Posted 14/04/2022 by Matthew Thomas
In the lead-up to the 2022–23 Budget media reports suggested that the Government was considering halving the excise tax on draught beer—that is, beer designed to connect to a pressurised gas delivery system, pump delivery system or other system prescribed by the regulations.
It was claimed that this was in response to a push from hotels and clubs that are seeking to attract more patrons in order to recover from the economic impacts of the COVID-19 pandemic.
According to the most recent IBISWorld industry report on pubs, bars and nightclubs in Australia, the industry has indeed been significantly affected by the COVID-19 pandemic. However, the industry has also seen a decrease in profitability in recent years as a result of constrained per capita alcohol consumption due to rising health consciousness and government regulations aimed at curbing binge drinking, alcohol-related violence and problem gambling. Strong domestic tourism is forecast to boost industry performance and industry revenue is predicted to rise at an annualised 2.4% over the 5 years through 2026–27 to $19.5 billion.
The proposed measure was also billed as a means to help lower Australians’ cost of living.
While the Government did not ultimately end up reducing the excise on beer as a part of the Budget, the mooted measure highlights issues associated with alcohol taxation arrangements in Australia, and changes in the pattern of alcohol consumption.
Alcohol taxation
Alcoholic drinks are subject to 3 taxes in Australia.
Excise (and excise-equivalent customs) duty is levied on beverages other than wine, including beer, spirits and ready-to-drink beverages (RTDs). Excise duty is a form of volumetric taxation under which tax is imposed on domestically produced alcohol at a fixed rate per unit of volume. In Australia’s case, this is dollars per litre of alcohol content. An equivalent rate of tax is imposed on imported alcohol products, in the form of customs duty. Excise duty rates for alcohol are listed on the Australian Taxation Office website and are indexed in line with the consumer price index (CPI) twice a year.
While excise and excise-equivalent customs duty is levied on a per-litre of alcohol basis, this varies according to the type of beverage, size of container and alcoholic strength. Excise rates vary substantially among alcohol products. As explained in an earlier publication by the Parliamentary Library, the variability in rates is a result of a range of factors, including ‘the need to raise revenue, the desire to reduce the social costs of alcohol consumption, political compromises, and industry protection’.
The other 2 alcohol taxes are both value-based (ad valorem) taxes—namely, the Wine Equalisation Tax (WET) and the Goods and Services Tax (GST). The WET is levied at 29% of the wholesale value of wine. The GST is added to alcoholic beverages after the excise or the WET is applied.
In the case of beer, the product is taxed at different rates based on a portion of its alcohol content—that is, depending on whether it is low-strength, mid-strength or full-strength. Beer is also taxed at different rates depending on whether it is draught beer (keg beer served on tap in pubs and clubs), packaged beer (sold by the six-pack or carton) or non-commercial beer (beer brewed for non-commercial purposes, that is, home brew). Beer taxation differs from that of other alcoholic beverages in that the first 1.15% of alcohol is excise-free. The intention behind this tax incentive is to encourage the consumption of low alcohol beer.
In 2020–21, the Government received $2.5 billion in excise and customs duty on beer. This figure includes excise on draught beer and packaged beer.
Because of the inconsistency in the way alcohol is taxed in Australia, it is difficult to compare tax rates and quantities of alcohol across different products. However, it is clear, as the Parliamentary Budget Office notes, that:
… the current system does not demonstrate a correlation between alcohol content and effective rates. Spirits, RTDs and expensive wine have the highest rates, but their alcohol content ranges from very low to very high.
Relatedly, as the Henry Tax Review observed, ‘the current system does not reflect the risks of consuming different products’. A litre of alcohol has similar negative social effects, irrespective of what form the beverage takes. As a result, the Henry Review argued that a more rational and equitable means of taxing alcohol would be a volumetric system that imposes a uniform rate of tax on the alcohol content of all beverages. Such a system would serve multiple purposes, including helping to ‘remove production and consumption biases from the alcohol taxation system, reduce compliance and administration costs, and better target the spillover costs of alcohol consumption’.
Beer consumption
Based on latest available Australian Bureau of Statistics (ABS) Apparent Consumption of Alcohol figures, in 2017–18 an estimated 191.2 million litres of pure alcohol was available for consumption from alcoholic beverages in Australia. Beer made up 39.0% (74.6 million litres) of this total.
Most of the pure alcohol in beer available for consumption was full-strength beer (79.7%) followed by mid-strength beer (17.4%) and low-strength beer (2.9%).
Over the decade to 2017–18, per capita alcohol consumption fell by around 1.1% each year, and, in the previous 5 years, beer consumption declined by 0.7%.
Health and welfare organisations’ criticisms of the proposal
In response to media reports of the possible budget measure, representatives from public health and community welfare organisations expressed concern that reducing the price of beer could result in an increase in alcohol-related harms.
Alcohol-related harms and costs
Findings from the 2019 National Drug Strategy Household Survey (NDSHS) indicate that Australians aged 14 and older are drinking less frequently. The proportions of people drinking daily and at least weekly have declined since 2004 and in 2019 were at their lowest level since 2001. Between 2016 and 2019 there was a statistically significant decline in the proportion of daily drinkers and a statistically significant increase in the proportion of ex-drinkers. Similarly, the proportion of people aged 14 and over abstaining from alcohol almost doubled between 2001 and 2019, with this increase being largely driven by younger age groups.
There has also been a decline in the number of Australians drinking at levels that put their health at risk over the past decade or so.
The 2020 Australian National Health and Medical Research Council (NHMRC) Australian Guidelines to Reduce Health Risks from Drinking Alcohol recommend that ‘to reduce the risk of alcohol-related disease or injury, healthy men and women should drink no more than 10 standard drinks a week and no more than 4 standard drinks on any one day’. A standard drink contains 10 grams of alcohol.
Under the previous version of the Guidelines alcohol-related risk was defined in 2 ways, namely, risk of alcohol-related harm over a lifetime and risk of injury on a single occasion of drinking. The superseded Guidelines recommended that to reduce the risk of alcohol-related disease or injury over a lifetime a healthy adult should drink no more than 2 standard drinks on any day. To reduce the risk of alcohol-related injury on a single occasion, the Guidelines recommended that a healthy adult drink no more than 4 standard drinks.
According to the Australian Institute of Health and Welfare (AIHW), between 2010 and 2019 the proportion of people drinking at levels that exceeded the previous lifetime risk guideline fell from 21% to 16.8%. Over the same time frame people drinking at levels that posed a single occasion risk declined from 29% to 25%. However, the AIHW cautions that ‘these declines do not mean that fewer people are at risk of injury or illness, due to the population increasing over the same time frame’. It also points out that the number of people exceeding the previous single occasion risk guideline at least once a month ‘has increased substantially since 2001, from 4.6 million to 5.2 million’.
The number of Australians who have been verbally or physically abused or put in fear by someone under the influence of alcohol in the previous 12 months remained relatively stable between 2016 and 2019 at around 1 in 5 (4.5 million) people.
More recent ANUPoll data suggest that alcohol consumption increased slightly in the 12 months to May 2020, with Australian National University researchers arguing that some of the increase may be attributable to factors associated with the COVID-19 pandemic (such as boredom for males and increased stress for females).
In 2018 (latest available data) alcohol was the fifth greatest risk factor contributing to Australia’s burden of disease and injury (behind tobacco use, overweight (including obesity), dietary risks and high blood pressure). The social and economic costs of alcohol use in Australia have been estimated at $66.8 billion in the 2017–18 financial year.