Excise taxes on alcohol
Like cigarettes, our Government puts a tax on all alcohol imported into or manufactured in our country.
In 2017, the Government collected $1.0 billion from alcohol excise taxes.1 This compares to $1.7 billion from tobacco excise taxes. Like smoking, it is important to note that this revenue does not match the excessive cost of alcohol harm in our society.
The amount of tax is mostly determined by how much alcohol is in the product which is being sold. Click here for the current excise tax rates in New Zealand. The rate of tax is adjusted annually for inflation.
The diagram below shows the percentage of the retail price that is made up by excise tax. For example, excise tax makes up about 45% of the retail price of a popular vodka bought at an off-licence, but less than 20% of the retail price of off-licence beer and less than 13% of the retail price of off-licence wine. These figures are lower than the tax paid on cigarettes – whereby between 63% and 74% of the retail price of cigarettes is excise tax. Once excise taxes are added on to the price of the alcohol product, GST is then added to the final price.
Tax increases are not always passed on to the consumer
It is alcohol companies that are required to pay excise taxes. If excise taxes were increased, they may not always pass this increase in price on to the consumer. This happened in New Zealand when the prices of cigarettes increased; the tobacco companies absorbed some of these increased costs.
This is important to remember - just because a 50% increase in excise tax should raise the retail price of alcohol by 10%, the real price paid at an outlet may not go up by 10%.
How much do prices need to increase?
In 2010, the Law Commission recommended that excise taxes needed to increase by at least 50%, which would raise the overall price of alcohol by around 10%.2
A 10% increase in price is estimated to reduce overall alcohol consumption in society by around 5%. In 2014, the Ministry of Justice estimated that an excise tax increase of 82% could reduce the amount of alcohol consumed in an occasion by 9% in the population (and by 11% in heavy drinkers).3
How do price increases harm those on low incomes?
Many groups (including decision makers and community members) are necessarily cautious about the effects of tax increases on those with low incomes. However, those on low incomes may actually benefit the most - they are likely to respond more when the price goes up4 so may reduce their consumption the most.
Price increases may put some people under financial pressure and highlight issues concerning their alcohol use. Therefore, it is important that there are appropriate and accessible treatment and intervention options available.
Cost savings to society from tax increases
Increases in excise tax generate extra revenue for the Government to spend on important areas such as Health and Education. Savings are also made as a result of reduced consumption and alcohol-related harm.
The Ministry of Justice estimated that raising the excise tax by 82% is expected to result in savings to New Zealand society of $339 million in the first year and $2.4 billion over a ten-year period. All this from just raising the average price of a bottle of cheap wine from $7 to $8.90 and a 12 pack of beer from $10 to $14.88 (2014 prices).
To date, there has been no action taken by Government to substantially increase the price of alcohol. Although excise tax rates are adjusted annually for inflation, further increases are needed to reduce consumption and alcohol-related harm. Click here for taking action on price.