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Minimum booze prices

I commented a while back on a NCETA initiative to set minimum prices for booze.  The proposal to even study the policy got dropped but it seems to be gaining support again.  In the UK Prime Minister Brown has recently rejected advice from his main health advisor to impose minimum prices on the grounds that the policy would impact on moderate, low income drinkers.

The policy move is an effort to stop heavy boozers (the targeteed group is probably aborigines) from drinking themselves silly on cheap flagon wine. In a sense it is an imperfect surrogate for volumetric pricing – for pricing alcoholic drinks on the basis of their alcohol content not their value. This policy identifies ethyl alcohol content as the prime cause of alcohol’s social costs and advises taxing in accord with the ethyl alcohol content. Unlike a tax a minimum price would give revenue to booze companies not the government. 

A minimum price would force a switch towards drinking better quality booze with price at or above the minimum away from booze currently priced below the minimum. There would also be a reduction in overall consumption.  The Chateau Cardboard aborigines, if they did drink, would move upmarket.

The measure would have regressive impacts as PM Brown notes and will undoubtedly be criticized in Australia on these grounds. This, in itself, is a poor argument because regressivity should be assessed from the viewpoint of the total impact of  tax-transfer mixes, not the impact of a particular tax.

Minimum prices might restrain limited income youth from experimenting with booze which is a good thing.

Minimum prices might foster the creation of homemade brews with health and other costs.  It might, for example, encourage substitution toward non-alcoholic intoxicants such as petrol sniffing and smoking cannabis.

Minimum prices would reduce problem drinking by those with drinking problems though the precise effects are a matter of evidence. Dependent drinkers might be income-constrained but their compensated price elasticities are low.

The standard microeconomics argument here is that setting minimum prices provides deadweight losses in the sense that consumers lose more than booze sellers can possibly gain.  This is correct if their are no externalities associated with alcohol consumption (bashing up wives, raping adolescent kids, killing others in cars)  and if their are no internalities asociated with flawed judgements in relation to drinking.

2 comments to Minimum booze prices

  • conrad

    I’d be interested to know whether you really do get a reduction in drinking in the population most in need of it by marginally increasing the price — People addicted to things don’t behave logically, and as you yourself note, might substitute to worse (petrol) or perhaps better (cannabis) things, which is hardly much of a victory. If the substitution is to petrol (which seems most likely), then it’s certainly worse.

    As for volumetric charging — I’m surprised it’s not used already, although I think the problem with it is as that most of the Australian public doesn’t understand what a simply relationship is (it’s hard enough to convince educated people of the value of a regression line!), so we end up with all these weird and arbitrary categories (not unlike everything else, such as tax brackets).

  • MikeM

    Alcohol excise pricing has been captured by vintners and brewers.

    Most alcoholic drinks are taxed by litre of contained alcohol. Beer is taxed on the residual extent to which alcohol content exceeds 1.15% and tax varies between $6.93 per litre of additional alcohol on draught lite beer and $40.46 per litre on packaged full strength beer (although draught full strength is taxed only at $28.48), http://law.ato.gov.au/atolaw/view.htm?DocID=SAV/ALCOHOL/00011.

    Spirits are taxed at $68.54 per litre (with a concession for brandy – surprise! – at $63.99), http://law.ato.gov.au/atolaw/view.htm?DocID=SAV/ALCOHOL/00013.

    Wine is taxed on a completely different basis, usually similar to a sales tax calculated on percentage of selling price. As a consequence, 4 litre cardboard casks of wine are by far the cheapest alcohol on the market but people dining in an up-market restaurant may be paying an excise premium on their chosen wine.

    It is a complete mess.

    As I understand it, the government’s alcopops bill was intended to raise the excise on this stuff from the rate per litre of alcohol from that applying to packaged beer to that applying to distilled spirits.

    It defies reason that the Federal Opposition is simply resisting this change. It would have made sense if they were pushing for excise on all spirits to be dropped to the same as packaged beer, or for that on alcopops and packaged beer to be raised to the same as spirits or for some variant on the above.

    I recall that there were some press reports about alcopop manufacturers developing drinks based on beer with the beer taste removed and replaced by some sweet concoction that would appeal to teenage girls.

    The Act defines beer as:

    ‘a brewed beverage which

    * is the product of the yeast fermentation of an aqueous extract of malted or unmalted cereals, whether or not containing other sources of carbohydrates; and

    * contains hops, or extracts thereof, or other bitters; and

    * has not had added to it, at any time, any alcohol from any other source, and

    * contains more than 1.15% by volume of alcohol.

    Should be plenty of ways of starting with something like that and sexing it up to taste like Bacardi Breezer.

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