Chapter 2 - Key issues
2.1
The evidence the Committee received supported the
bills. Alcohol industry bodies endorsed the bills' aim of simplifying and
modernising the regulatory framework.[2]
Some witnesses praised the government for streamlining aspects of the excise
tariff regime, protecting the standards for key products (namely brandy) and
reducing the amount of red tape in this area.[3]
2.2
The focus of much of the evidence was not so much on
the bills themselves, but on what further
measures or reforms witnesses believe are required. The tenor of much of the
commentary was that the committee's inquiry offered an opportunity to press
forward with wider reforms in relation to alcohol policy in general and alcohol
taxation in particular.[4] The minority
view put to the committee, however, accepted that reforms are required at some
stage but argued that now was not the time for any additional change.
2.3
The sections that follow canvass these arguments. The
first section provides a brief outline of the case for reform of alcohol
taxation and its guiding principles. The next two sections address the two key
areas that attracted attention before the committee: volumetric taxation of
alcohol; and tax equity in relation to packaged ready-to-drink (RTD) beverages.
Alcohol taxation reform
2.4
The majority of the evidence presented to the inquiry
urged the committee to seize the opportunity to call for greater reform of
alcohol taxation policy. Advocates of reform called for measures to address tax
anomalies that favour some products over others. They also called for changes
to encourage consumption of lower alcohol strength drinks with expected flow-on
benefits in reducing problematic drinking behaviour and community harm.[5]
2.5
Differences existed among these advocates over the
extent to which changes should be made, with members of the 'health lobby'
calling for wider ranging reforms[6]
while representatives of the distilled spirits industry focused more on tax
parity between low and mid strength RTDs and beer.[7]
2.6
Regardless of these differences, a number of common
points emerged about some of the key factors that should inform and guide
reform in this area. These can be summarised as follows:
- Alcohol strategies need to balance a range of
factors including industry needs, the benefits of the alcohol industry to the
economy, the health and social costs of alcohol, tax equity and revenue
collection;[8]
- Alcohol pricing influences consumption,
especially with heavy and binge drinkers;[9]
- Alcohol taxation is a critical instrument in
influencing consumption and thus managing alcohol related harm across the
community;[10] and
- Alcohol taxation should be part of a broader
strategy that incorporates education, enforcement of licensing laws, policing,
detection, treatment and rehabilitation.[11]
2.7
The Committee in particular notes the consensus that
has emerged in the alcohol research literature on taxation and reducing harmful
drinking behaviour and its social costs. The National Drug Research Institute
best summed up the interrelationship. It stated:
The evidence consistently indicates that public health and
safety can be improved by particular taxation policies and the design and
enforcement of liquor licensing regulations. Taxation policy has a critical
influence on alcohol related harm across the whole community.[12]
2.8
Two other considerations need to be noted. The
Committee is aware of the level of harm and social and economic cost associated
with problematic alcohol consumption within some groups in the community.
Avoiding reform simply on the ground that economic, industry or other
conditions need to be right is not a sound decision making principle while
members of the community are at risk.
2.9
Another factor the Committee has taken into account is
the advantage of incremental change over sweeping reform. Targeted adjustments
to critical parts of the alcohol tax framework are likely to yield positive
results while minimising any unintended consequences for the industry or other
parties. Even some advocates of reform indicated that incremental change was to
be preferred given the historic difficulty involved with wholesale reform in
this area.[13]
2.10
With these considerations in mind, the Committee in the
next two sections focuses on volumetric taxation of alcohol and tax
equalisation for lower strength products.
Volumetric taxation of alcohol
2.11
A volumetric approach to alcohol taxation involves
taxing beverages on their alcoholic strength – known as alcohol by volume (abv)
– rather than on their value or price. Under a volumetric system, the lower the
alcohol strength of a product, the lower the tax imposed, allowing these
products to be sold at lower prices than higher alcohol strength, higher taxed
products.
2.12
The prime reason for a volumetric tax is that it should
encourage the consumption of lower alcohol strength products which, in turn,
would reduce problematic drinking and associated health and social costs. Lower
taxes for lower strength products would also create incentives for the industry
to produce and market such products.
2.13
The question of shifting alcohol taxation to a volumetric
basis has been debated on numerous occasions, particularly recently in the
context of wine taxation policy.[14] The
overwhelming weight of the evidence before the inquiry supported shifting
alcohol taxation to a volumetric approach. Significantly, that was the view
shared by all witnesses who dealt with the problematic use of alcohol from a
health and community services perspective, and who could be taken to be free of
any commercial interest in the outcome. These witnesses were able to point in
their submissions to a large volume of professional literature giving empirical
support to the correlation between alcohol pricing and alcohol abuse; the
increase in the preference for low alcohol beverages from volumetric taxation
of such beverages; and the resultant reduction in alcohol abuse.
2.14
The Australian Medical Association (AMA) and the
National Drug Research Institute strongly advocated moving to a volumetric tax.[15] In the institute's view:
The application of volumetric taxation strategies that influence
retail price, resulting in price differentials based on alcohol content, has
been shown to be an effective public health strategy. Such strategies should
not reduce the overall price of alcohol per capita. Policies that create real
price differentials between lower and higher alcoholic beverages have the
potential to encourage the consumption of the former, discourage the
consumption of the latter and result in an overall per capita reduction in
alcohol consumption and improved public health outcomes.[16]
2.15
Mr Crosbie
from Odyssey House elaborated on the way in which a volumetric tax strategy
would operate to influence consumer and industry behaviour, as well as
producing wider public benefits. According to this body:
Such a system would provide clearer incentives for consumers to
choose lower alcohol content products. It would also promote the production of
better lower alcohol products, raise the price of cheap bulk products, continue
to raise high levels of government revenue, save government expenditure on alcohol
related problems, and would be administratively simple to apply.[17]
2.16
As noted in the previous section of the report, the
Committee heard that research demonstrably shows that lowering the price of
alcohol products through lower taxes leads to reduced consumption, problem
drinking and community harm. The Committee also notes that some in the alcohol
industry support, at least in the longer term, a shift to volumetric tax for
all alcohol products.[18]
2.17
The Committee is much persuaded by the benefits of
adopting a volumetric alcohol tax system in principle. On the strength of the overwhelming
weight of evidence before it the Committee considers such a system would produce
public health benefits
2.18
That said, the Committee is mindful of concerns that
major tax reform at this point could be disruptive for sectors of the industry
experiencing tough business conditions. The wine sector in particular expressed
concern about any further shake up to the tax system during the current period
of oversupply, particularly given recent tax adjustments made with and
following the introduction of the Goods and Services Tax (GST) Wine
Equalisation Tax (WET).[19] The
Committee also recognises that a fundamental overhaul of alcohol taxation
policy, such as the adoption of a volumetric system, requires adequate
consultation and planning. A change of this scale would also require time to
develop and implement.
2.19
It is for these reasons that, in the interim, the
Committee considers that an incremental approach to alcohol tax reform would be
more worthwhile and easily achieved. The area where the Committee considers
there is merit for such an approach is in relation to RTD products. The next
section examines the case for applying a volumetric tax to lower strength RTD
products.
Tax equity for low to mid strength alcohol products
2.20
The issue of reforming the tax structure to provide the
same tax level for low to mid strength RTDs as that enjoyed by similar strength
beer drew the most discussion during the inquiry. It was also the measure
identified as a first step that could be taken in incrementally reforming
alcohol taxation policy.
2.21
Currently beer attracts more favourable tax treatment
than RTDs. Three features of beer taxation need to be noted:
- Beer has a tax free threshold. Excise is applied
on alcohol by volume (abv) of beer above 1.15 percent abv. In other words, the
first 1.15 percent abv of beer is excise free.
- The tax or excise on beer is based on the
following three-tiered structure:
- Low strength – 1.15 percent to 3 percent abv;
- Mid strength – 3 percent to 3.5 percent abv; and
- Full strength – 3.5 percent to 10 percent abv.
- Taxation favours draught beer over packaged
beer.
2.22
RTDs, in contrast, do not attract the concessions
applied to beer. There is neither a tiered structure based on different abv
levels for RTDs nor a tax free threshold. Instead, RTDs are taxed at the same
rate as full strength beer but without the 1.15 per cent abv excise free
threshold.
2.23
Reform advocates from the health lobby and distilled
spirits industry argue that the current taxation of RTDs provides little
incentive for producers to develop low and mid strength products. They note,
for instance, that despite the popularity and growth of RTDs generally, mid
strength RTDs comprise only two per cent of the mid strength beer and RTD
market.[20] The current tax treatment
of RTDs is also, they say, at odds with the principle of tax equity.
2.24
The lead industry advocate, DSICA,[21] contended that applying the same tax
treatment to low and mid strength RTDs would involve a minor change in the
alcohol tax regime, affecting a small share of the alcohol market, with a
minimal impact on revenue ($2 million in its first year if implemented).[22]
2.25
DSICA also argued that much of the negative publicity
surrounding RTDs is at best impressionistic, if not misplaced, and does not
reflect empirical research. DSICA referred to research that suggests, contrary
to popular belief, youth and underage alcohol consumption or dangerous drinking
is not rising, and that the growth in RTD sales has been at the expense of
beer, wine and higher strength spirits (what is called a 'substitution effect')
rather than led to increased consumption.
2.26
Evidence from the health lobby tended to corroborate
this view. Mr Crosbie
of Odyssey House observed that much of the criticism of RTDs is based on
anecdote and personal bias, possibly because RTDs are a recent innovation. More
importantly, in terms of research findings he told the Committee:
My understanding is that the biggest growth in ready-to-drink
products—and, again, I am sure the Distilled Spirits Industry Council of
Australia will provide more concrete evidence and facts—was amongst the older
males, the above-20-year-old males, and mostly around brown spirits. The
bourbon and Coke type ready-to-drinks have expanded very significantly. There
has been an increase in white spirits sales in the below-18-year-old age group,
in the younger drinkers, but my understanding is that they have been offset by
a reduction in wine consumption and full spirit consumption by young women. So
the overall trend is basically that, if anything, young men are bingeing less
than we did when we were young, which is sometimes hard for a father to say,
and younger women are binge drinking more than their mothers did, which is a
good thing for mothers to point out to their daughters.[23]
2.27
Mr Crosbie
also considered aligning the taxation of low and mid strength RTDs with similar
strength beers would be a low risk, positive incremental reform.
2.28
While there was majority support for such a step, Lion
Nathan opposed any change in RTD taxation on the ground that it was premature.
Lion Nathan argued that the research on drinking behaviours with a new product
like RTDs was inconclusive and more time is needed better to understand the
impact of these products, particularly on underage and high risk drinkers.[24]
2.29
Mr Evans
of Lion Nathan also claimed that such products, even at lower strengths, could
have the potential to lure younger and new drinkers towards drinking spirits
with alcohol strengths in excess of 10 per cent abv. Describing this syndrome
as a 'gateway effect', Mr Evans
claimed that low and mid strength products generate spin offs for their brands
and parent companies. He also argued that because RTDs are more palatable than
traditional beverages like beer and spirits, their introduction has lowered the
barrier to drinking for young and underage drinkers. Mr
Evans provided the Committee with a range of
research to support his position.[25]
2.30
Weighing up the
evidence, the Committee considers that the arguments against equalising the tax
regime for low and mid strength RTDs are both overstated and overlook the
public benefits in promoting consumption of lower strength alcohol products.
The research presented in evidence was consistent in showing that lower pricing
through tax adjustments influences consumption patterns and reduces problem
drinking. The research also does not show RTDs increasing overall alcohol
consumption but rather suggests that youth and younger drinkers have
substituted RTDs for other beverages such as beer and wine. The growth of RTD
sales has, according to DSICA, slowed of late.[26]
2.31
The Committee also considers that if youth and even
underage drinkers are going to consume RTD style products, it is far better
that the pricing of RTDs favours consumption of lower strength RTDs than more
powerful RTD beverages. As Mr Lawler
of the Alcohol and Other Drugs Council of Australia observed:
The argument could be
that if you have something that tastes like cordial, is easy to drink and is
five per cent alcohol, then it is going to have an effect. But if you were to
make something that was three per cent alcohol or less, then you would still
have that same sensation of taste but you would not necessarily get the effect.[27]
2.32
It should also be noted that problematic youth or
underage drinking, to the extent that it exists, is not simply a 'supply' issue
in terms of pricing different alcohol products. It also involves, among other
things, education and the enforcement of licensing and sales regulations.
2.33
The Committee considers on the basis of the clear
weight of evidence and expert opinion before it that there is a strong argument
for advancing reform of alcohol taxation by applying the same tax (excise)
treatment to low and mid strength RTD products as currently applies to the same
strength beer products. This would involve introducing the same three tier
structure according to abv for RTDs as that which applies for beer. It would
also mean extending the 1.15 per cent excise free threshold that applies to
beer but only to low and mid strength
RTDs. Full strength RTDs (ie. above 3.5 per cent abv) should not be eligible for the 1.15 per cent
excise free threshold.
2.34
Finally, the Committee notes the evidence that the
revenue effect of such a measure would be negligible.[28]
Conclusion
2.35
The Committee notes that the measures incorporated in
the bills were supported without dissent. Accordingly, the Committee considers
the bills should be passed.
Recommendation 1
2.36
The Committee recommends that the Customs Amendment
(Fuel Tax Reform and Other Measures) Bill 2006 and three related bills should
be passed without amendment.
2.37
In terms of reform of the alcohol taxation regime, the
Committee considers that in principle a volumetric tax for all alcohol products
should in the long term be adopted. It considers that planning, research and
consultation directed towards this goal should start soon. Any review of the
taxation regime for alcohol needs to take into account complementary strategies
to address alcohol related problems. These strategies include education,
treatment and rehabilitation, licensing and sales, enforcement and policing.
2.38
In the meantime, the Committee considers that some
immediate benefits can be achieved by way of incremental reform to the tax
treatment of low and mid strength RTDs. These products should be placed on the
same tax footing as comparable strength beers. Realigning the excise regime for
lower strength RTDs promises to lower the relative price of these drinks,
increase consumption of these products and reduce harmful drinking behaviour
and related health and social costs. This would be an incremental low-risk step
with minimal revenue implications.
Recommendation 2
2.39
The Committee recommends the Government consider the
long term adoption of a volumetric tax system for all alcohol products. The
Committee also recommends the Government now commence planning and
consultations with relevant parties as a step towards this goal.
Recommendation 3
2.40
The Committee recommends the Government apply the same
tax and excise treatment to low and mid strength ready-to-drink (RTD) alcohol
products as is applied to similar strength beer products. The tax and excise
structure for RTDs should incorporate the three tiered structure currently
applied to beer, with the 1.15 per cent excise free threshold that applies for
beer extended to low and mid strength RTDs but not to full strength (3.5 per
cent alcohol by volume and above) RTDs.
Senator George Brandis
Chair
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