Why not a minimum price on alcohol in Australia?
In the first of a new regular column for Croakey, Louise Sylvan, CEO of Promoting a Healthy Australia (the Australian National Preventive Health Agency), makes the case against setting a floor price for alcohol.
Around the world, as the harm from alcohol creates growing concerns for citizens, governments are looking to see what strategies can help them manage social problems like binge and long-term harmful drinking. The Commonwealth Government asked its new prevention agency to examine the public interest case for a minimum price on alcohol. This is a very complex issue – so walk with me through this summary of the analysis.
In a country like Australia, governments – i.e. us the taxpayers – bear a significant amount of the costs to our communities from alcohol misuse; these costs include, for example, the use of police resources to deal with alcohol-fuelled violence, the emergency services in hospitals treating assault and accident victims, damage to public property, treatment for alcohol-related illnesses, demands on the child welfare and justice systems, and so on. There are other costs too – productivity losses to employers, private property damage plus the costs to individuals and families of a person’s ill health.
Measuring all these costs – harms to others and harms to drinkers themselves – is a complex undertaking; in submissions to the review, stakeholders assigned significantly different costs to these harms, ranging from $3.6B to $36B in overall costs. At these levels – even in the single-billion dollar range – the harms are significant and policy relevant for a government.
The first task in this type of review is to ask the fundamental question: would a price increase affect consumption including harmful consumption? The evidence is clear – from both economics and public health. There’s no doubt that price influences consumption – economic studies everywhere validate that. By how much they reduce consumption and who drinks less depend on the culture and drinking patterns in a nation.
While the economic evidence notes that those who consume alcohol at harmful levels may not be as price responsive as those who don’t, they are still responsive to price (own price elasticity in economic speak) – and the economic models in this area demonstrate that. And it’s common sense in any event. Long-term harmful drinkers for example are buying a lot more alcohol so even those who are alcohol-habituated will have some response to a price increase. The best evidence though doesn’t come from economic modelling but from real life empirical evidence. That’s why the World Health Organization has concluded that increasing alcohol prices is one of the most effective public health strategies for reducing alcohol-related harms. In 2004, a natural experiment happened in Finland – in reverse, where alcohol taxes were significantly reduced for alcohol products – and comparatively more for vodka and other spirits. So prices went down quite dramatically. Even within two years, the rate of alcohol-related deaths increased by more than 8 per week; those deaths included liver diseases meaning that harmful drinkers in particular must have started consuming much more alcohol almost immediately the price reduction was effective in that market.
So price changes are likely to work – but does that mean governments should regulate the price up in the public interest? In considering that question, the words ‘in the public interest’ are very important – this signals that the welfare of citizens broadly have to be included. So it isn’t enough to point to the very serious social and economic costs that come with misuse of alcohol and how a price increase will help, you have consider as well what a price rise would mean for all Australians. In other words, you have to look at both the benefits as well as the costs to citizens overall.
Because the vast majority of Australians consume alcohol at non-harmful levels*, even relatively small price increases are large since they affect many drinkers. So the costs figure is going to be very significant. Even with a major reduction in the harms caused by alcohol, there’s nevertheless a high hurdle to getting the balance right. Where a price rise is achieved by a government through taxation, the revenue can be used for other investments, such as more prevention activity or treatment for alcohol-related harm, or even investments in unrelated areas such as education broadly. This acts as a major offset to balance the price rises. But where a price rise is created in the market – such as regulation to impose a minimum – the benefits of price increases are taken in the supply chain. In Australia, the production and supply of alcohol is in private hands – so the benefits of a price rise will go to the retailers or the alcohol companies. That’s quite different from the case in a country like Canada (which uses minimum price strategies) where the government does most of sales and/or supply. In Australia, a minimum price would deliver significant benefits to private interests in the alcohol supply chain – providing limited offsetting benefits to citizens (shareholders might well benefit, but the distribution of that wealth is very unequal).
So the Agency’s draft report recommended to Government that a minimum price strategy not be used nationally (the benefits and costs equation can work in some more local circumstances as we’ve seen in the Northern Territory). In addition, we found that the arrangements for the current Wine Equalisation Tax (WET) in effect preference the production of cheap wine – wine taxes are levied on the wholesale price of the product rather than the alcohol content. So the cheaper the wine, the less it’s taxed. This is not how beer or spirits are taxed which reflects more closely the alcohol content. Thus the Agency made a draft Finding as well that the WET is likely to be contributing to the creation of a tax-preferenced cheap product which is a contributor to the alcohol-related harms that Australia is bearing; the Government should reassess this.
This combination of public health and economic analysis is too rare. Our health would benefit from many more examples.
Note: Submissions to the Draft Report on Minimum (Floor) Pricing are due by Nov 30 2012. See the website for the full Draft Report –
*The most recent statistics from the ABS National Health Survey indicate that: of people aged 18 years and over, 19.5% of drinkers consumed more than two drinks per day and 44.7% consumed more than four standard drinks at least once in the past year. These behaviours exceed the National Health and Medical Research Council’s lifetime risk guidelines and single occasion risk guidelines respectively.