Taxation in Australia
Beer, as the low alcohol, locally produced beverage which contributes significantly to the Australian economy should be taxed at a rate which reflects these characteristics. The Brewers Association supports the current category based volumetric taxation arrangements for beer and spirits, where different rates reflect the differences between the products, and advocates for wine to be brought into the category system.
How is beer taxed under the current alcohol excise tax regime?
Beer is a low alcohol, locally produced product which should be taxed at a rate which reflects these characteristics.
Beer is the lowest alcohol beverage available, and has low, mid and full strength varieties which enable consumers to choose and monitor their alcohol consumption. Full strength beer usually contains around 5% alcohol by volume. This is compared to wine and spirits at 14% and 40% respectively.
Beer is also locally produced, using significantly agricultural inputs including barley and hops. Beer, being a voluminous product, is also expensive to transport and distribute.
Beer is also the most popular alcohol beverage in Australia’s thousands of pubs and clubs, contributing significantly to local economies, employment and communities.
Why category based volumetric taxation?
The Brewers Association supports the structure of the current alcohol excise tax regime, whereby beer and spirits are taxed according to the amount of alcohol in the finished product, but with different rates to reflect the different product characteristics.
The lower tax rates for lower strength alcohol such as beer create a price differential to encourage drinkers – for those sensitive to price changes - to gravitate towards lower alcohol products.
Why tax by categories?
While alcohol contained in each drink is chemically identical, the alcohol cannot be unbundled from other attributes such as taste, cost of production, concentration of alcohol, where the alcohol is consumed and preferences of drinkers at greatest risk of harmful consumption.
The attributes of each category are considered collectively to determine the rate of excise that needs to be applied to a category.
Does category based volumetric taxation promote safer consumption?
To the extent that tax affects price and price can affect choice, tax can be used to influence some behaviour.
In promoting safer consumption, alcohol products cannot be considered the same. For example, volume for volume, consuming spirits or wine is not the same as consuming beer.
Different alcoholic beverages are not uniformly efficient in delivering alcohol to the body, nor uniformly attractive to all age groups.
A category based approach enables the taxation system to take into account the range of factors that may assist to promote safer consumption. For example, the higher tax rate for RTDs is based on the sweet taste appealing to young drinkers as it masks the sensory cues of alcohol strength.
A category based approach uses taxation as a price mechanism to discourage consumption of alcoholic beverages that can efficiently deliver large amounts of alcohol quickly and/or mask the flavour of alcohol. Further, it offers a preference to lower alcohol products, such as beer, that provides a fullness feeling which limits the intake of alcohol.
Are all alcoholic beverages taxed on a category based approach?
Beer and spirits are taxed on a category based approach. Beer and spirits are different categories because of their different attributes. As a consequence, spirits have a higher tax rate than beer products.
The Brewers Association recommends, that to optimise the objectives of a category based system, the current differences between beer and spirits category be increased to reflect the differences between the products.
Wine is not part of the category based volumetric regime, and is currently taxed based on the wholesale value of the product. This is known as the Wine Equalisation Tax (WET), winemakers also receive a significant tax rebate on the first $1.7million of sales. This is known as the WET Rebate. The WET Rebate is also provided to New Zealand wine producers.
The current WET system provides wine with a significant advantage over other alcohol categories, and creates industry distortions. The current WET regime provides an incentive for wineries to produce low value, high strength products.
The Brewers Association recommends that Government implements changes to the taxation treatment of wine by incorporating wine into the category-based approach.