Raise excise taxes to prevent alcohol harm
Raise excise taxes to prevent alcohol harm to young people: Report says
Raising the excise tax on alcohol will contribute to reducing alcohol-related harm to this country’s young people, according to a report commissioned by the Alcohol Advisory Council. The Government is now considering the report, prepared for ALAC by economist Brian Easton.
ALAC’s Chief Executive Dr Mike MacAvoy says increased tax on alcohol that has higher ethanol content would steer young people away from the high alcohol content cheap drinks which many of them now favour. “We know that young people are particularly sensitive to price. We know that they are more likely to seek ‘best bang for buck’ by buying light spirits with a high alcohol content at a cheap price.”
Dr MacAvoy says ALAC commissioned Mr Easton to investigate the issue because it is deeply concerned about youth drinking in New Zealand. “We welcome Mr Easton’s report, Taxing Harm: Modernising Excise Duties and endorse its findings. We would support a change to the current excise tax structure.”
He says young people are currently being tempted by a range of drinks which appear to be marketed directly towards them. Under the current tax structure these light spirits are not taxed according to their ethanol content – which is high - but instead fall into a category that Dr MacAvoy describes as “pocket money-priced alcohol”.
“There are some very cheap drinks available with high alcohol content. The kids like them because they can easily afford them or they can pool money to buy them, but many parents and others are not aware of how high the alcohol content is. In some cases, there are bottles which are providing as much alcohol as 23 or so standard drinks for under $10. The pricing is so low because of the tax bands these products currently fall into and because they are taxed as beer and wine rather than spirits. We’d like to see this fixed.’
“Our view is that by reflecting the true alcohol content in taxes on liquor this could help steer young people towards drinks with less alcohol, thus minimising some of the harms we are finding.”
Dr MacAvoy says a major concern is the fact that young people are drinking more heavily and at an earlier age. “The National Alcohol Survey has found that the average quantity of alcohol consumed by 14 to 17 year olds doubled between 1995 and 2000. The same survey found that the 14 to 19 year olds were consuming more on each drinking occasion. Our own Youth Drinking Monitor in 2002 found that over a third of 14 to 17 year olds consider themselves to be ‘heavy drinkers’.
Dr MacAvoy says some people appear to think that the alcohol tax is only a revenue gaining exercise. “In fact, the tax has an important role to play in managing consumption and therefore harm.”
He says: “Pricing policy is recognised internationally as one of the most effective tools in reducing alcohol-related harm within the drinking population through reducing consumption.” The report proposes that in future the primary purpose of excise duties on alcohol should be a part of a harm minimisation strategy. It says that adopting a harm approach to alcohol excise duties can reduce potentially harmful consumption, especially that of teenagers and heavy drinkers.
Dr MacAvoy says effective harm minimisation involves a number of interventions and changing the excise tax structure is one of them. “These other interventions are likely to work more effectively if the excise duty strategy is supporting them.”
In the past year or so, there has been a noticeable groundswell of interest in the community about the effects of youth drinking, Dr MacAvoy says. “This is commendable but it we are really serious about teenage drinking problems, it will require some serious commitment from us all, from Government and the community.”
“A raft of strategies is needed if we are to have any impact on the problems we’re seeing. Solving alcohol-related problems is about a range of strategies including community action, enforcement, policy, education and advertising, sponsorship and promotion.”
The full report is available on www.alcohol.org.nz [ends]
Note to editors/producers and journalists: a set of FAQ’s on excise duty and alcohol is available with this media release.
FAQs on Excise Duty and Alcohol prepared by the Alcohol Advisory Council.
Excise Duty and Alcohol
What is the excise duty?
The excise duty is a tax and it is collected on all alcohol imported or manufactured in New Zealand.
Why have excise duty?
Historically, excise duties were imposed on alcohol as a matter of administrative convenience and were regarded as a revenue gathering instrument. In 1875/76 customs and excise duty made up 91.6% of tax revenue!!
In the early 20th century alcohol was regarded as indulgent if not downright evil and the practice was to label excise duties as “sin taxes”.
These early approaches have changed over the years. Although the idea of taxing “less acceptable products” remains, there has been movement towards regarding excise duty as a tool to inhibit the consumption of products that negatively affect the general welfare of the population.
By 1988, the Report on the Review of Excise Duties on Alcoholic Beverages and Tobacco Products (the Sullivan Report) identified three possible objectives of excise duty:
to collect revenue to recover social costs associated with the use of these products to discourage consumption.
Current approach to the excise duty on alcohol
Currently there are two base rates of excise duty applicable to alcoholic beverages. $21.096 per litre of alcohol is the base rate for beverages containing up to 23% alcohol by volume while $38.422 per litre of alcohol is the base rate for all other (higher strength) beverages.
Ethanol is the absolute alcohol by volume.
The current approach to excise duty (banding) lowers compliance costs by making it easier for those producers who are unable to accurately measure the ethanol content of their product, for example wine producers.
However, the current system results in beverages with higher ethanol in each range being taxed at a lower rate per unit of ethanol than beverages in the same range but with lower ethanol.
This gives an incentive to some producers to target their ethanol content at the highest level of the range, as a means of avoiding tax and lowering their costs.
How can higher excise duties contribute to the reduction of harmful drinking?
First we have looked at what harmful drinking can be best influenced by price. Research indicates that young drinkers and heavy drinkers are the groups most likely to purchase drinks on the basis of the alcohol content.
In these cases the relevant price is the price of ethanol. This suggests that an excise duty that is targeting harm should be primarily concerned with the minimum price of ethanol.
What is the situation with young people and alcohol?
The annual Auckland surveys of young people’s drinking show that the average number of drinks consumed on one occasion among 14 to 19 year olds increased from 3 to 4 in 1990 to 5 to 6 drinks in 1999 (before the lowering of the drinking age). The rise was particularly strong at the younger end with the 14 to 17 year olds increasing from 2 to 3 drinks in 1990 to 5 to 6 in 1999. (S. Casswell & K. Bhatta 2001 A Decade of Drinking: Ten-year Trends in Drinking Patterns in Auckland: 1990-1999 APHRU, University of Auckland)
The National Alcohol Survey found that the average quantity of ethanol consumed by 14 to 17 year olds doubled between 1995 and 2000. The survey also found that the 14 to 19 year olds were consuming more on each drinking occasion. (R. Habgood, S. Casswell, M. Pledger & K. Bhatta (2001) Drinking in New Zealand: National Surveys Comparison: 1995 & 2000, APHRU, University of Auckland)
ALAC’s Youth Drinking Monitor 2002 found that over a third of 17 to 17 year olds considered themselves to be “heavy drinkers”.
What sort of alcohol are they drinking?
Research confirms that young people are attracted to the ethanol content in alcohol – “more bang for their buck”. Light spirits are the cheapest source of ethanol although beer consumption continues to be an issue for young men in particular.
Anecdotal evidence suggests that young people are increasing their intake of light spirits because of the cost and the effect.
Research shows that young people are extremely price sensitive.
What about heavy drinkers? Heavy drinking is defined for men, as consuming more than six standard drinks in a typical drinking session, and for women, consuming more than four standard drinks in a typical drinking session. (For further information on standard drinks and recommended drinking levels, see the Alcohol Advisory Council website: www.alcohol.org.nz)
Again, high ethanol content is attractive to heavy drinkers. Research shows that these drinkers are also price sensitive.
So how can excise duties on alcohol be used to reduce alcohol-related harm?
High consumption of ethanol is harmful and costly – both for the drinker and for society.
This suggests that an excise duty that is targeting harm should be primarily concerned with the minimum price of ethanol.
Young people and heavy drinkers are the most likely to purchase alcohol based on its ethanol content and price.
Young people and heavy drinkers are the most price sensitive of drinkers.
An excise duty based on ethanol will have a relatively smaller impact on more expensive beverages.
What does ALAC recommend?
ALAC proposes that in future the primary purpose of excise duties on alcohol should be a part of the harm minimisation strategy. Adopting a harm minimisation perspective means that the philosophy behind the excise duty and the way it is implemented needs to be altered.
This doesn’t mean, however, that the harm caused by alcohol and the impact of that harm on the government’s fiscal position should be ignored. Estimates of the fiscal cost of alcohol-related harm suggest that this could be as high as 4% of government spending. At this rate excise duty revenue doesn’t cover the total costs of alcohol-related harm.
We recommend that:
specific taxes and levies should be placed on alcohol with the primary purpose of reducing alcohol misuse and the consequent harm (this is consistent with the objectives of the National Drug Policy and National Alcohol Strategy) and
that such taxes and levies should enable the government to recover some or all of the expenditure outlays and revenue losses caused by alcohol harm. This approach will assist in setting an appropriate level for the taxes and levies.
A full copy of the report Taxing Harm:
Modernising Excise Duties, which has been prepared for ALAC
by Brian Easton is available on the ALAC website: