Reducing Harm from Alcohol through Taxation Policies
Submitted by Saghar Kari, Master of Public Health graduate student at the University of Saskatchewan, Jason LeMar, Coordinator, Alcohol Policy Network, Ontario Public Health Association, Benjamin Rempel, Manager, Alcohol Policy Network, Ontario Public Health Association
Edited by Dr. Gerald Thomas, Senior Policy and Research Analyst, Canadian Centre on Substance Abuse
II Research Based Evidence
III Rising Alcohol Consumption Levels
V Current Challenges
VI The Role of Public Health
The content in this article is taken from the Alcohol Policy Network’s 2010 – 11 research article Reducing Harm from Alcohol through Taxation Policies.
There is a crucial need from a public health perspective for the prevention of alcohol-related problems through policy. Healthy public policies are among the most effective ways to improve the health and well-being of individuals, communities and societies as a whole. This article will discuss the best practices of raising alcohol taxes in order to foster a healthier, more productive society while continuing to generate government revenue.
II Research Based Evidence
Various research findings and supporting evidence from other jurisdictions show a strong inverse relationshipor negative correlation between alcohol prices across all beverage types and alcohol consumption among all age groups, specifically for youth.
Examples of research-based evidence include:
· In 2009, Wagenaar et al. released their findings from a systematic review of 112 studies, which looked at identifying whether a relationship exists between alcohol tax/prices and overall consumption. The study concluded that an inverse relationship exists between alcohol taxes/prices and drinking levels. Through meta-analysis, evidence of statistically overwhelming results showed that alcohol prices affect the entire population of light to heavy drinkersand this affect is seen across all beverage types. Furthermore, the study identified public policies that increase the cost of alcohol resulting in substantial reductions in drinking as opposed to other preventative policies or programs. The authors conclude: “We know of no other preventive intervention to reduce drinking that has the numbers of studies and consistency of effects seen in the literature on alcohol taxes and prices.”
· Grossman et al. reviewed research from 1974 to 1989 that looked at the effects of alcohol price on youth alcohol consumption. They concluded that heavy alcohol consumption and frequent drinking by youth was negatively correlated with alcohol prices. Therefore, as the price of alcohol increased, youth heavy and frequent drinking episodesdecreased, and vice versa. Grossman et al. also concluded that higher beer taxes significantly lowered vehicle collisions among youth.
· Studies from Australia show that taxing on alcohol content leads to the manufacture of lower strength beverages by alcohol industry and enables these companies to continue generating financial revenues while reducing overall intake of ethyl alcohol and improving public health and safety outcomes.
III Rising Alcohol Consumption Levels
In Canada, there has been an overall increase in per capita alcohol consumption of 10% from 7.2 litres in fiscal year 1996 – 1997 to 8.2 litres in fiscal year 2008 – 2009. In 2009 heavy drinking was highest among the male population (24.8%) versus the female population (9.9%) of all age groups excluding the 12 – 15 age range. Perhaps more concerning, males in the age range of 18 – 19 (41.6%) and females in the age range of 18 – 19 (28.0%) had the highest reported heavy drinking than all other age groups.
Further, alarming results for youth (approximate age range of 18 – 24) are seen in the categories of current drinkers, hazardous drinkers, and binge drinkers, with the highest percentage of consumption reported for both males and females. This age category also has the highest percent of alcohol-related crashes and traffic deaths. Evidence shows that measures of alcohol-related problems including morbidity and mortality are highest among Canadian youth in the age range of 18 – 24.
In fiscal year 2008 – 09, total alcohol beverage sales of beer, wine, and spirits from all beer stores, liquor stores and agencies in Canada totalled approximately $19.4 billion. This accounted for a 3% increase in sales from the preceding 2007 – 08 fiscal year. By March 31, 2009, Canadian wineries, liquor stores and agencies had increased wine sales by 4.6% from the previous year, with a 3.7% sales increase occurring in Ontario. In this same timeframe, Canadian beer stores and agencies had increased beer sales by 2.2% from the previous year, with a 0.2% sales increase occurring in Ontario. By March 31, 2009, Canadian liquor stores and agencies had increased spirit sales by 2.9% from the previous year, with a 1.9% sales increase occurring in Ontario.
Harmonized Sales Tax (HST)
On July 1st 2010, the new 13% HST, comprised of the existing 8% Provincial Sales Tax (PST) and 5% Federal Goods and Services Tax (GST), came into effect in Ontario.This new taxation model has resulted in a decrease in the tax rate for most segments of alcohol beverages noting the Liquor Control Board of Ontario (LCBO) mark-ups on all categories of alcohol offset the decreased price at the cash register.
According to the LCBO, only 12% of its products have been subjected to price increases under the new HST. In general, the average price increase across these products for spirits, wine and beer is very small at the retail level. A much smaller percentage of these spirits, beer and wines have experienced a larger mark-up, however, brands and alcohol content associated with this change is not publicly available. As a result of the tax change, the remaining 88% of products have either been left unchanged or have seen a price decrease. It is also important to note that products experiencing a price change appear to have no pattern of priority in regards to alcohol content or type of alcohol, while aggregate information on the exact number of products which have come down in price is not publicly available.
In response to these changes, the Ontario government website states: “although sales tax on alcohol is decreasing, other alcohol fees and taxes are changing to continue to support social responsibility.” A spokesperson for the Liquor Control Board of Ontario explained that minimum price changes to meet the government’s mandate for social responsibility is “based on studies that suggest lowering the price of alcohol products too far could lead to increased consumption.”
Federal Excise Duty and Minimum Pricing
It is critical to point out that federal excise duty mark-ups have seen virtually no shift in two decades. Lack of alcohol price adjustments in accordance with the Consumer Price Index (CPI) since 1991 has resulted in a downward trend for the real price of alcohol where the effects of inflation have been ignored. In most cases, federal excise duty charges are higher per litre of alcohol for lower strength alcohol beverages as opposed to higher strength alcohol beverages.
Australia takes a different approach, which is a leading example of having enforced strict protocols for its excise duty alcohol taxation model. Tax is administered at a rate specific to the alcohol content of the product and is measured in litres of alcohol. Therefore, products with ‘very low’ to ‘low’ alcohol content are taxed minimally to promote their consumption over higher alcohol drinks. Australia has also established bi-annual (February 1st and August 1st) excise duty rate increases in accordance with the CPI. This system deters inflation from decreasing the real value of alcohol overtime thereby reducing its affordability.
Opportunities currently exist for similar initiatives to be undertaken in Ontario. For example, minimum pricing – a price below which a product cannot be sold – or social reference pricing, has a set March 1st annual adjustment date where prices can be modified in accordance with the Ontario CPI. Regulation establishing this indexation requires annual adjustments to minimum prices. There is also a baseline taxation rate designed in favour of purchasing lower alcohol content beverages.
This option promotes public health and safety by providing price incentives for the purchase of lower alcohol content beverages while continuing to aid in substantial government revenue. According to the Brewers Association of Canada, the introduction of higher minimum prices for beer with an alcohol content of 5.6% or more caused a dramatic loss in sales for beer in this category. Consequently, this led to an increased number of higher alcohol brands being eliminated from the market or being subjected to reductions in their alcohol content.Social reference pricing has illustrated the positive power associated with alcohol prices based on alcohol content. This has been seen as a good model to follow and use for both the HST and Federal Excise Duty taxation systems
V Current Challenges
The provincial government has had various challenges over the past two years with regards to incorporating healthy public policy and reducing harms from alcohol. Below is an itemized list of some of the province’s challenges and misgivings and how alcohol policy has been affected.
- Currently the Ontario provincial government’s debt is over $220 billion with the inclusion of old hydro debt and assets. This current debt level translates to approximately $17,000.00 per person in the province. The province’s debt load is greater than that of California’s, and the debt-to-revenue ratio exceeds 200 percent.
- The Liquor Control Board of Ontario (LCBO) is one of the provinces shining beacons, fiscally. The largest buyer of alcohol in the world enjoys revenue of $4,133,191,000(2007 – 2008) and has delivered a dividend exceeding $1 billion since 2003 – 2004.
- Due to the LCBO’s substantial revenue generation and the province’s serious fiscal imbalance, the province, under the leadership of Dalton McGuinty, asked Goldman Sachs and CIBC World Markets to review the sale of all crown assets including the LCBO. The reports were never made public and finance Minster Dwight Duncan closed the issue during the summer months of 2010.
- During the summer months of 2010 the province decided that it was going to extend the drinking hours to offer soccer fans the opportunity to tipple while they watched their favourite team play. This erosion of physical availability control of alcohol extended itself beyond the World Cup and into the international 24-hour art festival in Toronto, called Nuit Blanche, and most recently to the Royal wedding when Ontario bars were allowed to serve alcohol at 6 a.m.
- The liberalization of drinking laws, lack of understanding in the significance of alcohol policies and the immediate need for tax revenue have resulted in the province’s attorney general publicising that his ministry would examine the possibility of easing Special Occasion Permits, by throwing out tented areas for street festivals and allowing the entire festival to be licensed. The attorney general also said he would look into allowing hotels and vacation resorts to give away free alcohol similar to all-inclusive vacation packages.
- Provincial Conservative leader Tim Hudak has proposed that alcohol prices decrease to a buck a beer. "There are many folks, and myself included, who look forward to the $24 two-four on the May 24 weekend, that is now something in the past."The fact that Mr. Hudak was the Minister of Consumer and Business Affairs, which oversees the LCBO suggests he misunderstands the importance of alcohol control policy levers, such as maintaining minimum pricing.
VI The Role of Public Health
Ample evidence shows alcohol price as a powerful determinant of both consumption levels and alcohol-related harms among men and women of all age categories, especially youth. Public health can work with relevant stakeholders and government departments to consider the effects of inflation on alcohol on an annual basis and to raise alcohol taxes with a price incentive focus for lower alcohol content products. Such measures have been shown to reduce consumption levels and alcohol-related harms.
As outlined through research, the more effective methods of mitigating the negative effects of drinking in relation to taxation policy include setting minimum drink prices, maintaining a government monopoly on alcohol sales, reducing the percentage of alcohol in alcoholic products, and having high government taxes on alcohol. Best practice policies should be considered in conjunction with public opinion and political readiness when framing developments in alcohol policy.
Public health plays a critical role in preventing current control policies from being eroded and dismantled. Maintaining the status quo of a government monopoly controlling the sale and availability of alcohol has become more important than ever. Public Health can work with relevant stakeholders and government departments to maintain or improve current alcohol control policies.
Decreasing individual total alcohol consumption levels and positively modifying individual drinking patterns will contribute to lower health care costs, lower reported criminal activity, and higher workplace productivity. Promoting low alcohol content beverage consumption and preventing dramatic declines in the real value of alcohol prices as a result of inflation will not only reduce morbidity and mortality rates, but will help generate surplus revenues for local or provincial governments, with profits ideally funding essential public health and health care services.
Ultimately, the challenge for public health is in changing public attitudes around the acceptability of intoxication. Increasingly, the underlying issue of harms associated with alcohol is the tolerance for risky drinking in Canadian culture. Building on the National Alcohol Strategy, Reducing alcohol-related harm in Canada: Towards a culture of moderation: Recommendations for a national alcohol strategy,Ontario can build a provincial alcohol strategy that not only works towards a culture of moderation, but also ingrains common messaging around responsible drinking while implementing and enforcing effective evidence-based policies. Such movement will result in positive effects in reducing population-level alcohol-related harms.
The content in this article is taken from the Alcohol Policy Network’s 2010 – 11 research article Reducing Harm from Alcohol through Taxation Policies. If you would like a copy of the report please contact Jason LeMar at email@example.com.