Casey's Beer

The Henry tax review was released this Sunday. The review recommends a single rate of tax on the volume of alcohol contained in a beverage. The review takes the postion that alcohol taxes should not be used for general revenue raising, instead they should only cover the costs of the damage caused by alcohol, the “spillover costs”.

Beer and spirits are already taxed by their volume of alcohol, albeit at varying rates. Wine, however, is taxed by its value, and cheap wine is taxed very lightly. Moving to a volumetric tax on alcohol would bring in a floor price for alcoholic beverages. This would help counter some alcohol abuse. In essence it would cost you much the same to get drunk regardless of the beverage you choose.

The review is very clear about the limitation of using the tax system to curb alcohol abuse. Yes increasing the price of alcohol limits consumption but it penalises drinkers who do not abuse alcohol. Alcohol abuse can be better combatted by specific programs and interventions. The review notes that if the costs of alcohol abuse fell then so too could the alcohol tax rate.

The preferred rate for a volumetric tax is the current excise rate for full strength packaged beer, including the first 1.15% of alcohol content being tax exempt. The rationale for this is that very low alcohol products would be taxed quite lightly. For beer of 3.3% alcohol only half of the alcohol content is taxed.

The review wants to see not only the end of the current Wine Eqaulisation Tax but the end of any concession schemes as well. The current WET exemption scheme means a lot of wine is essentially untaxed apart from GST. If the purpose of alcohol taxes is to pay for the damage done by alcohol, then exemptions and concessions undermine that. And those alcoholic beverages which are taxed have to make good the shortfall, to the disadvantage of their customers.

The review also argues against the WET exemption scheme because it keeps uneconomic wineries going. Indeed, many small wineries survive only because of the scheme which distorts the market.The WET exemption scheme is also open to rorting. If a small winery does not use the maximum value of its exemption, then the exemption is sometimes passed up the supply chain. As well, the WET exemption discourages mergers as there would be only one exemption for the business created by the merger of two or more smaller wineries. Merging is often a way for businesses to survive in tough times, and now with grape glut the wine industry is in a tough spot. The review notes that there are much better ways to deliver industry and regional assistance than through the tax system.

The Government has not embraced the Henry tax review in its entirety. It is very unlikely the proposals for alcohol tax will be adopted within the near future. The wine industry doesn’t like it and the wine industry is politically too powerful. Expect some serious lobbying. Nonetheless it might provide inspiration for future Government policy.

What does it all mean for the beer drinkers and the brewing industry? If the review’s recommendations were adopted, then beer and spirit drinkers would no longer subsidise the wine industry. The microbrewing industry has been lobbying for an excise exemption scheme similar to that enjoyed by small winemakers. The review argues against such schemes on various grounds. Although the review’s recommendations on alcohol won’t be taken up by the Government, they still set the tone for Government policy. They can also provide excuses. It now seems even less likely the microbrewing industry will get the excise concession scheme it wants.

You can find the review of alcohol taxes here. It is quite readable.

This entry was posted on Monday, May 3rd, 2010 at 1:31 am and is filed under Uncategorized. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.