In global excise comparison Australia ranks top (no surprise, really)

Recent work by the Wine Economics Research Centre within the School of Economics of the University of Adelaide in Australia makes interesting reading. Published as a note entitled Excise Taxes on Wines, Beers and Spirits: An Updated International Comparison by the American Association of Wine Economists as Working paper No. 170, it compares the various excise taxes applied to wholesale prices for wines, beers and spirits across 30 selected countries, using data from January 1, 2012 and July 1, 2014.

Most of the countries surveyed impose volumetric excise on alcoholic beverages (i.e. a tax calculated per litre of product and/or its alcohol content) but a few, including Argentina, Australia and Chile, have ad valorem taxes for wine but volumetric taxes for other beverages.

In order to validly compare tax rates, the study uses pre-tax wholesale price points of beverages in Australian dollars (AUD) and mean alcohol contents of 12.5% ABV for wines, 5.0% for beer and 40.0% for spirits.

Two types of comparison are made, both of which ignore the imposition of GST, VAT or similar retail taxes. One comparison employs data showing the percentage by which the tax increases the wholesale price at specific price points and the other tabulates the cents (AUD) by which the tax raises the wholesale price per standard drink (1 standard drink = 12.5mL of pure alcohol). The table below compares standard drink data for July 2014 and January 2012 for 24 countries.

From the table it is seen that for beer in Australia an increase of AUD 0.58 per standard drink in July 2014 is matched only by Finland, also at AUD 0.58; all other countries have significantly lower rates per standard drink with only a few exceeding AUD 0.30.

In the case of spirits, again Australia is at ‘the top end’ at AUD 0.99 per standard drink, exceeded only marginally by Sweden at AUD 1.00. The figures for commercial premium wines and sparkling wines tell a similar story: for the former Australia ranks fifth highest at AUD 0.22, with sparkling wines second highest at AUD 0.73 per standard drink. So, as most Australians already knew, alcoholic beverages, particularly beer and spirits, carry a high tax burden.

It is interesting to note that, in general, in Europe the wine-exporting countries have zero or very low tax rates and that beer is lightly taxed except in Finland, Ireland, Sweden and UK.

Even allowing for further differences resulting from the application of retail taxes – GST, VAT etc. – not considered in this exercise, the widely variable tax rates at the wholesale level quoted in the survey are significant. When considered in relation to policies advocated by various government and health authorities, such as the introduction of minimum (floor) pricing for alcohol and moves to reform alcohol taxation, the differences could assume greater importance.

The successful application of strategies employed by alcohol businesses to combat the increasing clamour from the ‘anti-alcohol’ forces for reform may well determine the future prosperity and status of the industry.

It is inevitable that tax regimes, which ideally should be viable, realistic and consistent, will play an increasingly important role in future pricing and thus surveys such as this one are of considerable value.

Excise taxes on beverages per standard drink(1)

(1) One standard drink in Australia = 12.5mL pure alcohol, equivalent to 250mL beer at 5.0% ABV or 100mL wine at 12.5% or 31.25mL spirits at 40%

(2) Argentina, Australia, Chile have ad valorem taxes on wines

* Wholesale pre-tax price in AUD. AUD 1.00 = EUR 0.70 / USD 0.90

Source: Adapted from tables 2 & 4: Excise Taxes on Wines, Beers and Spirits: An Updated International Comparison, American Association of Wine Economists, Working paper No. 170, October 2014.