Excise Tariff Amendment (2009 Measures No. 1) Bill 2009

Customs Tariff Amendment (2009) Measures No. 1) Bill 2009

The Inquiry

1.1        On 12 February 2009 the Senate referred the provisions of the Excise Tariff Amendment (2009 Measures No. 1) Bill 2009 and the Customs Tariff Amendment (2009 Measures No. 1) Bill 2009 to the Community Affairs Committee for inquiry and report by 13 March 2009. The reporting date was subsequently extended to 16 March 2009.

1.2        In addition to the provisions of the Bills, the Committee was asked to consider the following matter:

The impact of the tax on ready-to-drink alcoholic beverages, the so-called ‘alcopops’ tax, since its introduction on 27 April 2008, with particular reference to:

1. the revenues raised under the alcopops tax measure;

2. substitution effects flowing from the alcopops tax measure;

3. changes in consumption patterns of ready-to-drink alcoholic beverages by sex and age group following the introduction of the alcopops tax;

4. changes in consumption patterns of all alcoholic beverages by sex and age group following the introduction of the alcopops tax;

5. any unintended consequences flowing from the introduction of the alcopops tax, such as the development of so-called ‘malternatives’ (beer-based ready-to-drink beverages);

6. evidence of the effectiveness of the Government’s changes to the alcohol excise regime in reducing the claims of excessive consumption of ready-to-drink alcohol beverages;

7. any evidence of changes to at risk behaviour or health impacts (either positive or negative) as a result of the introduction of the alcopops tax;

8. comparison of the predicted effects of the introduction of the alcopops tax, with the data of actual effects, with a particular focus on evidence (or lack thereof) collected by the relevant department; and

9. the value of evidence-based decision-making in the taxation of alcoholic products.

1.3        The motion to refer the Bills also provided that in conducting the inquiry, the Committee must take evidence from a range of specifically named organisations. The Committee received 20 submissions relating to the Bills and the additional terms of reference. These are listed at Appendix 1. The Committee considered the Bills at two public hearings in Canberra on 10 and 11 March 2009. Details of the public hearings are listed in Appendix 2. The submissions and Hansard transcripts of evidence may be accessed through the Committee’s website at https://www.aph.gov.au/senate_ca.

The Bill

1.4        The purpose of the Bills is to confirm the government's decision to increase the excise and customs duty on the beverages commonly known as ready-to-drink beverages (RTDs) or 'alcopops'. On 27 April 2008, the excise rate on such beverages was increased from $39.36 to $66.67 per litre of alcohol content.

1.5        The Excise Tariff Amendment (2009 Measures No. 1) Bill 2009 will amend the schedule to the Excise Tariff Act 1921 (ETA 1921) to confirm the 2008 increase in the excise rate applying to 'other excisable beverages not exceeding 10 per cent by volume of alcohol', which includes RTDs and alcopops.

1.6        The Customs Tariff Amendment (2009 Measures No. 1) Bill 2009 amends the Customs Tariff Act 1995 (CTA 1995). These changes are complementary to the amendments contained in the Excise Tariff Amendment (2009 Measures No. 1) Bill 2009. The amendments will confirm the 2008 increase to the excise-equivalent component of the customs duty on RTDs and alcopops.[1]

Financial implications

1.7        The EM to the Bills states that the measures will produce an ongoing gain to revenue of $1.6 billion from 27 April 2008 over the forward estimates period.

Background

1.8        On 26 April 2008 the government gazetted increases to the excise and customs tariff for RTDs and alcopops. The effect of this was that on and from 27 April 2008 the relevant rates were increased from $39.36 to $66.67 per litre of alcohol.

1.9        The excise and customs tariff proposals were subsequently tabled in the House of Representatives on 13 May 2008. At that time the Minister for Health and Ageing, the Hon. Nicola Roxon, stated that the government had increased the tariffs in order to 'close an existing loophole on the excise on alcopops',[2] and 'put them on the same footing' as full-strength spirits.[3] This loophole arose from a decision in 2000 to tax RTDs at a rate similar to that applied to full-strength beer'[4] rather than at the rate applied to full-strength spirits.

1.10      The increase was also presented as 'part of the government's strategy to tackle the harm caused by excessive alcohol consumption—particularly by young people attracted to these products'.[5] The government has consistently identified the changes as being part of its broader strategy to deal with this issue, the National Binge Drinking Strategy, which contains a number of complementary measures.[6]

1.11      The increases have been operative since 27 April 2008 and must be retrospectively validated by legislation within 12 months. This is the usual procedure for excise and customs tariff amendments, as it ensures that 'windfall profits may not be made between the time of the announcement and the enactment of legislation to levy the duties'.[7]

1.12      The Bills were introduced to the House of Representatives on 11 February 2009 and passed on 25 February 2009. The last available sitting date for the Bills validating the tax increase to be agreed to by the Senate is 19 March 2009.

Previous inquiries into RTDs and the Alcohol Toll Reduction Bill

1.13      Following the tax increase in 2008 the Committee conducted inquiries into ready-to-drink alcoholic beverages and the Alcohol Toll Reduction Bill 2007 [2008], a private member's bill introduced to the Senate by Senator Stephen Fielding on 19 September 2008. These inquiries provide some important context for the current inquiry. In particular, the RTD inquiry found:

• risky and high-risk drinking by young people and underage drinkers, particularly young women, has become a major public health issue;

• in recent years there has been a rise in the popularity and influence of pre-mixed alcohols, known as RTDs or 'alcopops' on teenage alcohol use, particularly for young females; and

• RTD beverages are a popular and commonly first-used beverage among younger age groups.[8]

1.14      The Committee notes, however, that the terms of the inquiry which go beyond a consideration of the provisions of the bills are relatively narrow in that that they direct the Committee to examine just the effect of the excise and customs duty increases since 27 April 2008. Nevertheless, the Committee received much evidence during this inquiry that reinforced the evidence and conclusions of the previous inquiries.

Terminology used in the report

1.15      This report adopts certain terminology, largely consistent with the Committee's 2008 report into ready-to-drink alcohol beverages.

Young people

1.16      For the purposes of this report a young person is defined as being between 12 and 25 years of age.

RTDs and alcopops

1.17      There is no clear definition of the term 'alcopop', and the term RTD covers any pre-mixed beverage including spirit-based RTDs, cider, fruit-flavoured wines and fruit flavoured beers.[9] There is also a distinction made between dark spirit-based RTDs such as whisky, rum and bourbon, generally preferred by males, and light spirit-based RTDs such as vodka, gin and white rum, generally preferred by females.[10]

1.18      The Committee notes that RTDs are commonly known as 'alcopops' and that the term is generally understood to mean a premixed drink which is part spirit or wine and part non-alcoholic drink such as milk or soft drink. This report will generally use the term RTD to refer to all ready-to-drink beverages, including alcopops. Reference to particular mixes of RTD will be clarified as necessary.

Binge-drinking and risky and high-risk drinking

1.19      In the inquiry into RTDs, the Australian Institute of Health and Welfare (AIHW) submitted that there is no agreed definition of the term 'binge drinking', which can mean either excessive consumption on a single occasion or a prolonged period of drinking. Accordingly, the AIHW preferred the language used in the National Health and Medical Research Council (NHMRC) guidelines, which used the terms 'risky' and 'high-risk' drinking.[11] The Committee acknowledges that 'binge drinking' is a commonly used and understood term. However, recognising that 'binge drinking' is avoided as ill-defined and unclear in official health  publications, this report adopts the terms 'risky' and 'high-risk' drinking where relevant.

1.20      For the purposes of the inquiry, these terms may be understood as relating to the short- and long-term harms to health and well-being that result from exceeding the NHMRC's recommended daily levels of alcohol. Short-term risks are those arising from occasional drinking episodes confined on a single day, such as violence, accidents and alcohol poisoning. Long-term risks are those arising from regular and repeated daily drinking, such as cancer, liver damage and diabetes. 'Risky' levels of drinking involve a greatly increased risk of harm. High-risk' levels of drinking involve a high risk of serious harm and rapidly increasing levels of risk.

Issues

Impact of the alcopops tax measure

Nature of the evidence considered by the Committee

1.21      The Committee notes that there is only limited data available to consider the impact of the RTDs tax measure since its introduction in April 2008. As noted by the Public Health Association of Australia (PHAA), what evidence is available is difficult to interpret given the limited information and time since the introduction of the tax measures.[12] Ascertaining the effect of the measures is also made more difficult by other factors, such as the proactive responses of the alcohol industry in developing and promoting alternative products able to readily substitute for RTDs.[13]

1.22      As with the Committee's previous inquiries into RTDs and the Alcohol Toll Reduction Bill, the significance of the available evidence was strongly contested by the stakeholders in the debate. In general terms, the increase to the excise and customs duty was supported by public health and drug experts on the grounds that it would help to reduce risky drinking among young Australians, reduce their exposure to alcohol and lead to positive health outcomes. These bodies tended to emphasise prior research and experience, and to interpret more recent data, as supporting the view that price or tax increases are effective to reduce levels of alcohol consumption, and that reduced consumption meaningfully relates to reduced levels of alcohol-related harm.

1.23      Opposition to the increase to the excise and customs duty generally came from the alcohol industry, such as the industry representative bodies and producer groups, who tended to favour evidence and views that questioned the effectiveness of price increases in reducing consumption, and highlighted the role of substitution in undermining price-increase approaches to reducing consumption.

1.24      Submitters across a range of interests voiced their support for a form of volumetric tax, and many offered explicit support for a review of Australia's alcohol taxation regime by the Australia's Future Tax System (Henry) Review, announced by the Treasurer on 13 May 2008. The Committee notes that the taxation of alcohol falls within the terms of reference for the review, which will examine the issue of enhancing the taxation arrangements on consumption, including excise taxes. The review is due to report at the end of 2009. Mr Scott Wilson, Deputy Chairperson, Alcohol Education and Rehabilitation Foundation, advised the Committee that his organisation, along with nearly 20 other community organisations, had made a joint submission to the Henry review.[14]

1.25      The Committee notes that health organisations supported a volumetric tax with the flexibility to address 'loopholes' or specific types of beverages where they were associated with particular harms or problems.[15] Professor Tanya Chikritzhs, who appeared before the Committee in a private capacity, observed:

...what also needs to go with that is a volumetric tax at the base. That forms the basis for making the basic calculations. However, as we know from the literature, not all beverages are equal in the amount of harm that they are likely to be associated with. So, as has been done here, a special harm levy or harm tax needs to be placed on beverages that are known to be specifically risky for certain populations.[16]

Sources of data

1.26      A number of sources of evidence were relied on by submitters and witnesses. The sources below represent the evidence most discussed in submissions and at the hearings held in Canberra on 10 and 11 March 2008. Various other data sets and surveys were cited through the course of the inquiry, and these are identified throughout the report where relevant.

1.27      In general terms, the Committee preferred sales and consumption data rather than survey data as the basis for its findings in relation to the inquiry's terms of reference. The basis of this preference was described by Professor Steven Allsop, who appeared before the Committee in a private capacity:

...it is universally accepted that sales data are strongly and closely aligned to consumption of alcohol and are preferable to survey data. Survey data...are notoriously flawed in their capacity to accurately account for consumption. Even national surveys with very large sample sizes, like the highly regarded National Drug Strategy Household Survey...account for less than 60 to 70 per cent of alcohol known to be consumed from sales data...The reason is that there are a number of methodological problems, including the frequently observed phenomenon that people, either in error or deliberately, underestimate their personal alcohol consumption.[17]

Australian Taxation Office clearance data

1.28      ATO clearance data is the amount of excisable alcohol that is entered for consumption by importers and producers. Compared to the same period in 2007, the clearance figures for the period May to September 2008 show:

• a 34.6 per cent decrease in alcopops clearances;

• a 17 per cent increase in full-strength spirit clearances;

• a 7.9 per cent decrease in total spirit clearances (RTDs plus full-strength spirits); and

• a 6.1 per cent increase in beer consumption.[18]

1.29      The ATO figures also show that growth in excisable alcohol consumption (beer, spirits and RTDs) has slowed by 0.1 per cent since the increase excise on RTDs, for the period May 2008 to January 2009 compared with the previous year (it should be noted that these figures do not include wine sales, which the AC Nielsen figures show decreased for the period covered by that data). By comparison, the previous three years recorded 'solid' growth in excisable alcohol consumption:

• 6.6 per cent in 2005-06;

• 2 per cent in 2006-07; and

• 2.7 per cent in 2007-08.[19]

AC Nielsen

Liquor Services Group data

1.30      AC Nielsen Liquor Services Group data showed the number of standard drinks consumed in May to July for the years 2007 and 2008 by beverage type. This shows:

• a 26.1 per cent decrease in consumption of RTDs (equivalent to 91 million standard drinks);

• a 1.5 per cent increase in consumption of beer (equivalent to 13 million standard drinks);

• a 2.6 per cent decrease in consumption of wine (equivalent to 21 million  standard drinks); and

• an 11.2 per cent increase in consumption of spirits (equivalent to 35 million standard drinks).

1.31      Across all beverage types the Nielsen figures show a 2.7 per cent decrease in consumption (equivalent to 64 million standard drinks).[20]

1.32      The Committee notes that the AC Nielsen data provides the most complete picture of consumption and is widely used and accepted by industry.

ScanTrack data

1.33      AC Nielsen ScanTrack data comparing the period May 2008 to January 2009 with the same period in the previous year shows:

• a 29 per cent decrease in total sales of RTDs (equivalent to 310 million standard drinks);

• a 24 per cent decrease in sales of RTDs with more than 6 per cent alcohol;

• a 31 per cent decrease in sales of RTDs with less than 6 per cent alcohol; and

• a 38 per cent decrease in sales of vodka-based RTDs with more than 6 per cent alcohol.[21]

1.34      The Winemakers Federation of Australia commented on Nielsen as a data provider in terms of suppliers and manufacturers in the alcohol industry:

Mr Strachan—In terms of the value based data that exists in the industry, it is accepted as being the best source of data—to my knowledge, anyway. We tend to use the ABS volume based data, but value based data does add a dimension that you do not always get through the volume data... From my perspective, the whole of the industry relies on those larger companies that purchase it—relies on Nielsen data. That is a fairly strong indication that they think it is reliable, so I would say it is the best around and it is highly likely to be reliable.[22]

Access Economics report

1.35      A number of submitters referred to January 2009 report by Access Economics, 'Trends in alcohol-related hospital use by young people', commissioned by the DSICA. The report analyses admissions to both public and private hospitals as well as visits to emergency departments by young people for alcohol-related diagnoses. A second report by Access Economics dated 10 March, 'Alcohol related hospital use: analysis of newly available months of data' was provided by DSICA at the hearing.[23]

1.36      The Committee notes that many stakeholders, particularly health experts, strongly disputed the methodology and conclusions of the Access Economics report.

Revenues raised under the alcopops tax measure

1.37      Budget papers from May 2008 estimated the excise and customs duty increase would deliver an ongoing gain to revenue of $3.1 billion over the forward estimates.[24]

1.38      However, the explanatory memorandum (EM) to the bills provided a significantly lower updated estimate of $1.6 billion over the forward estimates.[25]

1.39      Appearing before the Committee in Canberra on 11 March 2009, Mr Colin Brown, Manager, Costing and Quantitative Analysis, Department of the Treasury, advised the Committee on the assumptions underlying the estimates of forward revenue arising from the measure. Mr Brown noted that, taking into account an initial drop in demand for RTDs, the projections assumed an 'underlying rate of growth in RTDs' that accounted for future growth in population and the economy'.[26]

1.40      Mr Damien White, Manager, Indirect Tax Unit, Department of the Treasury, noted current projections accounted for the ATO figures showing a reduction in consumption of RTDs of 34.6 per cent.[27]

Substitution effects flowing from the alcopops tax measure

1.41      In the context of the inquiry, 'substitution' refers to consumers of RTDs moving to other, usually cheaper, alcoholic beverages in response to the increase in the excise and customs duty. While all submitters and witnesses agreed that some level of substitution had occurred, there was particular disagreement as to its extent and significance.

Sources of information and views on substitution

Spirits

1.42      The main source of data cited as relevant to the question of substitution was the ATO clearance figures for the period May to September 2008 referred to earlier.

1.43      The Alcohol and Other Drugs Council of Australia (ADCA) observed that there is currently 'minimal data to either prove or disprove significant substitution effects'.[28] However, it expressed the view that the ATO data did show that, while there was a substitution from RTDs to full-strength spirits, total spirit consumption fell by 334 000 litres of pure alcohol.[29]

1.44      The ADCA also referred to data 'provided by AC Nielson ScanTrack' showing that from January to November 2008 there was:

• a 2.3 per cent decrease in the value of the dark RTD market;

• a 0.2 per cent increase in the value of the light RTD market; and

• an 11 per cent increase in the full-strength spirits market.[30]

1.45      Although it cautioned that 'changes in the value of a particular product market category cannot conclusively prove there has been a change in consumption', ADCA considered that the Nielsen data supported the conclusion that some substitution had occurred from RTDs to full-strength spirits. Appearing before the Committee, Ms Melanie Walker, Health Policy Officer, PHAA, observed that the extent of substitution did not appear to be equivalent to the fall in consumption of RTDs:

...while the standard drinks sold as spirits and beer increased in the three months following the introduction of the alcopops tax, the increase represented only about 53 per cent of the 91 million fewer RTDs sold.[31]

1.46      Independent Distillers of Australia (IDA) also provided sales data, compiled by the Liquor Merchants Association of Australia, which attested to increased sales of certain full-strength spirits since the tax increase. Comparing certain product sales from May 2008 to January 2009 with the equivalent period in the previous year, the data shows:

• full-strength bourbon sales up 32.2 per cent;

• full-strength dark rum sales up 31.6 per cent;

• full-strength light rum sales up 8.1 per cent; and

• full-strength vodka sales up 18.4 per cent.[32]

1.47      Although IDA acknowledged that it was difficult to show perfect statistics on substitution, its view was that 'both anecdotally and through industry data...we can demonstrate tangible substitution from RTDs into full-strength spirits and other beverages'. Taking into account all statistical and anecdotal data, IDA concluded that there had been 'massive substitution' for RTDs in the alcohol market.[33]

1.48      The Committee received one submission that offered anecdotal evidence on substitution from a consumer perspective. Amy Thurgood, a 22-year-old who described herself as 'in the primary market for RTD marketer[s], described how the tax increase had affected her consumption of RTDs, While preferring the taste and convenience of RTDs, she considered her cheapest financial option since the tax increase to be the purchase of full-strength spirits and mixers; and she had observed 'many others' making the same switch.[34]

Beer

1.49      IDA also cited a report that found an increase in beer sales following the tax increase. A Citigroup Beverage Trends Analysis in October 2008, which tracks manufacturer sales either direct to retail or to wholesale, reported:

Industry beer volumes have shown some sign of recovery. The strong July performance has resulted in 1.4% volume growth over the past three months compared to a decline over the past 12-months. This may be partly reflective of the RTD tax hike resulting in consumers switching to beer.[35]

1.50      However, the Committee notes that the Brewers Association of Australia and New Zealand (BAANZ) expressed serious reservations about the ability of such short-term data on beer deliveries to reveal general trends in consumption (and hence substitution effects) over time.[36] Further, BAANZ provided figures which contradicted IDA's assertion that there was growth in the beer market since the tax increase—beer delivery figures for the six-month period either side of the tax increase had showed a 10.4 per cent decrease in delivery volumes.[37]

Wine

1.51      In relation to wine, the Winemakers' Federation of Australia (WFA) conducted a comparison of the long-term compound growth rate of total wine sales with the compound monthly growth rate for the eight months after the tax increase. It concluded that, taking into account normal seasonal trends, there was no evidence of substitution of wine for RTDs.[38]

Factors complicating assessment of substitution effect

1.52      A number of submitters observed that, since the tax increase, the alcohol industry had been proactive in taking steps to encourage and facilitate substitution of RTDs with other alcohol products. In particular, the PHAA observed:

Since the announcement of the tax...there have been a series of special promotions designed to have young people substitute spirit mixing for pre-prepared alcopops.[39]

1.53      The Committee heard evidence that over the same period producers had also developed products able to directly substitute for alcopops, such as so-called 'malternatives'. These are beer-based products that share the characteristic sweetness, colours and branding of alcopops, but which would not attract the increased excise and customs tariff on spirit-based RTDs (these are discussed in detail below). In terms of characteristics and price, such products are able to directly substitute for alcopops, and the Committee notes that this occurrence could also make assessment of substitution more difficult.

Committee view

1.54      The Committee notes that there is evidence of substitution following the tax increase, with some consumers substituting full-strength spirits for RTDs.

1.55      However, as there has been a reduction in terms of overall consumption, the Committee disagrees with the view expressed by some stakeholders that substitution in response to the measures has been so complete as to cancel out the intent of the measures. In particular, the Committee highlights the 7.9 per cent decrease in combined spirit sales, as well as reductions on total consumption of alcohol. These outcomes indicate that, while substitution has occurred, it has not occurred to such an extent as to undermine the intended consumption and health outcomes of the measures through the lowering of consumption.

1.56      The Committee notes also that the decline in sales of RTDs has arrested a sustained period of increasing sales of these beverages since 2000.[40] A convincing proof of extensive substitution would therefore need to show that both combined spirit sales and total alcohol consumption were not just equivalent to previous comparable periods but also equivalent to previous sales growth trajectories. Given this, the decline in combined spirit sales and total alcohol consumption might be more significant than the figures alone would suggest.

1.57      The Committee recognises that it would be unrealistic in practice to expect no substitution following the measure to increase the excise and customs duty on RTDs. However, as the PHAA observed, other spirits or forms of alcohol may not have the same 'gateway effect' as RTDs.[41] This refers to the undoubted attractiveness of such beverages to young people—particularly young women—in terms of taste and appearance. These characteristics allow young people to more easily consume and acquire a taste for alcohol, with all the financial, health and other risks that this implies. Considerable benefits may still flow from the substitution of RTDs for forms of alcohol less attractive to young palates and sensibilities.

1.58      Professor Tanya Chikritzhs commented on the fact that different beverages posed different types and levels of harm to young drinkers:

...not all beverages are equal in the amount of harm that they are likely to be associated with. So, as has been done here, a special harm levy or tax needs to be placed on beverages that are known to be specifically risky for certain populations.[42]

Changes in consumption patterns of ready-to-drink alcoholic beverages and all alcoholic beverages by sex and age group

1.59      As with the issue of substitution, the ATO clearance data was relied on by many submitters and witnesses as relevant to the issue of changes in consumption patterns of RTDs and other alcoholic beverages since the tax increase.

Ready-to-drink beverages

Patterns of consumption

1.60      As noted above, there was no significant dispute that RTD sales have reduced significantly since the tax increase. The Committee heard that ATO clearance figures show a reduction of 34.6 per cent for the period May to September 2008, compared to the same period in 2007.

1.61      The ATO figures were complemented by AC Nielsen data on alcohol consumption. From May to July 2008, this showed a 26.1 per cent decrease in consumption of RTDs, equivalent to 91 million standard drinks, compared to the same period in the previous year.

1.62      Mr Geoffrey Munro, National Policy Manager, Australian Drug Foundation, provided longer-term AC figures Nielsen for the period May 2008 to January 2009 with the same period in the previous year showed a 29 per cent decrease in total sales of RTDs, equivalent to 310 million standard drinks.[43]

1.63      ADCA's submission, having considered the ATO clearance data as well as the AC Nielson consumption data, concluded:

[The tax increase] was designed to specifically reduce consumption of one type of beverage, ready-to-drink spirits. On that measure, the tax reform appears to have been successful.[44]

1.64      The National Drug Research Institute (NDRI) noted that the AC Nielsen data showed that since the increased tax there had been 43 million fewer standard drinks consumed as RTDs.[45]

1.65      The Australian Hotels Association (AHA) referred to a survey of a selection of its members that it conducted in order to ascertain changes to sales of alcohol since the tax increases. This survey showed a significant decrease in RTD sales, although there was no actual figure or percentage given.[46]

1.66      Associate Professor Anthony Shakeshaft, National Drug and Alcohol Research Centre (NDARC), commented that the extent of the changes in consumption of RTDs demonstrated the potential for price measures such as tax increases to influence consumption behaviour:

...it has been remarkable that one tax targeted at a very specific type of beverage has had such a big impact in terms of industry behaviour, and we have been able to look at the change in sales and the change in consumption amongst young people more broadly. We think, if nothing else, this process has shown the quite powerful effects that excises can have.[47]

1.67      The PHAA also endorsed the effectiveness of 'price levers'—particularly as part of a comprehensive approach to reducing consumption of alcohol. In relation to the particular effect of the April 2008 excise and customs duty increases, it stated:

The initial nine months of the alcopops tax...illustrates the efficacy of pricing in influencing purchasing [i.e. consumption] behaviour.[48]

1.68      However, the PHAA was careful to offer a note of caution about interpreting trends in consumption over the relatively short period since the tax increase:

Patterns may follow an initial change with a price increase and have a drift back to the more desirable but more expensive product. Nine months of this increase is not long enough to determine this possible long term approach.[49]

1.69      A number of submissions placed the reduction in consumption of RTDs firmly in the context of long-term consumption patterns, arguing that the 34.6 per cent reduction was even more significant considered in this light. Both ADCA and the Department of the Treasury, for example, noted that there was a high growth in consumption of RTDs after July 1 2000, following changes which saw taxation of RTDs established at a rate similar to the excise rate applicable to full-strength beer.[50] On this point, information provided to Treasury from DSICA as part of pre-budget submissions in 2008-09 stated:

...RTD sales have been growing (from a very low base) since 1993-94. The excise duty on RTDs was reduced on 1 July 2000, under the A New Tax System. There was significant growth in RTDs immediately after that time. RTD sales have increased 254% between 1999-[20]07...[51]

1.70      Professor Chikritzhs provided figures which revealed the effect of this growth in RTD sales post 2000 on consumption levels of young people:

In 1999, before reductions in tax and in the retail price of RTDs in 2000, RTDs were the preferred beverage of about 23% of 12–17-year-old female drinkers. By 2005, after the tax decrease, 48% of young females drank RTDs, while the preference for higher-taxed spirits fell from 42% to 30%. For 12–17-year-old males, RTD consumption increased from 6% to 14% ... Although new products and marketing strategies may have contributed to this substantial change, these data suggest that young Australians, like their counterparts in other countries, do alter their beverage choices in response to price changes.[52]

1.71      Treasury also cited ABS figures which showed that the apparent growth in consumption of alcohol in the form of RTDs over the period 2002-04 to 2006-07 was considerably greater than the apparent growth in the consumption of alcohol in other types of beverage over the same period. While on this measure RTDs grew by 30.2 per cent, other forms of alcohol grew at between only 2.5 per cent and 4.8 per cent (for apparent consumption of beer and full-strength spirits respectively). Overall apparent growth in consumption of alcohol increased by 5.8 per cent.[53]

Consumption by sex and age groups

1.72      While the Committee thus received clear evidence that since the tax increase there has been a substantial decline in the very high levels of growth and consumption of RTDs, there was no direct evidence to show how that reduction applied to consumption behaviour within different sex and age groups. The ADCA observed that the value of the available evidence in terms of drawing conclusions about RTD consumption by sex and age group was limited:

[The ATO excise] data, by its nature, cannot be disaggregated into sex and age cohorts.[54]

1.73      The PHAA noted the difficulty of extrapolating long-term consumption patterns in specific groups of people from data covering such a relatively brief period. This was also complicated by many other factors that could influence consumer behaviour. Despite this, the PHAA felt that the 34.6 per cent reduction in sales of alcopops was 'significant' and an 'indicator' of trends in such patterns.[55]

1.74      However, some observed that, given National Drug Strategy Household Survey (NDSHS) findings prior to the reform showing that RTDs are the preferred drink of both young and underage drinkers of both sexes, it was possible to infer that the fall in consumption of RTDs 'must reflect changed consumption patterns amongst young drinkers'.[56] On this reasoning, the overall reduction of RTD consumption could be said to indicate at least the likelihood of a reduction in consumption of RTDs by young people, and particularly young women.

1.75      The AHA disagreed that the reduced consumption levels of RTDs could be taken as an indication of reduced consumption among young girls. The AHA believed that the majority of RTDs were drunk by males over the age of 25, and on that basis observed that the significant decrease in RTD sales would have 'done little to achieve the stated objective of reducing the level of risky drinking among young females'.

1.76      Further, the AHA considered that males over the age of 25 years had either substituted full-strength spirits or other products for RTDs, so the reduced consumption of RTDs could not be taken as an indicator of reduced consumption among this sex and age group either.[57]

1.77      Mr Munro drew attention to AC Nielsen data which showed a 38 per cent decrease in sales of vodka-based RTDs with more than 6 per cent alcohol, and described this as a significant result in the context of the stated intent of the tax increase:

...it is important, given this tax is aimed particularly at young, underage drinkers and young female drinkers, to recognise that vodka alcopops are preferred by young drinkers and particularly by young females.

...

So this is telling us that, concerning the aim of reducing the attraction of or the demand for alcopops, the tax has been successful with this massive decline in alcopops sales—and the largest decline has been in the sales of the vodka high-alcohol drinks favoured by young women.[58]

All alcoholic beverages

Overall consumption

1.78      The Committee notes that, as with the consideration of consumption patterns of RTDs above, there is limited evidence available to consider the changes in consumption of all alcoholic beverages by sex and age group. Again, this is because the ATO clearance data, and most other data, does not disaggregate sex and age cohorts at all; and all data considered covers only a very brief period for analytical purposes.

1.79      The ATO clearance data shows that growth in excisable alcohol consumption, which is an aggregate class comprised of beer, spirits and RTDs, has slowed by 0.1 per cent since the tax increase on RTDs (for the period May 2008 to January 2009 compared with the previous year). By comparison, the previous three years recorded 'solid' growth in excisable alcohol consumption:

• 6.6 per cent in 2005-06;

• 2 per cent in 2006-07; and

• 2.7 per cent in 2007-08.[59]

1.80      Treasury's submission pointed to the AC Nielsen data which showed that total consumption of alcoholic beverages (RTDs, beer, wine and spirits) fell by 2.7 per cent in the period May to July 2008 compared to the same period in the previous year. This fall was equivalent to 64 million standard drinks.[60]

1.81      However, the AHA came to a different conclusion about overall consumption on the basis of the survey it conducted of its members, which found that there has been no discernible drop in overall sales of alcohol products. On the basis that sales is a useful proxy for consumption, the AHA member survey found:

• increased sales of full-strength spirits;

• no change or a slight increase to sales of beer;

• increased wine sales of around 20 per cent; and

• increased sales of other alcohol products such as cider.[61]

1.82      The IDA submission referred to a Roy Morgan Research survey of total alcohol consumption across men, women and the group 18 to 24-year-olds, comparing the period July to December 2008 with the corresponding period in the previous year. This showed a 2.3 per cent increase in total alcohol consumption for all Australians aged over 18. The rise was attributable to:

• a 4 per cent increase in consumption among males; and

• a 17 per cent increase in consumption among 18 to 24 year-olds.[62]

Spirits

1.83      The ADCA submitted that the available evidence showed that overall spirit consumption had decreased by roughly 8 per cent. This figure was based on the ATO clearance data which showed that, while some substitution from RTDs to full-strength spirits had occurred, total spirit consumption fell by around 334 000 litres of pure alcohol, said to be equivalent to 26 000 000 standard drinks.[63]

Wine

1.84      The WFA provided a submission to the inquiry which commented on the changes to wine consumption since the introduction of the tax. It noted that wine consumption data by sex, age and beverage since the tax increase were not available. However, data on winery sales was available, and this information was a 'useful proxy for consumption'.[64]

1.85      The WFA's comparison of the first-quarter (July-September) sales of wine for the years 2006 to 2008 showed that since the tax increase:

• sales of Australian produced wine decreased;

• sales of cask wine decreased; and

• sales of imported wine increased marginally.

1.86      In relation to total sales of wine in Australia, the WFA's analysis of the April-June quarter for the previous three years showed a marginal 3 per cent increase between the last two years, with Australian wine sales dropping slightly over that period.[65]

1.87      The Treasury submission, however, suggested that wine consumption had fallen following the tax increase. It cited AC Nielsen data on alcohol consumption which showed that wine consumption fell by 2.6 per cent in the period May to July 2008 compared to the same period in the previous year. This reduction was equivalent to 21 million standard drinks.[66]

Beer

1.88      The Brewers Association of Australia and New Zealand (BAANZ) provided a submission which commented on consumption of beer products following the tax increase. The association relied on data on beer deliveries, which indicates general trends in beer deliveries over time. This could be a 'viable proxy for overall consumption'.[67] Beer delivery figures for the three months either side of the introduction of the tax increase (February-April 2008 and May-July 2008) showed a 0.4 per cent increase in delivery volumes.

1.89      However, beer delivery figures for the six-month period either side of the tax increase showed a 10.4 per cent decrease in delivery volumes.

1.90      The Committee notes that the AC Nielsen data also suggested a rise in beer consumption. This data showed a 1.5 per cent increase in consumption of beer in the period May to July 2008 compared to the same period in the previous year, equivalent to 13 million standard drinks.

1.91      BAANZ noted that 'short-term fluctuation' in the data could not be reasonably interpreted against the effects of the 'constantly shifting microeconomic environment', such as changes in the excise and customs environment, and macroeconomic factors such as global economic conditions. BAANZ therefore could not reliably infer anything from these data.[68] In terms of long-term trends, per capita beer consumption had seen a slow decline in Australia, and given this, BAANZ observed:

...at best, 'it would be heroic to conclude that the alcopops tax is supporting a statistically significant turnaround in beer consumption trends; at worst, it would be misleading.[69]

Committee view

1.92      The Committee accepts that it is difficult to draw conclusions about consumption patterns on the basis of the data that has become available since the tax increase. However, on the basis of ATO clearance data it is reasonable to conclude that consumption of RTDs has decreased and that, while some substitution to full-strength spirits has occurred, overall consumption of both spirits and alcohol has also decreased.

1.93      This conclusion is supported by the ATO clearance data from the period following the original change to the excise regime, which strongly suggests that tax treatment does affect consumption of RTDs. Discussing the nature of this data, Professor Allsop noted:

...it is universally accepted that sales data are strongly and closely aligned to consumption of alcohol...[70]

1.94      Some evidence, such as the survey conducted by the AHA of its members, were at variance to the recent ATO clearance data. However, in discussing this evidence at the Canberra hearing on 10 March 2009, Mr Hamish Arthur, National Corporate Affairs Manager, AHA, advised the Committee that the survey was based on reportage by AHA members, and its conclusions were not based on statistical analysis of raw data. Further, the Committee notes that, while the survey concluded there had been no discernible decrease in total sales of alcohol, 42 per cent of respondents had reported a decrease in overall sales.[71]

1.95      After considering the nature and quality of the evidence received, the Committee preferred the ATO clearance data as well as other sales data as the best indicator of consumption of RTDs and other alcohol beverages since the tax increase. These sources confirmed there has been a reduction in consumption of RTDs as well as alcohol overall since the tax increase.

Unintended consequences flowing from the introduction of the alcopops tax

Development of beer- and wine-based alternatives to RTDs

1.96      The Committee heard that beverage companies had responded to the increased excise and customs duty by developing so-called 'malternatives'. This term refers to beer-based beverages that mimic the taste and appearance of alcopops but avoid the raised excise duty. This is because beer attracts a lower excise and excise-equivalent customs duty than spirits, RTDs and some wine products. Other alternative products could also be manufactured from wine.

1.97      ADCA offered as an example of a malternative a vodka brand contemplating the production of a beer-based drink 'stripped of its beer characteristics' such that the beverage would attract the lower excise and customs duty rate.[72]

1.98      DSICA submitted that the tax differential between spirits and beer and wine meant that beer and wine products enjoy a relative tax advantage, which would promote the future development of RTDs based on these products.[73]

1.99      A number of submitters and witnesses expressed the opinion that the development of malternatives was evidence that the excise and customs duty increase had had a positive impact, because it had clearly reduced alcopops consumption and caused the industry to seek to develop alternatives.[74]

Recent amendments in response to beer- and wine-based alternatives

1.100         On 25 February 2009, in recognition of malternatives, and the potential for similar wine-based products to be developed, the Government moved amendments to the Bills to ensure that such products do not undermine the purpose of the 2008 changes by providing substitutes for alcopops that are not subject to the duty increase and are therefore cheaper.

1.101         In commenting on the need for the amendments, the Minister for Health and Ageing, the Hon. Nicola Roxon, noted the alcohol industry's general willingness to target the youth market with new alcopop-style products that avoid the increase tax.[75] A number of witnesses were also critical of the industry's general haste and 'irresponsibility' in undermining the intent of the 2008 increases.[76]

1.102         The changes will commence from July 1 2009. Introducing the changes, Minister Roxon, explained:

...these amendments alter the taxation definition of 'beer' in the Excise Tariff Act and 'beer' and...['grape wine product'] in the Customs tariff Act. Changes in the definition of 'wine' in the A New Tax System (Wine Equalisation) Tax Regulations 2000 will also follow...[77]

Beer-based alternatives

1.103         The amendments will ensure that beer-based alternatives are subject to the same tax rate as RTDs by amending the definition of 'beer' in the ETA 1921 and the CTA 1995. To be defined as 'beer' a product must:

• not contain more than 4 per cent sugar or any artificial sweetener or flavour;

• have a level of bitterness equivalent to or greater than four International Bitterness Units;

• contain a dominant amount of alcohol derived from the yeast fermentation process of an aqueous extract of cereals; the aqueous extract must be predominantly cereals but may contain other carbohydrates and ingredients;

• may contain spirit distilled from beer added during the brewing process as long as it does not in excess of 5 millilitres per litre; and

• may contain flavours added at any stage during the process but not in excess of 5 millilitres per litre.[78]

1.104         The proposed definition is in line with a recent ATO interpretative decision on the excise definition of beer, which concluded that a beverage requires sufficient bitterness to be considered as beer. The effect of this decision was that malternatives in general would not be classified as beer for taxation purposes.[79]

Stakeholder views

1.105         There was generally support for the amendments aimed at countering the development of beer-based alternatives to RTDs. BAANZ noted that it had previously identified the development of malternatives as a potential unintended consequence of the increased tax on RTDs, and indicated its support for the proposed amendments to narrow the definition of 'beer'. BAANZ commented that the proposed sweet/bitter distinction was a reasonable means of 'objectively drawing a line between beer and alcopops for taxation purposes'.[80]

1.106         However, Angove Family Winemakers (AFW) identified the proposed amendments to the definition of beer as problematic in relation to alcoholic ginger beer. AFW noted that the amendments were 'not designed to affect the taxation of conventional beer products that have the essential characteristics of beer, based on taste and ingredients'.[81] However, the new definition appeared likely to capture the alcoholic ginger beer produced by AFW, due to that product's characteristic sweetness. The AFW product, with between 9.5 per cent and 10 per cent by weight of sugar, would exceed the 4 per cent limit proposed in the new definition of beer.

1.107         AFW argued that its ginger beer was not comparable to any of the beer-based alternatives because:

• it is promoted and generally consumed as a take-home beverage;

• it is not conducive to binge drinking due to its strong flavour and sweetness (that is, it had low 'sessionability'); and

• ginger beer is a traditional and conventional beer product.

1.108         AFW noted that the traditional aspects of ginger beer underpinned their commercial development of the product to conform with legal definitions of 'beer'. They requested the government consider re-formulating the proposed new definition of beer, or else create an exception, to ensure that alcoholic ginger beer is not 'caught up in the tightening of the beer standard aimed at catching beer-based alternatives'.[82]

1.109         AFW observed that the government had already accommodated traditional wine-style products in its re-formulation of the definition of 'wine'.

1.110         DSICA also raised objections about the proposed amendment, on the grounds that it would lead to differential treatment of certain products:

The fact that the amendments will still permit the taxation of flavoured beers at the lower tax rate, despite being of the same alcoholic strength as spirit-based RTDs, perpetuates an anomalous tax regime.[83]

1.111         Similarly, IDA, which had developed a malternative—a flavoured beer with 5 per cent alcohol—which was equivalent in strength to many beers and similar in style to 'more than 100 existing flavoured beers already on the market in Australia'.[84] IDA saw these products as legitimate products that were to receive unfair treatment under the proposed new definition.

1.112         Finally, DSICA expressed concerns that the proposed new definition, by introducing the more complex definition of 'beer', would impose additional compliance costs on industry. In particular, the new definition would 'remove any margin for error in [the composition of] specialty offerings',[85] which would potentially require more expenditure on testing and development.

Wine-based alternatives

1.113         Similarly, the amendments will ensure that wine-based alternatives are subject to the same excise and customs duty rate as RTDs by amending the definition of 'grape wine product' in the CTA 1995; equivalent amendments will be made to the A New Tax System (Wine Equalisation Tax) Regulations 2000.

1.114         The current definition provides that a 'grape wine product' must contain at least 70 per cent grape wine, with the remaining 30 per cent able to contain flavours and a limited amount of ethyl alcohol. Typical grape wine products are wine cocktails and Irish style cream drinks. Under this definition, grape wine products could be produced to resemble a RTD product subject to significantly less tax than spirit-based RTD products.

1.115         The amended definition will provide that a 'grape wine product':

• must contain at least 70 per cent grape wine;

• must not have added to it ethyl alcohol from any source except grape spirit or alcohol used in preparing vegetable extracts;

• must contain at least 8 per cent, but not more than 22 per cent, by volume of ethyl alcohol; and

• must not have added to it the natural or artificial flavour of any alcoholic beverage other than wine.

1.116         A 'grape wine product' that does have added to it ethyl alcohol used in preparing vegetable extracts must comply with the following requirements:

• the ethyl alcohol must only be used to extract flavours from vegetable matter;

• the ethyl alcohol must be essential to the extraction process; and

• the ethyl alcohol must not add more than one percentage point to the strength of alcohol by volume of the beverage.

Stakeholder views

1.117         The WFA expressed its support for the proposed measures as being effective to prevent the grape wine category being exploited for the purposes of creating new wine-based RTDs that would be taxed at a lower rate than other RTD products.[86]

1.118         In addition, the WFA had recently asked Food Standards Australia and New Zealand to prescribe the term 'wine-based beverage' for all products meeting the definition of wine product in the Australia-New Zealand Food Standards Code. This would ensure that a product meeting the definition would have to be clearly labelled as a wine product.[87]

1.119         However, DSICA was concerned that the changes extended a competitive advantage to certain products. It noted that the amendments would not prevent the marketing of so-called piccolo bottles of wine, which were priced lower than RTDs and could have 'more than twice the typical alcohol content of an RTD'.[88]

Committee view

1.120         The Committee notes there was widespread support for the proposed amendments from health bodies and certain industry stakeholders to ensure that beer- and wine-based alternatives are not able to undermine the intent of the tax increase on RTDs. The evidence considered by the Committee suggested that the proposed changes to the definitions of 'beer' and 'grape wine product would be effective to prevent the development of products that could avoid the higher excise and customs duty on RTDs while effectively substituting for alcopop-style beverages.

1.121         However, the Committee acknowledges the concerns of AFW in relation to the potential for the proposed new definition of 'beer' to inadvertently capture traditional ginger-beer style products, which do not possess the characteristics of the RTDs to which the tax increase is intended to apply. The Committee notes that Minister Roxon, in introducing the amendments, indicated that the government was prepared to make further changes to the proposed new definitions in the event that any unintended consequences were identified.[89] The Department of the Treasury confirmed in its appearance before the Committee that it would consider the particular issue raised by AFW.[90]

1.122         The Committee is confident that, should there be a need for any further amendments to the new definitions, the government will be mindful of the need to avoid creating any further loopholes that could be exploited to avoid the effect and intent of the tax increase on RTDs.

Effectiveness of the changes to the alcohol excise regime in reducing the claims of excessive consumption of ready-to-drink alcohol beverages

1.123         The Committee notes that the limitations of the available evidence, discussed above in relation to changes in patterns of consumption, were also relevant to its consideration of the effectiveness of the tax increase in reducing excessive consumption. While sales data can serve as a reliable proxy for consumption, many submitters and witnesses observed that evidence of consumption per se is not able to shed light on the occurrence of excessive consumption. In contrast, other witnesses were more confident to conclude on the basis of indicators of consumption that the tax increase was likely to have led to reduced incidence of excessive consumption.

1.124         The PHAA submission noted the difficulty of using the available information to measure trends in excessive consumption, and suggested that the use of such data for this purpose would amount to 'setting up a straw man'.[91]

1.125         IDA observed that, while the tax increase had significantly affected RTD sales (taken as an indication of consumption):

...there is precisely no evidence that shows this reduction in sales of premixed alcohol has resulted in a reduction in excessive consumption of ready to drink alcohol beverages.[92]

1.126         In particular, IDA noted that the government had not produced any evidence of a 'reduction in arrests, emergency room hospital admissions police incidents or other indicators of risky [and thus excessive] drinking'.[93]

1.127         Further, IDA denied that the reduction in consumption of RTDs could be taken as evidence of lower levels of excessive consumption. It pointed to the Australian Institute of Health and Welfare finding that the beverages preferred by high-risk drinkers were not RTDs but beer, wine, spirits or liqueurs.[94] If RTD drinkers were not generally high-risk drinkers then the reduction in consumption of RTDs could not indicate reduced levels of excessive consumption.

1.128         The ADCA, however, noted that excessive consumption, understood as risky and/or high-risk consumption in relation to short and long-term harm,[95] is prevalent among consumers of alcohol. In particular:

• around 50 per cent of alcohol is consumed at risky or high-risk levels for short-term harm; and

• around 40 per cent of alcohol is consumed at risky or high-risk levels for long-term harm.[96]

1.129         Given these figures, ADCA concluded that the reduction in consumption of total spirits since the tax increase 'will have reduced excessive consumption of spirit-based RTDs'.[97]

1.130         Professor Chikritzhs conceded that there was no direct evidence on the question of reduced levels of excessive drinking in particular social groups. However, taking into consideration a broader range of sources, Professor Chikritzhs observed:

...various surveys, such as the secondary schools survey and the National Drug Strategy health survey, [identify] which part of the population prefers to drink RTDs, or alcopops. We know that in the 14- to 17-year-old age group who drinks at risky, high-risk levels for short-term harm, 70 to 80 per cent of that consumption is done via RTDs, or alcopops, and we know that the drink of choice amongst middle-aged people and older people is not alcopops but beer and, in the case of females, wine. We could make an educated guess...[that young people drinking at risky levels] would be the most likely to be affected by this RTD tax.[98]

Committee view

1.131         The Committee found that there was no direct evidence to show that there had been a reduction in excessive drinking since the introduction of the tax increase. However, the Committee notes that it received considerable evidence commenting on the difficulty of establishing causal links between policy or tax measures and risky- or high-risk behaviour such as excessive consumption. Further, this difficulty is compounded by a lack of appropriate data due to the relatively short period since the tax increase.

1.132         The Committee observes that, in relation to its consideration of changes to at-risk behaviour and health impacts, a number of witnesses referred to indirect evidence that could justify an expectation of a reduction in excessive consumption among the target group. This is discussed below.

Evidence of changes to at-risk behaviour or health impacts (either positive or negative) as a result of the introduction of the alcopops tax

Introduction

1.133         The Committee's previous inquiries examined in much detail the short- and long-term health impacts and social effects of alcohol consumption. The Committee recognises that risky and high-risk consumption of alcohol causes significant harms to individuals and imposes high costs on society. These issues are important background context for the current inquiry; however, it was not necessary to consider them specifically according to the terms of reference. A more detailed consideration of these issues may be found in the Committee's reports on ready-to-drink alcohol products and the Alcohol Toll Reduction Bill.[99]

1.134         The Committee notes that on 6 March 2009 the National Health and Medical Research Council released new guidelines on safe drinking. The old guidelines acted as the benchmark for risky and high-risk drinking in the previous inquiries. The new guidelines stipulate that two standard drinks a day for both men and women, and four on one-off occasions, is advisable to avoid alcohol-related injury or disease. The guidelines emphasise the risks of alcohol consumption for young people, saying that people under the age of 15 should not drink at all, and that persons between 15 and 17 years of age should delay drinking as long as possible.[100] The Committee notes that the new guidelines stipulate a lower level of alcohol consumption to avoid alcohol-related harms than the previous guidelines, effectively lowering the consumption level that should be classed as risky or high risk.

Effect of changes on at-risk behaviour/health outcomes

1.135         The Committee notes that the limitations of the available evidence were significant in relation to the question of changes to at-risk behaviour or health impacts. Many stakeholders commented on the limited nature of the evidence, which was due to the short period since the increase, as well as the difficulty of using consumption data to draw conclusions about changes to risky or high-risk behaviour or about the health impacts.

Effectiveness of taxation in achieving health outcomes

1.136         A number of witnesses accepted that tax increases can be effective to drive changes in consumption behaviour and thereby achieve positive health outcomes. The submission of the NDRI noted:

There is strong international evidence that increasing the cost of alcohol reduces consumption and [that] lower levels of overall consumption are closely related to lower levels of alcohol-related harm.

In several countries, price increases...have been consistently shown to reduce alcohol consumption and related harms in both the general population and at-risk populations.[101]

1.137         Further, such an approach was supported as a legitimate aim of government by some stakeholders. The National Health Foundation of Australia submission contained a typical endorsement:

The legislation provides for an increase in tax on pre-mixed spirits in order to reduce harmful consumption of these products, particularly by their intended market, young people. This is entirely consistent with good public health principles.[102]

1.138         Mr David Templeman, Chief Executive Officer, ADCA, observed that the public debate on the tax increase on RTDs had contributed to heightened awareness of the issues around alcohol-related health impacts, and complemented other initiatives designed to reduce consumption:

although there may be appear to be shortcomings about the current RTD taxation debate, we are seeing a public health effect in the community...There is an increasing awareness of alcohol related violence in the media and by all members of the community. State governments are reforming liquor licensing laws to attempt to minimise violence. New research and public discussion is alerting the community to links between excessive alcohol consumption and cancers and other long-term harms—brain impairment and the like. There is now increased awareness of the links between mental health and alcohol abuse.[103]

1.139         Other stakeholders disagreed that taxation could be used to achieve beneficial outcomes in such areas as health. The WFA, for example, submitted that taxation was a 'blunt social policy tool that does not distinguish between harmful consumption and responsible drinking'. Further, it claimed:

There is little evidence to demonstrate net population benefits through overall increased alcohol taxation: responsible consumers are likely to reduce or cease consumption depending on the level of price increase...and irresponsible consumers are considered less price sensitive and more likely to either switch products or switch substances.[104]

1.140         The IDA commented that the use of a tax increase for a small percentage of products was naïve because risky drinking behaviour is determined not by what people drink but by how much.[105] In a similar vein, BAANZ cautioned that:

...overall production data, and indeed per capita consumption data, are virtually meaningless metrics for describing health outcomes or drinking habits in particular populations. It is the pattern of consumption by individuals that determines whether those individual drinking choices accrue a social benefit or cost – alcohol consumption per se does not automatically give rise to costs. When one speaks of the social costs of alcohol, one is describing the outcome of alcohol misuse.[106]

1.141         DSICA endorsed the view of Access Economics that positive health impacts of taxation or price measures was also undermined by substitution effects:

...it is not possible to draw conclusions from changes in taxation revenue or sales of RTD about whether the RTD tax increase has been successful in reducing risky drinking among young people. This is because an increase in the price of one type of alcoholic beverage may lead consumers to switch consumption to other types of drinks – with similar or higher alcohol content per drinking episode or per dollar spent.[107]

1.142         The Australian Taxpayers' Union offered a philosophical objection to the intent of the tax increase, which it saw as an inappropriate attempt 'by Government to use its powers of taxation to financially coerce Australian individuals into a Government approved consumption behaviour'.[108]

Evidence of changes to at-risk behaviour/health outcomes

Reduced consumption and health outcomes

1.143         Speaking in the House of Representatives on 11 February 2009, Minister Roxon suggested that the decline in sales and therefore consumption of RTDs had been linked to reduced levels of risky or high-risk drinking. The Minister noted that, in 2004, 78 per cent females drinking at risky or high-risk levels drank RTDs on their last drinking occasion. A reduction in consumption was therefore likely to equate to a decrease in binge drinking.[109]

1.144         The NDRI noted that consumption data indicated consumer responses to the tax increase were 'headed in the right direction', and concluded that the decline in RTD sales was 'likely to produce a public health benefit'.[110] This conclusion was tempered by the acknowledgement that further investigation was necessary to determine whether the reduction in RTD consumption had occurred primarily among young female drinkers, the target group of the tax increase.[111]

1.145         At the hearing in Canberra on 10 March 2009, Professor Allsop observed that overall levels of consumption are meaningfully indicative of the level of harm across the whole community. He explained:

There is a consistent body of evidence that indicates that alcohol consumption levels are strongly predictive of alcohol related problems in a community—not just problems that affect the individual drinker but problems that affect the broader community as well. There is a strong and consistent body of national and international evidence that indicates that changes in price are strongly associated with changes in consumption and thereby changes in alcohol related harm.[112]

1.146         Professor Chikritzhs commented:

...the World Health Organisation, in its guidelines for monitoring alcohol related harm, recommends...sales data...as the most reliable, gold standard way of measuring consumption in a community. The 30 years of evidence that says that, as consumption decreases overall in a population, harms go down, and so do risky and high-risk drinking.[113]

1.147         However, a number of stakeholders disagreed that the tax increase had led to a reduction in at-risk behaviour or in negative health outcomes. IDA and DSICA, for example, cited the AIHW finding that beer, wine and spirits, as opposed to RTDs, are the drinks of choice for those who drink at risky levels.[114] Given this, the reduction in consumption of RTDs could not be interpreted or anticipated as necessarily leading to positive health outcomes amongst any group, including young people.[115]

1.148         Further, some thought that evidence showing substitution of full-strength spirits for RTDs indicated potential for increased levels of risky or high-risk alcohol consumption. The IDA expressed the view that, given the evidence of substitution, the tax increase had in fact encouraged drinkers to move towards forms of alcohol that are stronger and more likely to be associated with risky and high-risk drinking:[116]

There is no doubt that the major consequence of the alcopops tax has been to push drinkers from pre-mixed drinks, with a defined alcohol content of about five per cent on average, toward drinks which are between two and seven times that alcohol content.[117]

1.149         A submission from Amy Thurgood, which provided an anecdotal account of substitution occurring among RTD drinkers, commented that full-strength spirits were able to be more easily abused. It was also inherently more difficult for drinkers to regulate their intake:

...the last thing this tax is doing is reducing binge drinking. Having bottles of spirits around increases people doing shots and not be [sic] able to stick to standard drink sizes.[118]

1.150         The AHA supported such anecdotal reports of substitution of full-strength spirits for RTDs, as well as the suggestion that the switch to full-strength spirits involved a higher chance of risky or high-risk consumption:

This [substitution of full-strength spirits] generally leads to higher levels of risky drinking, particularly in non-controlled environments. It negates the advantage that RTDs provide in portion control which enables better monitoring of consumption...[119]

1.151         However, in relation to substitution effects, Professor Chikritzhs noted that RTDs carried specific risks in terms of being more attractive to young palates and therefore playing a significant role in introducing young people to drinking:

...there is good evidence to show that [for very young people] their drink of choice, and their first drink, is in fact in the form of alcopops, not beer and wine. And that is reason for concern; drinking patterns that are established early in life can go on to remain with that person throughout their life. There is very good evidence that young people who drink earlier and drink more, and who establish strong drinking patterns in youth, are much more likely to go on to have alcohol dependence problems, problems with the law, homelessness and so on.[120]

1.152         Dr Capolingua also stressed that the characteristics of alcopop style RTDs carried particular risks in terms of socialising young people around alcohol consumption:

The facts have been that alcopops have been affordable, sweet, palatable to drink and highly marketable to younger people. They are an attractive beverage to have in your hand at a social event. This adds an imposed extra-risk dimension for young people—promotion of dangerous levels of drinking in young people.[121]

Alcohol-related hospital admissions

1.153         DSICA's submission raised the issue of alcohol-related hospital admissions as an indicator of the impact of the tax increase on at-risk behaviour and health impacts, based on a report it commissioned by Access Economics which assessed trends in hospital use. The report, and a second report that updates the earlier report, analysed admissions to both public and private hospitals as well as visits to emergency departments by young people for alcohol-related diagnoses.[122] The aim of the report was to:

...assess whether the increase in the tax rate on...[RTDs] has had any impact on hospitalisations from high-risk drinking by young people, since the purported aim of the policy was to reduce such drinking.[123]

1.154         On the basis of the report DSICA submitted:

Data showing no reduction in alcohol related hospitalisations since the tax change also confirms that the RTD tax increase has failed to achieve its health objective.[124]

1.155         The methodology employed by Access Economics to examine alcohol-related admissions by young people was to collect data from the relevant departments of states and territories on hospital use, from January 2005 to the most recent month available. This information consisted of the International Classification of Disease (ICD) codes, which in a given case indicate the reason for hospital admission. For the purposes of the report ICD code F10 was identified as the most relevant code, with the analysis restricted to incidents classified as F10 and involving young males and females aged between 12 to 24 years of age.[125]

1.156         The report offered a number of important caveats:

• the data used may be incomplete and/or subject to revision; and

• given the short period covered by the data, further data may be required to ensure statistical significance.[126]

1.157         The report concluded that the data on hospital admissions did not support a finding that the tax increase had reduced risky drinking by young people. Specifically, it found:

• in six states alcohol-related hospital separations for males and females ages 12 to 24 years-old were higher than the same month in previous years; for females the figure was higher than for April 2008;

• in Queensland, South Australia, Tasmania, Victoria and Western Australia emergency department presentations for males and females ages 12 to 24 years-old were higher from May to August 2008 than for the same period in previous years; with the exception of July 2008, the rates were higher in each month for all age groups except 18 to 24 year-old females; and the overall increase was higher for each month after the tax increase relative to those before; and

• the combined hospital separation and emergency department presentation rates for the six states in May and June 2008 are higher than in previous years; for females these rates were higher than in previous years and the earlier months of 2008.[127]

1.158         The methodology and findings of the Access Economics report were the subject of some criticism. For example, the Royal Australasian College of Physicians (RACP) identified 'important flaws in the methods used and implications drawn' in the report. In particular, the use of the F10 ICD code was criticised as an inappropriate indicator of alcohol-related harm, as it generally accounted for a 'very small proportion of all alcohol-related conditions' and an even smaller proportion of all presentations. Reliance on this particular code was also questionable due to issues of subjectivity and consistency of application of the code.[128]

1.159         On this point—although not commenting directly on the report—Associate Professor Shakeshaft explained:

The key problem is that the way they categorise hospital presentations is through the International Classification of Diseases, and those codes are not set up to measure alcohol or the contributing factors; they are there to measure what you are actually there for. So if you turn up at the ED and you had been drinking too much and you fell and broke your arm, what would get recorded is a broken arm in the ED and the alcohol may or may not get listed.[129]

1.160         Other flaws identified included:

• the report provided no comparison with any form of control to ascertain whether the identified increase in alcohol-related presentations was part of a broader trend; as such it is possible that the increase is due to an increase in all presentations;

• the report identifies an apparent rise in alcohol-related presentations as being significant because it is more than a standard deviation above the mean; however, this was not 'an accepted indicator of statistical significance';

• the appropriate time series analyses were not performed on the data to determine whether the identified increase in alcohol-related presentations was part a longer-term trend; the application of such an analysis revealed that there was in fact such a longer-term trend.[130]

Support for tax increase as part of a broader commitment

1.161         Many witnesses and submitters, particularly those representing health bodies, directly endorsed the changes to the alcohol excise regime in the context of the government's broader commitment to reducing risky and high-risk drinking. These comments reinforced the Committee's support for the measure as one in the context of a range measures to address harmful alcohol consumption, especially by young people, that was made in Recommendation 1 in its June 2008 report Ready-to-drink alcohol beverages.

1.162         The PHAA, for example, registered its support for the government's approach as 'a first step in a comprehensive package'.[131] Associate Professor Shakeshaft observed that the 'way to get an optimal improvement or to optimally protect young people in terms of binge drinking' required an approach that encompassed price, availability and advertising of alcohol.[132]

1.163         Professor Rob Moodie, Chair, Preventative Health Task Force, stressed the importance of a 'comprehensive, long-term and multipronged approach'.

If we can look at some of our past successes in Australia where we have done very well, whether that is in tobacco, road trauma, skin cancer or cardiovascular disease just to name a few, there has been this essential...combination of education, social marketing, relevant regulation and legislation, use of primary health care, mobilisation of communities and support of funding. That has only really worked because they are all working together. If you take one leg away then it weakens the whole strategy.[133]

1.164         Professor Moodie further described the critical elements of a successful preventative health strategy:

With this, pricing and taxation is one element of a comprehensive strategy. It also has to entail public education, social marketing, looking at labelling of alcohol products, enforcing the existing legislation, liquor control legislation, standardising these approaches across Australia, and it also requires looking at regulation of alcohol promotions much more effectively, how we can use brief interventions at a primary health care level much more effectively, how we can more effectively work within and with Indigenous communities and, lastly, building our research, monitoring and evaluation base.[134]

1.165         Dr Rosanna Capolingua, President, Australian Medical Association, also expressed support for a comprehensive approach:

We support the alcopops tax in the context of broader measures to address harmful drinking, particularly among young people.

The AMA believes that the positive potential of this tax measure would be significantly strengthened if the government...implemented a multifaceted and substantial strategy of alcohol harm reduction and prevention measures addressing alcohol marking, advertising, labelling, education and early intervention[135]

1.166         The National Health Foundation of Australia cited research showing high levels of public support for increased tax on RTDs, especially where those taxes were used or earmarked for preventative health programs:

A survey of more than 1,200 Australian adults showed 84 per cent supported the Australian Government s increased tax on pre-mixed spirits and 88 per cent backed increased tobacco tax, if most of the revenue funded programs to help prevent diseases such as heart disease and cancer...The Newspoll survey showed Australians strongly supported tax increases that could reduce consumption of harmful products while raising funds to improve the nation s health.[136]

1.167         In concluding the second reading debate, the Minister for Health and Ageing, the Hon. Nicola Roxon, outlined the scope of the government's approach:

[The 53 million binge-drinking strategy]...includes a number of very important measures. There is $14.4 million for community-level initiatives to confront the culture of binge drinking, in partnership with sporting and community organisations; $19.1 million to intervene earlier to assist young people and ensure that they assume personal responsibility...and $20 million on an advertising campaign, ‘Don’t turn a night out into a nightmare’, confronting youth with the consequences of binge drinking.[137]

1.168         The funds committed to the National Binge Drinking Strategy were complemented by $872 million in new funding for preventative health under a COAG agreement. New initiatives on alcohol, tobacco and obesity would seek to impact on risky and high-risk drinking behaviours. The government would also consider any recommendations of the National Preventative Health Taskforce.

1.169         DSICA, while it did not support the Bills, was supportive of the government's broader preventative health strategy, particularly as it relates to reducing alcohol-related harm:

DSICA recognises and commends the Government's focus on preventative health, and the creation of the PHT [Preventative Health Taskforce]. DSICA looks forward to working with the Government...to formulate a national approach to minimise alcohol-related harm...[138]

Committee view

1.170         The Committee notes the strong support of many stakeholders, particularly health bodies, for the tax increase as a measure likely to have had, and to continue to have, a positive health impact on young people, particularly young women. The measure was supported both on its own terms and as part of a more comprehensive approach to reducing alcohol-related harms.

1.171         The Committee heard considerable evidence of the connection between reduced consumption and positive health outcomes. This relationship was likely to be more significant in the case of RTDs, given their particular appeal to young people and role in introducing young drinkers to alcohol and the considerable short- and long-term risks associated with its consumption.

1.172         The Committee considered evidence of alcohol-related hospital admissions to be problematic as an indicator of the health impacts of the tax measure, due to questions of methodology and data quality.

Comparison of the predicted effects of the introduction of the alcopops tax with the data of actual effects with a particular focus on evidence (or lack thereof) collected by the relevant department

1.173         In the second reading speech on the Bills, Minister Roxon acknowledged that the original revenue predictions in relation to the increased tax on RTDs, at $3.1 billion over the forward estimates, had been considerably greater than the more recent estimate contained in the EM, some $1.6 billion over the same period.

1.174         DSICA's submission argued that the significant reduction in the estimated revenues from the tax increase measure reflected 'significant changes in patterns of consumption', and demonstrate that the increase was 'not properly thought through and 'how little the government understands the dynamics of the alcohol market'.[139]

1.175         However, the Committee notes that the reduced revenue estimate is more properly considered as a difference in degree than as a fundamental misunderstanding of the effect of the measure and the market to which it applies. As the Committee's consideration of consumption issues has shown, the tax increase has worked to substantially reduce the level of consumption of RTDs—equivalent to some 91 million fewer RTDs being consumed over the period May to July 2008 according to the AC Nielsen figures. As Minister Roxon observed in the second reading speech on the Bills:

This is a much better result than the government had forecast. At the time of the budget, it was forecast that the measure would merely slow the growth in alcopop sales...Happily the measure has been even more effective. To see this dramatic reduction is the clearest evidence...that this measure is working.[140]

1.176         Mr David Kalisch, Deputy Secretary, Department of Health and Ageing, noted the department had expressed the view in the course of the previous inquiry into RTDs that increasing the tax on such beverages, despite the likelihood of some substitution occurring, was likely to reduce consumption of RTDs as well as consumption of alcohol overall. Mr Kalisch observed:

...to date, the data that is available seems to be bearing out our expectation and...the industry’s own sales data indicates that there are approximately 20 million fewer standard drinks being consumed each month.[141]

Value of evidence-based decision-making in the taxation of alcoholic products

1.177         All submitters and witnesses expressed support for evidence-based decision-making in the taxation of alcoholic products. The submission of the PHAA typically expressed the support of public health bodies and advocates for evidence-based decision-making:

The PHAA seeks a systemic approach to the collection of data on alcohol use so that information and evidence is available to decision makers and to researchers to ensure better analysis and decision making.[142]

1.178         Similarly, the WFA stated:

The Australian wine sector supports policy and regulation on the basis of clear evidence of outcomes measured against the impact on stakeholders.[143]

1.179         Associate Professor Shakeshaft commented that the course of the inquiry had demonstrated the need to  inform research with better information on the health outcomes of certain policies such as tax measures:

One of the interesting outcomes of the process to date is it has crystallised, particularly from a research point of view, that there are not really good data on how to measure harms that are specific to certain policies like this particular tax. We would strongly encourage further consideration of some further research to obtain those particular data.[144]

1.180         Similarly, the NDRI encouraged the government to:

...continue efforts to ensure that high quality data are gathered to help evaluate the impact of policy and strategies to reduce alcohol related harm and to inform future endeavour.[145]

1.181         The AHA observed that the alcohol market 'waxes and wanes with fashion.[146] Accordingly, it felt that clear evidence was required to justify changes in the taxation of alcohol products:

To single out a particular product or segment range is simply bad policy unless there is clear evidence to the contrary.[147]

1.182         Associate Professor Christopher Doran, Health Economist, NDARC, commented that Australia's health system suffered from a number of 'idiosyncrasies' in relation to the information or evidence base from which health policy and outcomes were developed and assessed. He noted that survey data collection suffered from the multiple data sources, such as the various surveys which provided different information on distinct populations. Such surveys generally employed different methodologies, which could lead to conflicting information.

1.183         This view found support in the evidence of Professor Ian Webster, Chair, Alcohol Education and Rehabilitation Foundation, who noted:

...emergency admissions data is very crude data and a very poor indicator of what is actually going on in the community in relation to heavy drinking or binge drinking. Most binge drinkers do not end up in emergency departments. The problems of addiction and the mental health problems associated with it are generally cared for in community settings or by local facilities and other agencies. So if anything it is sampling a very small tip of the iceberg.[148]

1.184         In terms of improving the quality of health data, Associate Professor Doran advised:

If we increase the sample size...[and] aim for a more representative survey, we could get a better handle on the risk behaviours of drinking full stop, and that applies to most other risk factors in Australia as well—for example, tobacco and cannabis use.[149]

1.185         Associate Professor Shakeshaft emphasised the need to improve the ability to measure the health impacts of such measures as tax increases through, for example, hospital emergency department presentations. For example, there were inconsistent or 'haphazard' practices across and within the states systems in terms of systematically classifying the causes of presentations to hospital emergency departments.[150]

Committee view

1.186         The Committee notes that its previous inquiries into RTDs and the Alcohol Toll Reduction Bill provide a significant survey of the state of the evidence and the views of stakeholders on the harms associated with alcohol, and the effectiveness of taxation measures in reducing consumption and thereby the individual harms and social costs associated with risky and high-risk alcohol consumption. The Committee's conclusions and recommendations around these issues—particularly those arising from the RTD inquiry—in themselves provide, and continue to provide, a reasonable basis for the increase to the excise and customs duty on RTD alcohol products.

1.187         The NDRI submission states:

In the context of well-established global evidence of the link between alcohol price/tax and levels of consumption, and therefore alcohol-related harm, the Australian Government's April 2008 increase in excise tax on ready-to-drink (RTD) spirit-based products ('alcopops') was a welcome evidence-based strategy to reduce excessive RTD consumption amongst young people.[151]

1.188         Finally, the Committee agrees with the view expressed by some submitters that a respect for evidence based decision making should not prevent action where a reasonable basis for action is present. Efforts to improve public health should not be stayed merely for the absence of overwhelming or inarguable evidence. The PHAA noted that 'some of the most important decisions on health have been made on limited evidence', including the introduction of needle and syringe programs in Australia to combat the spread of HIV-AIDS.[152]

Conclusion

1.189         The Committee notes that its report into ready-to-drink alcohol beverages contained a recommendation acknowledging the potential for alcohol substitution, and supporting the government's commitment to evaluate the effectiveness of the measure increasing the excise on spirit-based RTDs and all components of the binge-drinking strategy.[153]

1.190         The Committee agrees with the view, expressed by numerous submitters and witnesses, that definitive statements or conclusions about the effect of the increase to the excise and customs duty for RTDs on consumption and health are premature in the absence of more long-term and comprehensive data on alcohol sales, as well as health-related information on alcohol-related harms.

1.191         The inquiry demonstrated the importance of consistent, accurate and complete data in assessing public health outcomes around alcohol consumption. Public health bodies in particular stressed the difficulty of analysing national health policy outcomes with what is often incomplete or inconsistent data derived across the state and territory health systems.

1.192         Alcohol sales data is the most reliable and accurate means of determining consumption in a community and is fundamental to monitoring and evaluating the impacts of policy. The Committee is of the view that:

• all states and territories should mandate the collection of alcohol sales data from licensees;

• emergency department electronic recording procedures need to be standardised across the country and allow identification of alcohol-related events as is currently the case for hospital admissions; and

• police reports of violence, road crashes and disorderly offences should be flagged where alcohol-related.

1.193         These data collections could be enhanced by an early warning monitoring system which regularly assesses consumption and harm among sentinel groups of young at-risk people across Australia.

Recommendation 1

1.194         The Committee recommends that the government develop strategies to facilitate the collection and coordination of national public health data to better inform policy approaches to the reduction of alcohol-related harms.

1.195         Notwithstanding its partial and inconclusive nature, the evidence considered by the Committee did indicate that there has been a significant reduction in the sales and therefore consumption of RTDs since the tax increase. While it can be confidently said that substitution has occurred, this has occurred in the context of falls in the total levels of alcohol consumption.

1.196         The Committee concluded therefore that the net effect of the tax increase was a reduction overall in the consumption of alcohol in Australia, although it was not possible to definitively conclude that this reduction in consumption had resulted in a reduction in levels of risky and high-risk consumption of RTDs by young women, leading to improved health outcomes.

1.197         However, the Committee notes that, due to the very high levels of consumption of RTDs by young people generally and young women in particular since 2000, it is reasonable to assume and expect that the significantly reduced consumption of RTDs reflects reduced consumption in these groups. The Committee acknowledges the difficulty of assessing both short- and long-term health outcomes based on consumption rates, but notes the widespread support of health and drug bodies for the measure, particularly in the context of broader measures aimed at reducing the incidence and effects of risky and high-risk drinking. The Committee notes also the previous commitment by the government to continue to assess the impact of the tax increase.

Recommendation 2

1.198         The Committee recommends that the Senate pass the Bills.

Senator Claire Moore
Chair

March 2009

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