Why the Price of a Drink Is Always Going to Go Up — and It Probably Should

An image showing someone paying for beer.

The Brewers Association of Australia are foaming at the mouth over a new beer tax implemented in Australia. As of Tuesday, 1 August, beer sales have been hit with an additional 2.2% tax.

It may not sound like much, but the tax on beer has increased by 10% over the past 12 months.

“A 10 per cent increase in beer tax since last year just shows that these tax hikes are becoming out of control,” John Preston, CEO of the Brewers Association, has said in a press release.

“We don’t believe these increases are now actually raising any more money for the Government. They are just hurting beer drinkers and our pubs and clubs.”

With these changes factored in, beer drinkers are now paying $20 per slab in tax. That works out to $1 per pint, while publicans are paying around $80 in tax per keg.

The changes are part of a larger alcohol tax adjustment, also implemented yesterday, whereby all spirits will increase by the same amount.

Industry representatives are up in arms about the increases. Australian Distillers Association chief executive, Paul McLeay, has said that tax levels on alcohol have become “unthinkable.”

“This is a devastating blow to spirits producers around the country, who are making a valuable contribution to domestic manufacturing and tourism,” McLeay said.

“If the government is serious about growing domestic manufacturing jobs, particularly in the regions, they can’t have it both ways.”

An image of beer production in Australia
Image: Getty Images

Industry calculations suggest that Australia pays the fourth-highest tax on beer in the world. Other studies show that, in 2018, Australia had the eighth-highest total taxes on alcohol overall. Still more research suggests that we’re not even in the top 20, however, when it comes to the cost of alcohol over all.

Although drink producers have long been calling for taxes on their products to be slashed, ostensibly to protect jobs, alcohol taxation is not straightforward. Indeed, nations like Australia have been arguing over the benefits and the consequences of how we price our drinks for decades.

So, here’s why Australia has such high tax on booze and why the price of a schooner at your local is about so much more than publican profits.

Alcohol Tax Increase

Australia has some of the most complicated alcohol taxing in the world and experts have previously derided our system as “incoherent.”

Under Australian law, there are three kinds of alcoholic drink tax. Alcohol falls under ‘excise’ taxes, additional taxes placed on consumer goods in an effort to mitigate their social impact — Tobacco is the other big excise duty recipient along with fuel. Excise is paid on beer, spirits, and ready-to-drink beverages, but not wine, which is subject to Wine Equalisation Tax or ‘WET’. Excise taxes alcohol based on volumetric taxation in dollars per litre of pure alcohol within a drink. These rates change depending on the size of the container, the alcoholic strength, and the type of drink. All alcohol is then also subject to Goods and Services Tax, or GST.

What the drinks industry is getting upset about is actually a routine increase. Excise duty is indexed in line with the Consumer Price Index twice per year — in August and February. The CPI indexation means that taxes on alcohol will always go up and your drinks will always get more expensive.

Why Alcohol is So Expensive in Australia

Australia has a higher cost of living and associated production costs for alcohol production than other places. This goes part way to explaining why drinks are so expensive. The other part is tax. Alcohol, like other drugs we apply ‘sin taxes’ to, has to be priced somewhere between a free for all and an outright extravagance.

The reason governments tax different drinks differently is a complicated mix of political compromise, industry protection, and an effort to mitigate social harm. Low-strength beer is taxed the least, as government want to encourage people to drink weaker drinks.

Despite the high taxes, Australians spend roughly $26 billion on alcohol each year. Of that, the government rakes in around $8 billion in tax, up from $6.5 billion in 2017. At the same time, the estimated social cost of alcohol is around $66.8 billion each year. Health groups have said we should be taxing higher, as it follows that the more expensive alcohol is, the less people drink, and the less damage is caused as a result. Alcohol industry producers disagree.

An image showing wine production in australia
Image: Getty images

In 2010, there was a major review of Australia’s tax system called the Henry Review. In it, research suggested that Australia doesn’t tax alcohol in a way that reflects the social harm caused by drinking different products. It recommended all alcohol be taxed at a flat rate per unit of alcohol. Despite being over a decade old, it’s still a major talking point when it comes to alcohol pricing discussions.

Health groups challenged the Henry Review recommendation, arguing that per-unit pricing would reduce the cost of alcohol and result in an uptick in associated violence and health harms. In response to the review, the Federal Government was reported to be toying with the idea of cutting the excise of draught beer by 50% in the lead-up to the 2022 budget. The idea was a push to save failing pubs and bars following the pandemic and was heavily supported by the drinks-producing industry.

That never happened, and CPI indexing of alcohol continues, much to the dismay of the Brewers Association. Preston has warned that if indexation continues, drinking will become a “luxury.”

“While the Treasurer inherited these automatic half-yearly beer tax increases, we’re calling on the Government to step in and take some action before a trip to the pub or a dinner out with the family becomes an unaffordable luxury for most Australians,” he said.

The small-state lobby group The Taxpayers Alliance, have argued against the latest hikes, saying that more expensive drinks push people towards increased drug use, such as crystal meth, and impacts low-income earners the most.

“People in poorer areas statistically drink more and even if they didn’t, the tax would take up a higher percentage of their income than higher income individuals,” they write.

“We recognise that the impacts of excessive drinking pose significant public health issues. However, we do not support ineffective interventions and punitive taxes which will only hurt the majority of hardworking, responsible Australians”.

They are calling for the total abolition of all alcohol tax, but how much should we really be paying for alcohol?

Alcohol Pricing Australia

Finder has run the numbers and found that, across Australia, you’d be expecting to pay $2.29 for a beer, $2.76 for a wine or $3.67 for a spirit pour on average when you’re drinking at home. Once you head to a pub or bar, average costs jump up to $8.50 for beer, $13.60 for wine, and $13.07 for spirits.

The Australian Brewer Association say that roughly half of the cost of a drink is tax. Other estimates put the figure at between 6 cents and $1.24 per drink in tax, depending on what it is and where you buy it. If that was scrapped entirely, you’d be paying between $5 and $8 a beer, $7.80 to $13.40 for wine, and $7.50 to $11.80 for spirits.

One study has found that for every 1% increase in the price of alcohol, an additional 6.41 days of non-drinking are observed in the population on average. However, price rises don’t seem to have an impact on people who drink heavily or even moderately. If you can reverse that, and there’s not a lot of evidence to show what happens when you do, it’s expected that people will drink more and therefore social harm will increase.

Social conditions probably play a much larger role in pricing than anything else. While alcohol didn’t increase in price, during the pandemic, there was a concerning rise in problematic drinking during the pandemic. The Royal Australian College of General Practitioners cautioned when the government was considering lowering alcohol tax that doing so would exacerbate the issue.

“I’m seeing so many people who are drinking more [since the pandemic began],” said Dr Hester Wilson, Chair of RACGP Specific Interests Addiction Medicine.

“Any reductions to the price of alcoholic products would be absolutely devastating, at a time when we are seeing increases in the many harms from alcohol that negatively impact on far too many Australians,” health practitioners wrote in an open letter to the government, signed by Wilson.

The government also has a history of stepping in when things get dicey. In 2008, when ‘alcopops’ were all the rage and blamed for associated social and health problems, the government slapped a 70% tax increase on them. The following year, sales fell by 30%.

This prompted the Australian Medical Association to come out in favour of minimum unit pricing to counteract the drinks industry’s ability to get around the complex tax system.

Minimum unit pricing was also the approach recommended in the Henry Review and has been adopted in a number of countries, including Scotland. There, they have found that MUP tends to decrease drinking levels overall while allowing smaller suppliers to compete with larger ones as all alcohol has to be sold at the same price.

However, researchers in Australia have found that MUP relies on the assumption that all alcohol is just as socially harmful, whatever form it comes in. Their study from the University of Melbourne and RMIT, has found that not to be the case.

Regular strength beer and pre-mixed spirits in a can seem to be the most associated with drink driving and abusive behaviour. In their view, cheaper alcohol like beer and cask wine should be taxed higher, if we’re taking an approach grounded in social harms.

“Australia’s haphazard system of taxing alcohol might have got some things right,” the researchers write.

“Our findings suggest that if alcohol is to be taxed according to the damage it does, the tax system we adopt will need to be more complicated than a single rate for every unit of alcohol regardless of the form in which it comes”.

But it may not be the government who decides ultimately where pricing ends up. The latest National Drug Strategy Household Survey has found that the number of people drinking at least once a week is at its lowest point in two decades. At the same time, there is an increasing number of people who are ex-drinkers or who never drink, driven largely by young people.

Given that social dynamics around drinking are shifting, industry group Alcoholic Beverages Australia have launched a ‘Vision 2030’ strategy for how to adapt to changing conditions.

Their policies seek to improve exports, develop regional drinks production industries, and focus on high-end and tourism as a sustainable economic market.

“[This] means creating innovative higher value products, pursuing new markets, and changing how the industry can deliver on jobs and policies so that Australia can thrive,” Alcohol Beverages Australia CEO, Andrew Wilsmore said.

Is this the unreachable luxury future that drinks industry producers have feared? Maybe, but the data bears out that alcohol should probably be priced about where it is. Australia regularly tops lists of the drunkest nation on the planet. It also has high levels of domestic violence, problem gambling, and other associated behaviours. Lowering the cost of alcohol would only add to these issues.

Australian Institute of Health and Welfare data show that, over the last decade, the number of people drinking at consistently unsafe levels has dropped from 21% to 16.8%. However, it also points out that this doesn’t mean fewer people are at risk of injury or illness and that people drinking at dangerous levels on occasion has actually increased by 600,000 over the same period.

So, while it may sting to pay $10 for a schooner a the pub, there’s a whole lot more going on behind the scenes that determines that price. If paying it means keeping everyone else safe, that’s probably a cause to raise a glass to.

Related: The Best Non-Alcoholic Beer, Wine, and Spirits to Try This Dry July

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