News Dan O'Brien

Saturday 22 October 2016

Minimum pricing for alcohol is a dumb move

Published 31/05/2015 | 02:30

THE DRINKING CLASSES: Using the price of alcohol as a means of supressing demand is not such a simple notion
THE DRINKING CLASSES: Using the price of alcohol as a means of supressing demand is not such a simple notion

Balancing the freedom of individuals with the interests of society can be tricky, if and when the two clash.

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Where to draw the line when the State gets involved in the private lives of citizens? Should it try to curb people's bad behaviour for their own good, or should it accept that true freedom includes the freedom for informed and consenting adults to do as they please, even when that means that they harm themselves?

This is relevant as legislation to impose minimum prices for alcohol winds its way towards the statute book - Health Minister Leo Varadkar is scheduled to publish a bill to bring this into force in July. The issue has been made more topical still by the publication of a typically excellent report by the Paris-based think tank, the OECD, on harmful alcohol consumption earlier this month*.

There have usually been two ways in which states have intervened in citizens' private choices about alcohol. The first is the hard and fast rules about age limits and driving.

Most people agree that some lower age limit should be set on alcohol consumption, as it protects those who are too young to make fully informed decisions.

Nor is there any real opposition to drink-driving bans, as the ill-effects of one person's drinking can include depriving others of their very lives. There may be some quibbling around just how low permissible alcohol blood levels should be when driving, but the principal is not in dispute.

Recent trends in road safety statistics bear out the benefits of imposing, and enforcing, alcohol limits on drivers. It should be acknowledged that Ireland has been particularly successful in curbing road deaths - fatalities have fallen faster than in most other countries and deaths per 1,000 people are now among the lowest in the OECD.

But when it comes to using the price of alcohol as a means of depressing demand, matters become a little less clear cut. There is absolutely no doubt from the mountains of available evidence that price increases lead to lower alcohol consumption. And when the price is raised by imposing taxes, whatever revenues that are raised can be used to offset the negative effects of excessive consumption, including the immediate health effects in hospital emergency departments, the long-term health effects, and the cost of alcohol-related crime (there is also a loss of productivity, although it is less easy to put a price on this and more difficult still to re-allocate money to compensate for it).

And as the chart shows, quite a lot of cash is raised by direct taxes on booze. Each year, more than €1bn flows into the State's coffers from alcohol purchases.

Some of those who believe that the State needs to do more to dampen demand for alcohol via the price mechanism have successfully lobbied the Government to impose a minimum price for alcohol set in law (it will be contained in Varadkar's forthcoming bill).

Minimum pricing has been implemented in two Canadian states and the Scottish government has been trying to put something similar in place, in large part because it does not have the powers to impose additional taxes on drink. A case against minimum pricing has gone all the way to the EU's highest court, so the Scottish government has put the matter on hold until the robed folk in Luxembourg pronounce on the matter. As the decision of the EU court will also apply here, it is likely to affect the passage of Varadkar's bill through the Oireachtas.

But whatever the decision of the court in Luxembourg, the Government here - which unlike its non-sovereign Scottish counterpart, has tax-raising powers - should abandon the plan. If the retail price of alcohol is to be increased to reduce consumption, the sensible approach is to ensure the State pockets the additional revenue raised.

What makes minimum pricing so dunderheaded is set out in the recent OECD report. "…given that the additional money spent by drinkers will go to alcohol manufacturers and retailers, rather than combining it with the conventional approach, used so successfully with tobacco in many countries, of increasing taxes."

A minimum price will force supermarkets and off-licences to increase prices - but not pass on the additional revenue to the State. By bumping up the retail price rather than increasing excise, it will simply hand sellers of alcohol, who already benefit from limited competition thanks to licensing laws, fatter margins. This may reduce total consumption -but it won't generate any funding for alcohol-related health problems or the crimes associated with drunkenness.

If minimum pricing is a dumb idea, there is also reason to question the net benefits of higher alcohol prices. It should be noted that there has been a significant trend decline in per capita alcohol consumption since early in the last decade. This is in part because Irish taxes on alcohol are already among the highest anywhere, something which has led to a minor industry in cross-border shopping and booze cruises to France - all of which results in a loss to the Exchequer and maybe even more excessive drinking than might otherwise be the case.

Another downside to the very high prices is the luring of criminal elements into the market. There has been a rising trend in counterfeit alcohol in recent years, whereby law-breakers put cheaper booze into branded bottles - or, worse still, use potentially dangerous illegally distilled spirits. This also has a negative impact on the Exchequer.

What of other effects of higher government-imposed prices? Given the huge success of the campaign against drink driving and the sharp decline in road fatalities, pushing prices up even further certainly seems hard to justify on that basis.

If the upsides of further measures are questionable, the downsides of higher prices, which are rarely discussed, need also be taken into account.

All of the non-problem drinkers - the vast majority as it happens - who are priced out of enjoying a tipple will go without. Add up the 'utility' foregone by all these deprived drinkers combined and it amounts to a considerable cost. Unsurprisingly, the neo-puritans who campaign for minimum pricing make no mention of this loss, if they even understand it.

The world will never be perfect. People universally consume products which, if taken in excess, are harmful. Societies are right not to ignore these problems when they arise. The Irish State already takes very significant measures to limit the freedom to consume alcohol. It is not clear that there is a strong case to do more. It is very clear that if a consensus emerges that more should be done, minimum pricing is certainly not the route that should be taken.

* Management/oecd/social-issues- migration-health/tackling-harmful-alcohol-use_9789264181069-en#page201

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