glasses of red wine

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Federal Budget 2017: why did the alcohol industry get off lightly?

18th May 2017

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Julie Smith was formerly a senior economist in Australian and New Zealand treasuries and department of finance. She has a PhD in Economics (ANU) and, prior to joining the RegNet School of Regulation and Global Governance, was at the Australian Centre for Economic Research on Health, at the ANU College of Medicine, Biology and the Environment.

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On Budget day, RegNet hosted Glenys Byrne, a former senior official in the Department of Finance, as part of our weekly seminar series.

Byrne’s analysis of this Budget and previous Budgets explored why taxes on the tobacco industry have continued to rise whilst the alcohol industry has been left largely untouched, despite the significant social and health harms of alcohol abuse.

A major problem, she argued, is the poorly designed Wine Equalisation Tax (WET) implemented in 2000, which is really a fiscal subsidy. Being levied on price and not alcoholic content, the WET benefits the producers of bulk wine and cask wine, allowing it to be sold very cheaply. The first step towards better regulation of alcohol, says Byrne, is to replace this tax with volumetric taxation (based on alcoholic content). Lack of a consistent approach across different types of alcohol prevents us from having what we need – simple and consistent regulation of alcohol where price is directly linked to strength. What we have learned from regulating tobacco is that increasing price is very effective in reducing uptake and encouraging cessation.

Byrne’s seminar was reported on by Peter Martin, Economics Editor of The Age, who focused on another of Byrne’s reasons for the lack of government action on alcohol – the fact that the harm caused by alcohol is less visible compared to the harms of tobacco. He said:

“While both drugs kill people, the harm alcohol does is under-reported. Child sexual abuse, date rape, domestic violence and the carnage that follows binge drinking aren’t widely acknowledged. Deaths from tobacco are better documented.”

Byrne points out that as smoking was historically much higher among males, the harms of tobacco have been largely experienced by men, whilst the harms of alcohol fall heavily on women and children. Martin explores this further as a possible explanation of why there has been greater action on tobacco than alcohol:

“All of our treasurers have been men. Wayne Swan dismissed a recommendation from the Henry Tax Review to more properly tax wine, and Scott Morrison wound up a tax inquiry whose discussion paper had been strongly critical of the tax regime for wine.”

Another aspect, Byrne explained, is the alcohol industry and its many powerful connections. In 2010 a recommendation to increase regulation of alcohol was rejected on the basis of business interests, especially of the wine industry. On this aspect, Martin said:

“One explanation is that while Australia no longer grows tobacco, it makes a lot of wine. Many of the wine companies are big and located in influential or National Party electorates.”

You can read Peter Martin’s full article in The Age here.

Updated:  12 February 2016/Responsible Officer:  Director, RegNet/Page Contact:  Director, RegNet