Commentary 30th Mar 2015

Issues paper flags ‘lower, simpler, fairer’ tax: experts react

The below exert by Brian Vandenberg featured in the The Conversation article 'Issues paper flags 'lower, simpler, fairer' tax: experts react'. 

Alcohol taxation

In a country where three-quarters of the population are drinkers, and many drink too much, taxing alcohol makes dollars, and sense. This is an inescapable fact for a federal government looking for opportunities to help the budget bottom line, in a way that can also curb heavy drinking and the tide of harm from alcohol across the nation.

Probably one of the biggest understatements in the government's tax discussion paper is that current alcohol taxation is "complex". Previous commentators' assessments have been much less flattering and more truthful, with former Treasurer Peter Costello labelling the system a "dog's breakfast", and former Treasury head Ken Henry describing it as "incoherent and contradictory". One thing that is universally agreed is that the system is broken, and it's more a matter of when not if reforms should start.

As the discussion paper explains, the main cause of disparities and inequalities in the way alcohol is taxed at present is the muddled approach to, on the one hand, taxing wine according to its wholesale value (known as the Wine Equalisation Tax), but on the other hand, taxing beer and spirits according to their alcohol content. The latter is a fairer and simpler approach, and is the way most OECD countries tax wine, beer and spirits products.

From a health perspective, shifting to taxing wine tax according to its alcohol content is the best way of ensuring prices reflect a product's toxicity and propensity to cause harm.

Brian Vandenberg

PhD student, Monash Business School

Under the current WET system, the cheaper the wine, the less it is taxed, regardless of its alcohol content. As a result, one standard drink (12.5ml of alcohol) of cask wine (12.5% alcohol) is taxed only 4 cents, whereas mid-strength beer (3.5% alcohol) is taxed 37 cents.

These contradictions don't assist government revenue, nor do they sustain the industry, with the largest wine producers themselves also calling for reform. International and Australian research shows that modifying the price of alcohol, through taxation, is one of the most cost effective ways for government to discourage heavy drinking and harm in the population. It's very pleasing to see that discussion about alcohol tax reform will be part of the white paper process and I'm hopeful that sensible and evidence based reform in this area will prevail, eventually.

  • Bran Vandenburg

    Brian Vandenberg

    PhD student, Centre for Health Economics Monash Business School

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