Australia's Future Tax System

Final Report: Detailed Analysis

Chapter E: Enhancing social and market outcomes

E5. Alcohol taxation

Key points

Taxes on alcohol should be set to address the spillover costs imposed on the community of alcohol abuse, when this delivers a net gain to the community's wellbeing and is more effective than alternative policies. Raising revenue is a by-product, not the goal, of taxing alcohol. The tax rate should be based on evidence of spillover costs, and levied on a common volumetric basis across all forms of alcohol, regardless of place, method or scale of production.

While the abuse of alcohol imposes significant costs on society, these are not effectively targeted by current tax and subsidy arrangements for alcohol, which are complex and have conflicting policy rationales. In particular, the wine equalisation tax, as a value-based revenue-raising tax, is not well suited to reducing social harm.

A common volumetric tax on alcohol would better address social harm through closer targeting of social costs. A rate based on evidence of net social costs would help balance the benefits from alcohol consumption with its social costs. Moreover, by removing the distinction between different manufacturing processes, the compliance and administration cost of the existing excise system would be reduced.

In the short term, several specific changes should be made to address the more pressing social costs of alcohol consumption, and to remove structural anomalies in the system of alcohol taxes. The transition to a common alcohol tax should be phased in over a longer term, to ensure that producers and consumers have time to adjust to the changes.