Exploring the Public Interest Case for a Minimum (Floor) Price for Alcohol

Latest update: 01 May 2014

Final Report

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INTRODUCTION

There is community concern within Australia and internationally about the effects of harmful alcohol consumption on individuals and communities. In response to this concern, the Australian National Preventive Health Agency (ANPHA) was tasked by the Commonwealth Government to develop further the concept of a public interest case for a minimum (floor) price of alcohol, to discourage harmful consumption and promote safer consumption.

A minimum (or floor) price sets a minimum price per standard drink (or unit of alcohol) at which alcoholic beverages must be sold. Minimum pricing is not a taxation measure, but rather a regulatory measure used to increase the price of the cheapest alcohol products and prevent discounting of cheaper products. For a minimum price to be effective in reducing harmful alcohol consumption and its associated harms, drinkers who consume alcohol at harmful levels would need to reduce their consumption in response to the increase in minimum price. There is a wide range of views on whether a minimum price would be effective in achieving this outcome. This report seeks to examine the available evidence in relation to a minimum price and the reductions in harms that may result from its introduction. Further it addresses whether doing so would be in the public interest. The public interest encompasses the effect of a minimum price on citizens broadly, including the health and economic impacts of such a measure.

This report begins with an overview of current alcohol consumption patterns; the extent to which Australians engage in harmful drinking; and the nature and magnitude of harms resulting from such drinking. It then seeks to answer a number of questions which inform whether a minimum price for alcohol would be in the public interest, including:
    • whether a minimum price would reduce the harmful consumption of alcohol;
    • is there sufficient evidence to estimate the impact of any change in consumption behaviour;
    • what are the benefits and costs to the community of implementing a minimum price; and
    • are there other regulatory options available to achieve reductions in harmful alcohol consumption and alcohol-related harm?

EXECUTIVE SUMMARY

Alcohol is enjoyed by the majority of Australians — about 80 per cent of the population aged 14 and over report some level of consumption.

There is community concern, however, within Australia and internationally, about the effects of harmful alcohol consumption on individual drinkers, families and the wider community.

Particular concern is expressed about: young people and episodic risky drinking (colloquially called ‘binge drinking’) including the violence, injuries and harms to others associated with this behaviour; drinking during pregnancy; the high-levels of health and other harms amongst Aboriginal and Torres Strait Islander peoples; and the longer term health harms from regularly drinking above the level of NHMRC recommended guidelines.

In response to these concerns, the Australian National Preventive Health Agency (ANPHA) was tasked by the Commonwealth Government to develop further the concept of a public interest case for a minimum (floor) price of alcohol, to discourage harmful consumption and promote safer consumption. The public interest includes the effects on citizens broadly including the health and economic impacts of such a measure.

Harmful consumption of alcohol is associated with both social and economic costs to the Australian community, with figures submitted to the Agency ranging from $3.8 billion to $36 billion. Analysis of the differing assumptions and value judgements underpinning these figures commissioned by the Agency concluded that the policy relevant costs of harmful alcohol are in excess of $15 billion annually.

The price of alcohol is a key driver of consumption levels, and resultant patterns and behaviours. Economic analyses and natural experiments from a range of countries have consistently demonstrated that increasing the price of alcohol will lead to a reduction in overall consumption. However, while price increases are highly effective at the population level, price responsiveness varies between persons drinking at different levels.  Heavier drinkers are the bigger buyers of alcohol and further, in general, they tend to purchase cheaper alcohol than moderate drinkers. Thus, heavy drinkers are likely to be responsive to price changes. Further, the public health literature demonstrates clearly that outcomes for harmful drinkers are affected by price movements – mortality from diseases such as liver cirrhosis and rates of alcohol-related sudden deaths change significantly as a result of price changes.    

Minimum (floor) pricing

International evidence on the impacts of the introduction of a floor price for alcohol is limited; however, some important examples do exist that have demonstrated harm-reduction outcomes. Determining whether a minimum price for alcohol is in the public interest for Australia requires a thorough analysis of both the benefits and the costs to the community as well as the distribution of these benefits and costs.  Benefits include reductions in crime and violence, alcohol-related disease and productivity losses while costs include the loss of satisfaction from reduced consumption by drinkers. Initial analysis suggests that minimum pricing is potentially an effective instrument for reducing harmful alcohol consumption and its associated harms. However, estimating the exact impact of a minimum price on consumption volumes and patterns at various price points is only possible in an incomplete way in Australia as crucial parameters are missing. For example, little can be said at present about how consumers might switch between alcohol products (cross-price elasticities). Additionally, sales data are not readily available in Australia, and are expensive to purchase, reducing the ability of many stakeholders to form their own assessments from analysis or to scrutinise the underlying data in the work of others.  These data limitations reduce the confidence with which the quantum of the benefits and costs of reduced alcohol harms can be measured. 

Despite this, sufficient analysis has been conducted to make an initial judgement on whether it is in the public interest to introduce a minimum price for alcohol. As any increase in price would not be fully offset by a decrease in consumption, the total expenditure on alcohol is likely to increase. As Australia’s alcohol distribution and retail systems are fully private, a regulated minimum price increase (as distinct from a tax) would lead to profit increases flowing to the private sector from the monopoly rents created. This significantly reduces the available public benefits which could be used to further reduce or treat alcohol-related harm or be redistributed by government for other purposes. Even with extensive benefits from reductions in alcohol harms which would result from the implementation of a regulated minimum price, the loss of major offsetting benefits makes it very difficult for this policy to result in net benefit to the community. As a result, at a national level, it would be difficult for minimum alcohol price regulation to deliver sufficient benefits to overcome this hurdle.     

Thus, the Agency advises the Commonwealth Government that a minimum (floor) price for alcohol should not be introduced nationally at this time.

Minimum floor prices for alcohol have been implemented or are being considered in some overseas jurisdictions where the governments either lack the power to impose or easily change excises.  This is not the case for the Australian Government which has the full power to deal with changes in alcohol taxation.

Alcohol taxation reform

A majority of the submissions received by the Agency observed that the introduction of a minimum (floor) price was not the only price-related mechanism available to government to address harmful alcohol consumption, and that current alcohol taxation arrangements should also be considered. A prime purpose of alcohol taxation is the reduction of harms caused by alcohol misuse; thus, a coherent system of alcohol taxes would target the content of alcohol in beverages. The majority of submissions to this Review pointed to the current Wine Equalisation Tax (WET) as a measure in need of reform.  The WET is a tax based on the value (ad valorem) of the wine: the cheaper the wine, the less it is taxed, irrespective of alcohol content.

There was strong endorsement from a wide range of stakeholders for a volumetric tax on all alcohol products and many noted, referring to the ‘Australia’s Future Tax System’ Review (the Henry Review), that reform of the WET could have similar effects in reducing alcohol-related harms as those of a minimum price. There are many methods by which alcohol taxation reform could be achieved, and many considerations in such a process involving additional economic and social analyses and consideration of transition measures – these questions do not form part of the task given to the Agency.

However, when the price affordability of one product over another appears to be partially as a result of a distortion in the market due to government revenue measures, consideration of reform becomes a public health issue (not simply an economic consideration). The effective preferential treatment of wine under the WET, results in price distortions in the alcohol market in particular in favour of cheap wine. Therefore, from a public health perspective, the current WET as an ad valorem tax does not target alcohol content effectively. Preferential treatment of wine, particularly at the lower value end, is likely to be contributing to social and health harms. 

Thus, based on public health considerations, the Agency finds that the current operation of the Wine Equalisation Tax is of concern and requires reappraisal by the Government.

There is also significant practice experience and evidence to indicate that any price-related measure should be implemented as part of a broader suite of actions also aimed at reducing harmful alcohol consumption.

Alcohol sales data

Finally, preventive health policies and programs relating to alcohol are informed by sound data on alcohol consumption and alcohol-related harm. While data based on population surveys and estimates of per capita consumption are currently available in Australia and a large amount of excellent research is conducted on health policy matters, the available data for both economic and health research could be significantly improved. Alcohol sales data, for example, would allow for more refined analyses of consumption trends and improved implementation and evaluation of polices to reduce alcohol-related harm. Western Australia, Queensland and the Northern Territory currently collect wholesale alcohol sales data, while other jurisdictions do not. The lack of data from all jurisdictions hampers the ability to undertake more extensive research at a local, state and national level – including into pricing based strategies. Further, cider consumption in Australia is growing rapidly. The exclusion of cider consumption data when calculating Australia’s apparent per capita consumption of alcohol makes it difficult to determine the effect of cider on overall consumption and trends.

Thus, the Agency:

Strongly encourages state and territory governments to continue, or to initiate, the collection of wholesale sales data in order to enable and improve the essential research and analysis required to inform evidence-based public policy decisions. Such data should be available in the public domain.

Recommends that, in future, the Australian Bureau of Statistics includes cider consumption data in its Apparent Consumption of Alcohol publication.

*Note: While advice and expertise are provided to the Agency through its Advisory Council and Expert Committees, it should be noted that recommendations in the Report are those of the Agency, and do not necessarily represent the opinions of any members.