Alcohol Healthwatch was in the news this week, having released a report on alcohol prices in New Zealand. As the New Zealand Herald reported:
There are calls for the price of alcohol to increase after a new "Cheap Drinks" audit found it costs as little as 77 cents per standard drink to buy booze at some supermarkets and bottle stores.
While those standard drinks can't be bought per glass, it does mean that heavy drinkers can buy cask wine, cheap bottles of wine and large packs of beers for what is being described as "pocket money" prices.
The headline result in the report is the cheapest prices for each type of alcohol, where cask wine is found to be the cheapest way to get drunk. At 77 cents per standard drink, that rates it much cheaper than wine (85-88 cents), beer (98 cents), cider ($1.08), or RTDs ($1.14). The data in the report was collected from 22 off-licence outlets across Auckland (it says it's 'online data', so presumably was collected from store websites. In my experience (more on that a bit later), the in-store prices can actually be lower than those advertised on the store websites. And some independent stores will negotiate with you, offering an even lower price.
Is the price of alcohol too low though? That's pretty subjective, and the report doesn't link the low alcohol prices directly to alcohol consumption or to alcohol-related harm. We are left to infer that those links exist (and, to be fair, there is plenty of literature that does link alcohol consumption and harm).
Alcohol Healthwatch's preferred solution is (emphasis is theirs):
A combination of excise tax increases and minimum unit pricing is required to reduce consumption across the population. Whilst the latter specifically targets the cheapest alcohol in the market, the former is primarily aimed at increasing the overall price of alcohol so that population-level excessive alcohol use and alcohol-related harm is reduced. Across the board price increases will assist in the prevention of ‘moderate’ drinkers becoming heavy drinkers, and in heavy drinkers becoming dependent drinkers. Importantly, higher prices provide a supportive environment for the thousands of New Zealanders who indicate that they want to cut back their drinking.
I've discussed minimum unit prices and alcohol excise taxes before (see here). Raising the alcohol excise tax would increase the price paid by consumers, and reduce the quantity of alcohol demanded. Minimum unit pricing would also raise the price paid by consumers, and reduce the quantity of alcohol demanded.
Given that both policies appear to have the same effects, you could argue that we don't really need both. However, past research has shown that it may be optimal to have both an excise tax and minimum unit pricing simultaneously. In this post, I noted that:
As Paul Calcott (Victoria University of Wellington) showed in this 2019 article published in the Journal of Health Economics (sorry, I don't see an ungated version online), the combination of minimum unit pricing with an excise tax may be optimal:
...when relatively cheap forms of alcohol are undertaxed, and the quality and quantity of alcohol are substitutes.
Raising alcohol excise tax raises the price of all alcohol, and decreases alcohol consumption. However, some consumers will simply switch to lower quality (and lower priced) alcohol instead. At the bottom of the quality (and price) distribution, where consumption (and alcohol-related harm) might be the highest, then it makes sense also to have minimum unit prices.
The problem with this suggestion is that it is not well supported by the public. As I noted in this post, minimum unit pricing was the alcohol regulation that had the lowest support of all the seven options that were presented to survey participants. Only 33 percent of people supported minimum pricing, while 'having fewer places selling alcohol' had 54 percent support. Interestingly, having fewer places selling alcohol could have the effect of raising prices, if there is local price competition between stores.
However, the research evidence that there is such local price competition is scarce. I have been collecting a long-run dataset of alcohol pricing at all off-licences in South Auckland and Hamilton City for over ten years. The purpose of collecting that data is to test whether competition between outlets affects pricing (and opening hours). Local competition doesn't appear to have much effect in a cross-section, hence the need to collect some longitudinal data (where there is observed changes over time in local competition). I hope that post about that research sometime next year.
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