A taxing approach to choice: how behavioural taxes deliver perverse outcomes

Alcohol Taxation Behavioural insights Regulator strategy Australia

Executive summary: Behavioural taxes are taxes that are designed to influence behaviour against consumption. The application of behavioural taxes is fundamentally illiberal. They interfere with the rights and freedoms of individuals to make choices about their own consumption.

Behavioural taxes generally take the form of excise taxes.

Australia has a complicated and inconsistent form of behavioural tax in the form of an alcohol excise tax, with three separate taxing regimes - differing rates of excise, the wine equalization tax and customs.

The efficacy of behavioural taxes is also questionable.

Research shows that significant behavioural taxes may influence the behaviour of moderate drinkers, but not the heavy drinkers that the policy was designed to influence. Similarly, behavioural taxes for alcohol appear to be less effective with young people who have higher disposable incomes.

Not all alcoholic products have seen a decline. There has been a progressive increase in the consumption of wine, with only modest increases in the consumption of spirits and ready-to-drink beverages.

The Rudd government’s 2008 alcopops tax prompted a rapid decline in consumption of RTDs. However, the evidence is that consumers substituted RTDs with privately mixed spirits, and potentially white wine and cider.

The rising price of alcohol at venues is leading young people to engage in ‘preloading’ by consuming large volumes of cheaper alcohol in private homes before going to a bar or club. Research also identified that there was no reduction in the consequences associated with alcohol, such as alcohol-related hospital admission rates.

Academic evidence suggests potential substitution from alcohol to illicit drugs.

Similarly, the rising cost of tobacco taxes can similarly prompt consumers to switch from legal products to illegal ‘chop-chop’ or counterfeit tobacco products.

The Danish fat tax has been identified as delivering equally perverse outcomes. Some consumers had been crossing national borders to buy products with saturated fat contents from neighbouring countries, while no notable change in consumer behaviour has been identified.

International analysis has identified that behavioural taxes are regressive. They explicitly target inelastic goods that make up a proportionally higher share of Australian household incomes, particularly related to food and beverages.

The consistency of taxation across all alcohol products is logical as the current taxation arrangements deliver perverse outcomes. However, any change should not be used as justification to increase tax revenue.

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