Increasing Tax On Our Cheapest Alcohol Could Reduce Consumption, New Monash University Study Shows

13/01/2016 9:46 AM AEDT | Updated 13/01/2016 1:17 PM AEDT
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Increasing the cost of the cheapest alcohol could mean 12 fewer standard drinks per week for low-income earners.

A new study by Monash University analysed the alcohol habits of 885 Victorian households over one year,

“We looked at whether lower-income people spend a higher proportion of their income on alcohol than high-income people," co-author Brian Vandenberg from the Centre of Health Economics told The Huffington Post Australia.

"We found that under the current system, the difference between the groups is very small.

“What we did find is that there is a big difference in the amount of tax paid by light drinkers compared to heavy drinkers.

"Clearly, heavy drinkers spend more on alcohol over a whole year, so their tax bills are higher. It would be even higher based on data that heavy drinkers tend to purchase cheaper alcohol.”

Australia’s current alcohol taxation comprises two different systems and 16 different excise categories depending on alcohol type, concentration, commercial use and container size.

According to Vandenberg, the complex system -- that generated $6 billion for the federal government in 2014-15 -- assured great discrepancies between the amount of tax paid across product types.

While a volumetric measure taxed beer and spirits at $1 per litre of alcohol, winemakers were subject to a value-added Wine Equalisation Tax (WET) at 29 percent on the retail price.

Under these formulas, cheap bulk wine was taxed only 4 cents per standard drink, compared with regular strength beer which was taxed 46 cents per standard drink.

“The system provides great incentive for the industry to produce a lot of cheap wine because it attracts a low tax and can be sold at a low price,” he explained.

And he said the impact on consumption levels and alcohol-related harm could be "devastating".

“There are a lot of flow-on problems from the taxation system at the moment in the way it distorts prices so that there is more incentive to purchase large quantities of cheap alcohol than to consume alcohol at a moderate -- and much safer -- level.”

One tax-policy solution analysed in the study set a minimum price of $1 per standard drink; the other taxed all products based on alcohol content -- and Vandenberg urged the government to consider adopting both approaches.

“Firstly, the government needs to address the availability of cheap alcohol by setting a minimum price.

"In addition to that, the taxation system on wine should be changed from a value-added tax to a volumetric tax based on the alcohol content rather than the retail value.

“These alternatives are a good option for governments to consider adopting in the interest of reducing heavy drinking, but at the same time, not adversely affecting low-income earners.”

But the study has been slammed by The Winemakers’ Federation of Australia, describing it as "uncredible".

Federation Chief Executive Paul Evans said the minimum floor price was a notion that had been discredited by the former Australian National Preventative Health Agency.

“Cross-price elasticities of demand between alcohol categories (beer, wine, spirits) are not included in its modelling of what happens when taxes are raised,” Evans said in a statement.

“The study also assumes a 100 percent seamless pass-on of any increase in wine tax to the consumer... a tax increase is only going to punish the vast majority of responsible wine consumers and hurt winemakers.”

Evans said the Australian wine industry was already among the highest taxed in the world, saying and the Winemakers’ Federation of Australia would continue to lobby for differential tax rates.

When it comes to 'Alcopops', however, the Government’s 2011 decision to impose a 70 per cent tax increase on the price of ready-to-drink beverages led to a 30 per cent reduction.

“I think it effectively showed that when we do increase the price of products through tax, it can decrease consumption levels...the downside of that policy reform was that it was a single isolated change,” Vandenberg said.

Instead, he called for a comprehensive package to support taxation reform.

“I think taxation on its own will have impact, but what we need is a strategy that includes education and awareness on the health risks of alcohol.

"We also need to put restrictions on alcohol advertising and sponsorship as further factors that influence decision-making."

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