSICA Alcohol Consumption Patterns Among Australian 15-17 year olds Fact 7: Beer and spirits are the most popular drinks of LOW RISK male drinkers 34% of the alcohol consumed by low risk male drinkers was beer. This was not a significantly higher percentage than spirits (29%) or pre-mixed spirits (22%) (see Figure 9 below ). Figure 9: The share of consumption by beverage category amongst 15-17 year old males drinking at low risk levels (Feb 2000 Feb 2002) The average number of standard drinks consumed by this group has remained flat between 3.2 and 3.3 std drinks (see Figure 5). Fact 8: RTDs are the most popular drink of LOWER RISK female drinkers 29% of the alcohol consumed by lower risk female drinkers was pre-mixed spirits. This is not significantly higher than for cider (25%) and spirits (24%) (see Figure 10 below). Figure 10: The share of consumption by beverage category amongst 15-17 year old females drinking at low risk levels (Feb 2000 Feb 2002) DSICA04-RTD5-WP-W19-Attach2-9pgs-2Apr-WR-CTS April 2004 Page 8

DSICA Pre-budget Submission - 2003-04 Pre-budget Submission 2004-05 Attachment 8 Taxation policy proposals Prepared by: The Distilled Spirits Industry Council of Australia Inc (DSICA) April 2004 Contact: Gordon Broderick, Executive Director, DSICA Ph: 03-9696 4466 Fax: 03-9696 6648 Email: gordonb@dsica.com.au Website: www.dsica.com.au 13/04/2004 1

DSICA Pre-budget Submission - 2003-04 1 Alcohol taxation policy proposals 1.1 Overview DSICA s views on the current system of alcohol taxation are summarised in Section 6 of the submission (see Attachment 1). DSICA believes that the current system of Commonwealth alcohol taxation: unfairly discriminates against spirits; fails to tax alcohol products of similar alcohol content at a similar rate; fails to provide adequate incentives to encourage the production of lower alcohol products; and fails to provide adequate incentives for drinkers to choose those alcohol products that are least associated with harm. 1.2 Commonwealth taxation discriminates against spirits This submission focuses on the non-gst revenue collected by the Commonwealth from alcohol taxation. The three key Commonwealth revenue sources from alcohol taxation are customs duty, excise duty and Wine Equalisation Tax (WET). One simple means of analysing the effectiveness of the Commonwealth s alcohol tax regime is to compare the respective market shares of the four main categories of alcohol beverages (i.e. wine, beer, RTDs and spirits) with the amounts of non-gst revenue collected from those categories. As can be seen from Figure 1 (Australian Alcohol Beverage Market - % share (2002-03)) and Figure 2 below (Commonwealth Revenue from Alcohol Taxation (2002-03)), the respective market and tax shares of the three main categories of alcohol are as follows: Full strength Beer: 41% of market 34% of non-gst revenue; Mid-strength Beer: 5% of market 4% of non-gst revenue; Low-strength Beer: 4% of market 2% of non-gst revenue; Spirits: 12% of market 27% of non-gst revenue; RTDs: 8% of market 11% of non-gst revenue; Wine: 31% of market 17% of non-gst revenue. DSICA has prepared a detailed forecast of likely Commonwealth revenue from alcohol taxation for 2002-03, as set out in Figures 2 and 3 below. 13/04/2004 2

DSICA Pre-budget Submission - 2003-04 Figure 1: Australian Alcohol Beverage Market - % share (2002-03) Figure 2: DSICA forecast of non-gst Commonwealth Revenue from Alcohol Taxation by Alcohol Category Data(2002-03) 13/04/2004 3

DSICA Pre-budget Submission - 2003-04 Figure 3: DSICA s estimates of non-gst Commonwealth Revenue from Alcohol Taxation by Alcohol Category (2002-03) Spirits are extremely price sensitive. It should be noted that spirits consumption fell dramatically in 1978-79, as a result of a more than 80% increase in spirits excise in the August 1978 Commonwealth Budget. It took some 7 years (i.e. until 1984-85) for spirits consumption to return to the levels that existed prior to the 1978-79 year. DSICA estimates of non-gst alcohol taxation revenue DSICA s estimates of likely sales and non-gst revenue collections from the various categories of alcohol are set out in Attachment 10. These estimates are prepared on the basis of reliable industry sources. 13/04/2004 4

DSICA Pre-budget Submission - 2003-04 1.3 Non-existent policy rationale The differing tax rates which apply to the different alcohol categories are the result of a long history of decisions for which there has not been a consistent policy rationale. There has been no overriding principle upon which alcohol taxation decisions have been based in the past. There are a number of alternative principles that could be applied as the basis for determining optimum alcohol taxation decisions. These include: that alcohol beverages of similar alcohol content should pay similar rates of taxation; or that alcohol taxation rates should be set on a basis which encourages the production of lower alcohol beverages; or that alcohol taxation rates should be set on a basis which provides financial incentives for drinkers to choose alcohol beverages that are least associated with harm. DSICA strongly supports alcohol taxation arrangements that will provide a more rational and equitable system of taxation in Australia. DSICA also supports alcohol taxation arrangements that will produce appropriate health outcomes that will benefit the whole community. DSICA believes that, at the very least, alcohol beverages of similar alcohol content should pay similar rates of taxation. This submission identifies a number of specific anomalies in the current alcohol taxation system. That is, examples of situations where two competing products of equal alcohol content pay vastly different taxation rates. DSICA believes that each of these anomalies should be removed from the current system at the earliest opportunity. The Government s own 1998 publication announcing the proposed design features of the New Tax System (NTS) acknowledged that spirits had been discriminated against: The change in excise will be limited such that the retail price of whisky, which is currently heavily taxed, will not need to change (Our emphasis.) DSICA believes that under the Government s NTS, with one notable exception for RTDs, the previous discriminatory regime has largely been perpetuated. 1.4 Alcohol taxation under the New Tax System Under the Government s NTS, which applied from 1 July 2000, WST was abolished and replaced with a Goods and Services Tax (GST). All categories of alcohol are subject to the GST at the general rate of 10%. However, wine, beer and spirits are subject to different Commonwealth taxation regimes. All wine (including cask and bottled wine) is subject to the WET. Unlike the situation in relation to beer and spirits (see below), there is no automatic indexation of the WET rate. This is because it is levied on an ad valorem basis (i.e. it is a tax on value) rather than a volumetric tax (i.e. a tax, like excise duty, which is levied on the volume of alcohol in the product). Beer, spirits and RTDs are subject to excise duty. Excise duty rates are automatically increased twice a year (1 August and 1 February) to take account of movements in the consumer price index in the previous 6 months. 13/04/2004 5

DSICA Pre-budget Submission - 2003-04 1.5 New Tax System price changes Under the NTS, the WET rate, and the relevant excise duty rates which were set for spirits and beer, were chosen on a basis that related to achieving specified price changes for selected representative products for each category upon abolition of WST. That is, rates were set in order to achieve retail bottle shop (or liquor shop) price changes as follows: no price change for scotch whisky; no price change (or perhaps a small price fall) for a carton of packaged low alcohol beer; a 1.9% price increase for a 4 litre cask of wine; and a 1.9% price increase for a carton of full strength packaged beer. The Government did not provide any specific rationale for the selection of these different price change targets. It could be argued that the no price change target for low alcohol beer and for spirits indicated that the Government does not view these two categories of alcohol as posing as much of a possible risk of abuse as is the case for cask wine and full strength beer. Under the NTS, all GST revenues are passed through to the States (less an administrative charge for the costs of collection by the ATO and Customs). The GST applies equally to wine, beer and spirits in the same way as for most other consumer goods (other than fresh food). This tax collection mechanism can be viewed, from one perspective at least, as being for the appropriate general revenue raising purposes of the States. That is, for the provision of roads, schools and hospitals. On the other hand, the WET collected on wine, and the excise duty and customs duty collected by the Commonwealth Government on locally produced and imported beer, spirits and RTDs is not passed through to the States. The Commonwealth Government pays a rebate for cellar door sales of wine. It can thus be seen that there are in fact three quite different methods of collecting Government revenue from alcohol. DSICA does not believe that the price outcome method of setting WET and excise duty rates is an adequate method for setting these rates for the long term. Such an approach merely entrenches the current taxation disparities, subject to minor incremental adjustments. 1.6 Structure of the attachment DSICA s specific recommendations for taxation changes for each of the four major categories of alcohol products are discussed in the relevant sections of this attachment as follows: taxation of spirits (section 2); taxation of beer (section 3); and taxation of RTDs (section 4). 13/04/2004 6

DSICA Pre-budget Submission - 2003-04 2 Taxation of spirits 2.1 Background As discussed earlier, the NTS documents recognised that spirits are currently heavily taxed in Australia. The documents set a price target of no change in the retail price of Scotch whisky. Australian produced spirits (other than brandy), and other alcohol products over 10% alcohol content (not covered by the WET) are now subject to excise duty at the rate of $59.37 per Lal (this is referred to as the volumetric duty rate). Imported spirits (other than brandy) are subject to customs duty at the same volumetric rate, and are also generally subject to a 5% ad valorem customs duty (i.e. a protective tariff). As discussed above, spirits excise (and the volumetric component of the customs duty) is automatically indexed on 1 August and 1 February each year. Note that all references to excise duty in the remainder of this submission are used as a shorthand reference to both excise duty as well as a reference to the equivalent volumetric component of customs duty. 2.2 Unsustainably high level of spirits taxation DSICA believes that the existing level of taxation of spirits is unacceptable and unsustainably high. The total level of Commonwealth taxation on spirits is in the order of 63% of the total retail price of an average bottle of Scotch whisky. The extent to which spirits excise rates are too high can be demonstrated by comparing the volumetric excise duty rates for spirits with the actual or hypothetical rates (on a non-gst basis) applying to other alcohol products, as follows: The actual spirits rate is $59.37 per Lal; The actual brandy rate is $55.44 per Lal; The effective rate for full strength packaged beer is $26.28 Per Lal; The effective rate for mid-strength packaged beer is $23.53 Per Lal; The effective rate for low alcohol packaged beer is $17.26 Per Lal. A comparison of the amount of non-gst tax collected from each category of alcohol product on a per standard drink basis is set out in Figure 4 in the Submission. This comparison highlights the unsustainably high level of spirits taxation and other anomalies in the current alcohol taxation regime, as follows: spirits pays an unsustainably high 75 cents per standard drink; and the continued anomaly in the taxation of RTDs (44 cents) compared with full strength packaged beer of the same alcohol content (33 cents). DSICA believes that continued automatic indexation of the current spirits duty rates will result in unsustainable price increases. These price increases will eventually have a significant adverse impact on consumption, and consequently on potential Commonwealth revenues. The issue of the likely future impact of these price 13/04/2004 7

DSICA Pre-budget Submission - 2003-04 increases on consumer behaviour, and therefore ultimately on Commonwealth revenues, needs to be properly examined. DSICA believes that the overall level of spirits taxation should be reduced in the future. This unacceptably high level of spirits taxation in Australia is, in part, the legacy resulting from the 80% increase in spirits excise that took place in the August 1978 Commonwealth Budget. As mentioned earlier, it took some 7 years (i.e. until 1984-85) for spirits consumption to return to the levels that existed prior to the 1978-79 year. Recommendation: That the overall future level of taxation of spirits should be reduced, in particular, at least to remove the effect of the 1978 80% increase in the taxation of spirits. 2.3 Indexation of spirits excise DSICA believes that the introduction of the current system of automatic twice-yearly indexation of spirits excise in 1983 unfairly discriminated against spirits because it came shortly after the 1978 excise hike. This has meant that automatic indexation increases have built upon an unfair taxation base. Consequently, spirits taxation in Australia has been too high at least since 1978, and this unfair level of taxation has been perpetuated since that time. DSICA does support the general principle of automatic twice-yearly indexation of spirits excise. However, if the Government does not reduce the dollar volumetric rate of spirits duty to rectify at least the unfair rate increases in 1978 and 2001 (see below), then DSICA supports a 1 to 3 year indexation freeze for spirits. 2.4 Reduction for the second round effect of the New Tax System Under the NTS, the spirits excise duty rate increased by more than 35% on 1 July 2000, and Commonwealth revenue from spirits excise duty alone is estimated to increase by more than 60%. This increase was designed to replace the WST which previously applied at the rate of 37% of the final wholesale selling price for spirits. DSICA strongly believes that the forward estimates underlying the 1998 NTS documents were prepared on the basis that the Government would discount the 2000-01 automatic excise indexation increases for the impact of the NTS (that is, that there would be no second round effect of the NTS on excise duty rates). This view is supported by Mr Chris Murphy, of Econtech. DSICA believes that the revenue estimate tables in the NTS documents clearly show that the 2000-01 and the 2001-02 excise revenue estimates were discounted for the estimated impact of the second round NTS effect. This can be seen in that the estimate for the increase in excise collections from beer and spirits between the 2000-01 and the 2001-02 years was only estimated to be $43.4 m. Given the small annual fall in spirits volumes of 0.1% pa, and the likely low underlying inflation figures for these periods, this figure is only compatible with a fully discounted indexation increase on 1 February 2001. Consequently, DSICA believes that the indexation increase on 1 February 2001 should have been discounted for the impact of the NTS component of the consumer price index in the first half of the 2000-01 financial year. The Government s own figures indicate that the NTS component of the 1 February 2001 indexation increase was approximately 3.0%. 13/04/2004 8

DSICA Pre-budget Submission - 2003-04 DSICA therefore submits that spirits taxation should be reduced by at least a dollar amount equivalent to the 3.0% NTS effect. DSICA estimates that this amount is approximately $1.58 per Lal. The imposition of twice yearly excise indexation increases in the future on a much higher base of spirits excise duty than DSICA believes should have been the case in 2001, will necessarily result in unjustifiable future increases in Commonwealth revenue from spirits. This will occur at a time when total spirits consumption is declining, and when there is no evidence that the health costs of spirits consumption are increasing appreciably. Recommendation: Revenue estimate: That the future rate of excise duty for spirits should be reduced at least by a dollar amount equivalent to the NTS component of the 1 February 2001 indexation increase. The cost to revenue would be $26.1 million. 2.5 1 to 3 year freezing of indexation of spirits excise The indexation of spirits excise has contributed to a situation where automatic indexation of spirits excise has locked in the existing discriminatory tax rates on alcohol in the form of spirits, compared with other forms of alcohol. As set out above, DSICA has identified at least two historical reasons for the current discriminatory taxation of spirits, that is: 1978 spirits excise increase: Spirits taxation was increased unfairly by approximately 80% in 1978, shortly before the introduction of automatic indexation in 1983; and Need for a reduction for the second round effect of the New Tax System: secondly, the 1 February 2001 increase in spirits excise duty rates should have been discounted for the second round effect of the New Tax System. If the Government does not reduce the dollar volumetric rate of spirits duty to at least rectify the unfair rate increases in 1978 and 2001, then DSICA proposes an indexation freeze of 1 or 3 years (as set out below). Recommendations: In the absence of a one-off reduction in spirits excise duty rates, DSICA recommends 2 alternative options for a 1 or a 3 year freeze on indexation of spirits excise, as set out below: Option 1: that indexation of spirits and brandy excise rates be frozen for 1 year (until 1 August 2004), whilst a comprehensive alcohol tax inquiry is undertaken (beer and RTD excise rates would continue to be indexed); and Option 2: that indexation of spirits excise rates be frozen for 3 years (until 1 August 2005), whilst a comprehensive alcohol tax inquiry is undertaken; that brandy excise rates would continue to be indexed, until the brandy rate was fully aligned with the spirits rate, with effect from 1 August 2005, (beer and RTD excise rates would continue to be indexed). 13/04/2004 9

DSICA Pre-budget Submission - 2003-04 2.6 Removal of 5% protective tariff DSICA is disappointed that the Government has decided not to remove the 5% protective component of the customs duty applying to spirits and RTDs. DSICA lodged a submission with the Productivity Commission Inquiry into nuisance tariffs seeking the abolition of the 5% ad valorem customs duty rate. However, the Federal Government decided to retain the 5% ad valorem component. With a very few notable exceptions, there is no domestic spirits industry which Australia needs to protect. Consequently, there is no defensible policy rationale for continuing to retain the existing 5% protective tariff. There are also significant administrative costs to business of paying the 5% ad valorem component, especially in the case of imported spirits to be used in the manufacture of RTDs in Australia (bulk RTD spirit). New procedures have applied from 1 February 2002, for the payment of the 5% component on the bulk RTD spirit to Customs, and then the subsequent payment of the volumetric duty component as excise duty to the ATO. A number of DSICA members have had to change their administrative and operating procedures to accommodate these new arrangements. The abolition of the 5% ad valorem component would significantly simplify the administrative burdens currently imposed on DSICA members. DSICA does not accept the argument that the Government wishes to retain the tariff to use as leverage in the current Doha round of world trade negotiations. That is no justification for continuing to retain a tariff that operates effectively with no other purpose than as a revenue-raising device. Its retention simply results in Australian consumers paying higher prices for imported spirits and RTDs than they otherwise should. In the absence of a unilateral removal of the 5% ad valorem tariff, DSICA does support Australia seeking the removal of the 5% tariff in the current Doha round of trade negotiations. Recommendation: Revenue estimate: That the 5% ad valorem protective tariff for imported spirits and RTDs be abolished. $20.1m pa 13/04/2004 10

DSICA Pre-budget Submission - 2003-04 3 Taxation of beer 3.1 Background Under the NTS, beer is now subject to a tiered excise (and customs duty) regime, as at 1 February 2004, as follows: Packaged Beer (to the extent that the alcohol content exceeds 1.15%): Low strength (0% to 3%) $30.07* per Lal Mid strength (above 3% to 3.5%) $35.04* per Lal Full strength (above 3.5%) $35.04* per Lal Tap/bulk Beer (to the extent that the alcohol content exceeds 1.15%): Low strength (0% to 3%) $6.01* per Lal Mid strength (above 3% to 3.5%) $18.86* per Lal Full strength (above 3.5%) $24.67* per Lal Beer imported into Australia is subject to customs duty at the same volumetric rates as set out above. However, it is not subject to the same 5% ad valorem customs duty that applies to imported spirits and imported RTDs. All beer has access to a 1.15% abv excise free threshold. This is represented by the asterisk (*) above. A special rebate of excise duty for micro-breweries also applies. DSICA strongly supports the principle of a tiered excise regime, if it achieves the generally accepted principle of ensuring that a higher amount of tax will be levied on products with higher levels of alcohol content. A tiered regime should have the effect of providing a taxation incentive to produce lower alcohol products. Such an approach is consistent with the National Alcohol Strategy, which identifies the need to provide taxation incentives for consumers to choose lower strength alcohol products. See the National Alcohol Strategy 2000-01 to 2003-04, Key Strategy Area 6: Pricing and Taxation. DSICA endorses this section of the National Alcohol Strategy. DSICA has consistently recommended a tiered approach to the taxation of alcohol products in previous pre-budget submissions and in its submission to the Senate Economics Legislation Committee review of the Excise Tariff Amendment Bill (No. 1) 2002. However, DSICA is extremely concerned that the current tiered regime for packaged beer no longer provides a taxation incentive to produce mid-strength packaged beer. 13/04/2004 11

DSICA Pre-budget Submission - 2003-04 4 Taxation of ready to drink beverages 4.1 Background A key and commendable feature of the NTS was the Government s decision that all alcohol beverages below 10% alcohol content (other than products covered by the WET) would be subject to tax at the same rate as beer: The excise on beer and other beverages with less than 10% alcohol content, will be increased to make up for the removal of the present 37% wholesale sales tax. The products covered by this category include: Designer drinks utilising fermented alcohol (eg Sub Zero, Two Dogs); Premixed spirits drinks utilising distilled alcohol exclusively (eg UDL products, Jim Beam & cola, Bundaberg rum & cola); and Hybrid products, utilising a combination of distilled alcohol and fermented alcohol (eg Stoli Lemon Ruski). Within the Excise Tariff Act, these products are defined as other excisable beverages. In this submission, these products are referred to as RTDs (that is, ready to drink products). RTDs which are imported are subject to customs duty at the same volumetric rate as the excise duty rate, as well as a 5% ad valorem customs duty. This new regime has been a major reform of the alcohol taxation system. It has removed the taxation incentive to substitute different forms of alcohol in RTDs. All RTDs (other than beer and products, such as cider, which are covered by the WET) are now subject to the same excise duty regime. However, DSICA does not support the final NTS outcome, under which RTDs are taxed at the dollar rate for full strength packaged beer, without the provision of any tiering and without the benefit of the 1.15% excise free threshold that applies to beer. Furthermore, when the new concessional duty rates for tap beer were introduced (with effect from 4th April 2001), no similar provision was introduced for tap RTDs. This effectively means that tap RTDs pay a much higher duty rate than tap beer products of identical alcohol content. The current situation can best be described as partial taxation equivalence between RTDs and beer. 4.2 The need for complete taxation equivalence with beer DSICA believes that all alcohol beverages below 10% alcohol content (including the products covered by the WET) should be subject to exactly the same tiered excise regime as beer (i.e. complete taxation equivalence ). DSICA believes that the fundamental underlying principle that should be applied in the development of all alcohol taxation systems is that alcohol products of identical alcohol content should be taxed at identical rates. There is no policy justification for taxing RTDs at a different rate to beer. There is clear evidence that these products are direct substitutes for one another and compete for market share. 13/04/2004 12

DSICA Pre-budget Submission - 2003-04 Complete taxation equivalence will encourage the production of mid-strength and low alcohol RTDs, such as the 3.5% abv product (i.e., Bundaberg Gold, which is a combination of Bundaberg rum and cola) and the only low alcohol RTD product which DSICA is aware or (ie Brewers Lite, 2.2% abv). DSICA believes that there should be complete taxation equivalence between RTDs (whether packaged or tap) and beer. This is DSICA s preferred method of ensuring that the taxation regime continues to provide an authentic incentive to produce lower alcohol RTDs, consistent with the National Alcohol Strategy. There are significant community and health benefits to be obtained from encouraging the production of lower alcohol products. These benefits are not limited to the production of low alcohol beer. It is only with complete taxation equivalence that any taxation discrimination in favour of beer, at the expense of RTDs, will be completely removed. DSICA s estimate of the likely cost to revenue of providing complete taxation equivalence for RTDs with DSICA s proposed new beer taxation regime is $106.5m. Currently beer receives a 1.15% abv concession in determining the excise paid on beer. Complete taxation equivalence would also grant RTDs the 1.15% concession to align it with beer. This could be introduced on a phased basis, with the first phase being the introduction of a 0.1% abv excise free threshold for full strength packaged RTDs, funded by the revenue to be collected from taxing cider at the RTD rate (see below). Recommendations: That packaged RTDs below 10% abv be subject to excise duty at exactly the same tiered rates as packaged beer. [Estimated revenue cost: low alcohol packaged RTDs negligible; mid-strength packaged RTDs - $1.5m; full strength packaged RTDs - $105m. The change for full strength packaged RTDs could be introduced on a phased basis, with the first phase being the introduction of a 0.1% abv excise free threshold for full strength packaged RTDs, funded by the revenue to be collected from taxing cider at the RTD rate 40.] That tap RTDs below 10% abv be subject to excise duty at exactly the same three tiered rates as tap beer. [Estimated revenue cost: Negligible] 4.3 Removal of cider taxation anomaly DSICA does not accept the current situation under which traditional cider is covered by the WET, and is not subject to a volumetric taxation regime along with other RTDs of similar alcohol content. Traditional cider is an alcohol product of less than 10% alcohol content. The Government s NTS documents had proposed that cider would be taxed, at the beer rate, on a similar basis as the other ready to drink beverages. 41 This approach was good policy, because it proposed to remove the taxation incentive to produce cider, compared with other ready to drink products. The Government subsequently reversed the NTS policy after the 1998 election, and determined that traditional cider would be taxed under the WET. This decision has resulted in an ongoing anomaly under which cider enjoys a taxation advantage, simply because it is fermented using a particular method that bears some similarity to how wine is fermented. 13/04/2004 13

DSICA Pre-budget Submission - 2003-04 DSICA does not support the retention of any anomalies in the alcohol taxation system which rely upon particular methods of production. This creates an unfair system which discriminates between production methods on an ad hoc basis. DSICA believes that cider should be subject to excise duty on the same basis as all RTDs. The additional revenue that the Government receives from cider being taxed at the same rate as RTDs ($10m approximately), should then be used to provide full strength packaged RTDs and cider with a 0.1% abv excise free threshold, similar to the concession received by beer. Recommendation: Revenue estimate: That traditional cider should be subject to a similar tiered excise regime as beer and RTDs. +$9m pa. 13/04/2004 14

DSICA PRE-BUDGET SUBMISSION 2004-05 Attachment 9: DSICA Standard Drink and Effective Tax Rate Calculations (February 2004) TABLE OF CONTENTS GRAPHS 9.1 Non-GST Tax per Standard Drink - 1 February 2004 9.2 Effective Tax Rates per LAL (01 Feb 04) 9.3 Effective Taxation of Beer and RTDs - Indexation continuing to 1 August 2029 9.4 Comparison of Effective Non-GST Taxation Rates on Beer and RTDs DATA 9.5 Non-GST Tax per Standard Drink Calculations - 1 February 2004 9.6 Non-GST Tax per Standard Drink Calculations of Wine - 1 February 2004 9.7 Comparison of Effective Tax Rates of Beer and RTDs, 1 August 2000 to 1 August 2029 DSICA04-RTD2-FD-Attach9EffTaxCalcs-19Sep-CTX COVER 13/04/2004 5:24 PM

9.1 Non-GST Tax per Standard Drink as at 1 February 2004 $0.80 $0.70 $0.70 $0.75 Non-GST Tax per standard drink $0.60 $0.50 $0.40 $0.30 $0.20 $0.14 $0.16 $0.22 $0.23 $0.30 $0.22 $0.33 $0.28 $0.44 $0.10 $0.04 $0.07 $- Draught beer low * Cask Wine (4 litre $12.99) Port ($10.95) Draught beer mid * Packaged beer low * Draught beer full * Packaged beer mid * Beverage Type Bottled Wine (Semi Premium $10.99) Packaged beer full * Bottled Wine (Premium $14.99) RTDs Brandy Spirits DSICA04-RTD2-FD-Attach9EffTaxCalcs-19Sep-CTX 3.1 std drinks 13/04/2004 5:25 PM

9.2 Effective Tax Rates per LAL (01 Feb 04) $59.37 $60.00 $55.43 $50.00 $40.00 $35.04 Tax per Lal $30.00 $20.00 $17.26 $18.50 $23.53 $17.23 $26.28 $22.38 $11.32 $12.66 $10.00 $3.45 $5.15 $- Draught beer low * Cask Wine (4 litre $12.99) Port ($10.95) Draught beer mid * Packaged beer low * Draught beer full * Packaged beer mid * Beverage Type Bottled Wine (Semi Premium $10.99) Packaged beer full * Bottled Wine (Premium $14.99) RTDs Brandy Spirits DSICA04-RTD2-FD-Attach9EffTaxCalcs-19Sep-CTX 3.3 effective rates 13/04/2004 5:26 PM

65 60 55 50 45 40 35 30 25 20 9.3 Effective Taxation of Beer and RTD's - Indexation continuing to 1 August 2029 The effective rates of taxation will diverge over time should indexation continue in its current form. 1-Aug-2004 1-Aug-2006 1-Aug-2008 1-Aug-2010 1-Aug-2012 1-Aug-2014 1-Aug-2016 1-Aug-2018 1-Aug-2020 1-Aug-2022 1-Aug-2024 1-Aug-2026 1-Aug-2028 1-Aug-2002 Indexation Date Effective Rate Beer Effective Rate RTD 1-Aug-2000 Rate ($)

9.4 Comparison of Effective Non-GST Taxation Rates on Beer and RTDs (Non-GST Tax per Lal Estimate 01 Feb 04) $40.00 $35.00 203% 149% 131% $35.04 $35.04 $35.04 $30.00 $25.00 $23.53 $26.28 Tax per Lal $20.00 $15.00 $17.26 $10.00 $5.00 $- Packaged Lowstrength Beer Packaged Lowstrength RTD Packaged Midstrength Beer Packaged Midstrength RTD Packaged Fullstrength Beer Packaged Fullstrength RTD Product Type DSICA04-RTD2-FD-Attach9EffTaxCalcs-19Sep-CTX 3.4B RTD v beer 13/04/2004 5:21 PM