REEP prepares response to the National Treasury’s alcohol taxation review

REEP is preparing a response to the National Treasury’s alcohol taxation review, which was published in November 2024 for public comment. Their main proposal is to introduce tiers for wine and beer.

Whereas wine is currently taxed on the volume of the beverage, irrespective of alcohol content, the National Treasury wants to tax high-alcohol wine at a higher rate than low-alcohol wine. For beer, in contrast to wine, the excise tax is currently levied on the volume of pure alcohol, not the volume of the beverage. The National Treasury proposes to tax the alcohol content of beer with a high alcohol concentration at a higher rate than beer with a lower alcohol concentration. This would create incentives for the alcohol industry to reduce the alcohol content of their products.

The excise tax on sugar-sweetened beverages has had a similar incentive effect.  SSBs with less than 4 grams of sugar per 100 millilitres of beverage are not taxed. In response to the SSB tax, many SSB producers reduced the sugar content to just below this threshold in order to avoid the tax completely. This is a rational response, and (unless the alternative ingredients are worse than the sugar) is good for public health. While traditionally we think that excise taxes reduce demand, and they do, well-designed excise taxes can also have a substantial impact on the supply-side of the market.

The review document also suggests that the government should consider implementing a minimum unit price (MUP) on alcohol. Research indicate that heavy regular drinkers tend to consume very cheap alcohol, and that an MUP, which essentially sets a price floor on alcohol, can be very effective in reducing drinking among this group. In 2018, an MUP on alcohol was implemented in Scotland, and this significantly reduced heavy drinking.

The public has been invited to comment on the National Treasury’s review document. The deadline for comments is 14 February 2025. Those with an interest or a view on the matter, are encouraged to please make a submission.