Saturday, August 30, 2008

Alcopops tax revenue refunded to who?

The alcopops tax has yielded a great deal of revenue although the bill justifying the tax may now not be passed by the Senate.  Apparently then the government has to return the revenue to the party who bore the tax.  The nominal incidence of such a tax is on the alcohol producers but, if demand is relatively inelastic - and that's what the solid revenue yields suggest - then the effective incidence is mainly borne by consumers so they should get most of the rebate.  It would, however, seem totally impractical to effect such rebates. 

I find it surprising that consumers are called upon to pay a tax that has questionable legality.  If the tax is not approved by the Senate that will be its status. I can't for the  life of me work out how Labor will get out of this mess.

To be clear I do support this tax and hope the Coalition will switch and vote for it. Its effectiveness will not be zero even if demands are quite inelastic.  Note that those who criticise it on the grounds that youth entirely switch to other sources of alcohol need to explain why the tax yields in fact such a lot of revenue. The existence of close substitutes suggests elastic not the inelastic demands that seem to prevail. Moreover this is consistent with average price elasticities on alcohol of around -0.6.

While the alcopops tax will not eliminate the problem of excessive youth drinking, it will help. Other measures - education and negative advertising - are a further useful component of a policy package.

11 comments:

Sinclair Davidson said...

The Excise Act allows the government to start collecting the excise upon announcement and then to validate it by retrospective legislation (must be passed within 12 months). It operates by disallowing any argument in court that the government action is defective (i.e. has no Parliamentary approval). It is ven possible to be convicted of an offence and be sent to prison under the Act - before Parliamentary approval. Failure to gain approval does not invalidate the convicton. This is appallingly bad legislation and amounts to taxation by proclamation.

The ALP and the Coalition will come to some arrangement whereby the money does not need to be repaid to anyone. Watch and see. A smelly tawdry cover-up will follow - best case scenario, the money raised already will be expost validated and given to some or other "good cause".

Both parties are as bad as each on this.

Yobbo said...

Note that those who criticise it on the grounds that youth entirely switch to other sources of alcohol need to explain why the tax yields in fact such a lot of revenue.

It's quite simple Harry. Contrary to what they might tell you in Church, "Alcopops" are not drunk primarily by teenagers. They are extremely popular with people of all ages, particularly women.

People with the disposable income to keep buying them are still buying them. Kids on the other hand will drink whatever is cheapest because they don't have any money. Since the change that pretty much means cheap wine and bottled unmixed spirits in terms of bang for your buck.

For $25 you can buy now buy 1.5 litres (4x375) of premixed 5% alcohol drinks - or you can buy a 750ml bottle of 40% ethanol vodka and a 2 litre coke.

Which one do you think kids are now buying? And which do you think is more Dangerous? Anyone who's ever drunk alcohol knows that it's far easier to wipe yourself out when you mix your own drinks - even when you aren't trying to. The more drunk you get the stronger you mix it because you can't taste the alcohol.

That is why this tax was always fucking stupid.

conrad said...

I agree with Yobbo. That's exactly my experience of being young. It was cask wine, Stone's ginger wine, 2 buck chucks, etc., not sub-zero's or whatever their equivalent is now.

I might point out too, that if you keep on raising taxes on alcohol, all the other drugs start getting more cheap in comparison. If you really want people taking ecstasy (tax free) instead of boozing, then make sure alcohol is not price competitive anymore.

Francis Xavier Holden said...

My kneejerlk is that I'm not opposed to the tax but that I don't think it will work. Like Yob and Con I'd go the cheap DIY route* as i did when callow gilded yoof. Back then it was Corio and Coke and Stones Green Ginger.(I was once so sick on Stones" it was years before I could even drink plain Ginger softdrink with out retching)

However I have noticed that at times the Youngsters Today are lazy and will outlay on pre mixed Bundies etc without regard for the significant cost savings to be had by buying a cheap Rum or Vodka and mixing it will large supermart special soft drinks.

I'd agree with conrad though - kids who give it a severe nudge are interested in the nirvana /oblivion angle and will price it as such - not as an alcohol only option - close substitutes like dope and extasy will potentially be cheaper (and less messier and possibly less dangerous aside from legality) alternatives.

jc said...

harry:

I think you have to agree with yobbo's point

Bek said...

I agree with educational and negative advertising.
I would also add the importance of parental guidance and control of children's activities, especially recreational.
I understand that everyone wants to be a good parent but I don't think anything wrong with controlling who your child gets with and limiting time of recreational activities.
When I was a child I was not allowed to stay anywhere longer than 11 p.m. Moreover, we could not drink alcohol or smoke in front of parents or brothers and sisters because it was considered wrong and without formal permission of mother and father we could not go to any party.
Youth drinking should be problem of parents first, not the government.

hc said...

Conrad, FXH, It is interesting the experience with Stone's Green Ginger wine. I got one hideous hangover 40 years ago and the thought of even looking at a bottle of this stuff still makes me nauseous.

I don't disagree that substitutions will occur - it is the effect of any tax. But they will have some negative effect on kid's drinking as the empirical evidence on demand elasticities suggests. I particularly dislike the alcopops because they conceal the fact that they are alcoholic. They move people gradually into drinking.

I must get Yobbo to explain to me the difference between an idea being 'stupid' and being 'fucking stupid'.

conrad said...

"I don't disagree that substitutions will occur - it is the effect of any tax. But they will have some negative effect on kid's drinking as the empirical evidence on demand elasticities suggest"

Then you need to model this. If the substitution is to drugs like ecstasy, then you might well lose out, since a small amount of ecstasy will be worse than a larger amount of alcohol. If the substitution is to things like cannabis, it probably isn't such a worry.

Francis Xavier Holden said...

After about 20 years I finally got to be able to drink Ginger Beer. I can highly recommemend a small glass of Stones Green Ginger Wine with super dark chocolate in front of an open fire in winter is wonderful.

In teh next few weeks I will be making my own alcoholic Ginger Beer - just waiting for the temperature in the shed to goup a bit.

Anonymous said...

It annoys me that it is referred to as an "alcopops tax". All alcohol is taxed but not on a consistent basis. Alcopops were given a concessional treatment - that is, the tax per volume of alcohol was lower for alcopops than for most other types of alcohol. As Harry has argued, there are many reasons to dislike the way alcopops are being marketed to teenagers and giving alcopops concessional treatment just exacerbates the problem. There is really no logic for treating different types of alcohol differently and at least the proposed changes were moving in the right direction.

Ideally, there would be a single rate (or scale of rates) that would treat beer, wine and spirits the same way. One result of this would be to make bottled wine relatively cheaper and cask wine more expensive.

Mark U

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