Alcohol taxation as a public health policy: the New Zealand experience

Affordability of alcohol as a key driver of alcohol demand in New Zealand: a co-integration analysis

AIMS

To investigate whether affordability of alcohol is an important determinant of alcohol consumption along with price. This will inform effective tax policy to influence consumption.

DESIGN

Co-integration analysis was used to analyse relationship between real price, affordability and consumption. Changes in retail availability of wine in 1990 and beer in 1999 were also included in the models. The econometric approach taken allows identification of short- and long-term responses. Separate analyses were performed for wine, beer, spirits and ready-to-drinks (spirits based pre-mixed drinks).

SETTING

New Zealand 1988-2011.

MEASUREMENTS

Quarterly data on price and alcohol available for consumption for wine, beer, spirits and ready-to-drinks. Price data were analysed as: real price (own price of alcohol relative to the price of other goods) and affordability (average earnings relative to own price).

FINDINGS

There was strong evidence for co-integration between wine and beer consumption and affordability. There was weaker evidence for co-integration between consumption and real price.

CONCLUSIONS

The affordability of alcohol is more important than real price in determining consumption of alcohol. This suggests that affordability needs to be considered by policy makers when determining tax and pricing policies to reduce alcohol-related harm.

The effect of prices on alcohol consumption in New Zealand 1983-1991

The strength of the effect of prices on alcohol consumption is of relevance in determining the potential impact that alcohol taxes have on consumption and, thereby, alcohol-related problems. This price-consumption relationship was investigated for New Zealand. Multiple regression analysis was employed using quarterly aggregate consumption and price data for 1983-1991. Price elasticities of alcohol consumption were estimated to be -1.1, -1.1, 0, -2.0 for beer, wine and spirits beverage, and absolute (total) alcohol consumption, respectively. These elasticity estimates and the degree to which prices explained consumption trends in the regression equations, suggest that price had a strong effect on alcohol consumption in New Zealand during the period investigated. Thus, the current taxing policy, in which excise tax is indexed to inflation, is deemed a useful tool for preventing an increase in alcohol consumption and alcohol-related problems.

Alcohol and other Recreational Drug Issues in New Zealand

In New Zealand as in other industrialised countries the pattern of recreational drug use reflects the pattern of availability, with use of the legal drugs alcohol and tobacco more widespread than that of illegal drugs. These two drugs have been the major focus of political activity during the past decade. In the case of tobacco, major public health advances have been achieved by means of legislative change. In contrast, changes in alcohol legislation have resulted in a liberalisation of alcohol availability, but the public health debate continues at the level of policy implementation. Relatively little public or political attention has been paid to illicit drug use during the past decade, but there are signs that this may change in the near future.

Alcohol taxes: do the poor pay more than the rich?

Concern has often been expressed that alcohol taxes bear more heavily on the poor than on the rich, especially if these taxes are based on quantity rather than price. However, surprisingly little is known about how the tax burden is distributed across different income groups. Utilizing survey data from 3010 respondents in New Zealand, this study calculates exactly how much alcohol tax was paid by respondents in different income groups and in different types of households. These results were applied to household expenditure survey data to estimate the incidence of alcohol taxes across different households. The results suggest that, although in dollar terms the wealthiest households paid about four times as much alcohol tax as the poorest households, when expressed as a percentage of income, alcohol taxes are distributed proportionally across the lower income brackets but decline towards the upper end of the income scale. These taxes accounted for less than 1% of household income for all income groups. Households with children generally paid less alcohol tax than households without children. It is concluded that alcohol taxes in New Zealand do not seriously conflict with the broader equity objectives of government policy.