Thursday, June 12, 2008

A few truths about RTDs

At midnight on 26/04/2008 the Federal Government hugely increased the excise duty rate on Ready-to-Drink [RTDs] premixed spirits.
Was this a master stroke to end the so-called epidemic of binge drinking or a devilish scheme to score a $3bn tax windfall. Whatever the intent I can assure you the end result will be neither. It's patently ridiculous to attribute binge drinking to either this segment of the market or to the price of alcohol. Sadly the causes are far more complex and it will require far more thoughtful efforts to address the issue. Nor will it raise tax revenue as sales of RTDs have been decimated as buyers have switched to beer or bottled spirits. Our observation is that they are not buying wine as an alternative. Not even cheap sweet cask wine which I would have expected to happen.
As much as I dislike RTDs [they're just not MY thing] I sympathise with the customers who don't like beer, enjoy the convenience of not having to mix their own and rely on the concept to give them an accurate measure of their alcohol consumption. And this is where I object to the sweeping generalisations of both the products and their consumers.
For starters let's stop calling all of them "alcopops".
Broadly the market can be divided into three categories. Firstly there are serious branded spirits where customer brand loyalty is very strong. Then there are the vodka drinks which seem to all taste the same but are clearly alcohol and lastly there's the ridiculous category that producers have created to shoot themselves in the foot. These are the milk drinks and "energy" drinks that could easily be confused with soft drinks. On top of that producers have created the ridiculous situation where there are now over 5000 different products on the market. A large part of the proliferation has come from different container sizes and alcohol strengths within the same product. Which of course could lead to confusion regarding alcohol consumption giving the critics more ammunition.
The consumers of RTDs are equally diverse with all ages represented fairly evenly. That's right, it's not just kiddies. They are drinkers of all ages who have primarily enjoyed the convenience that these products have offered and prefer the taste to beer. And let me tell you, the 35yo who buys the occasional 4pack of Jack Daniels and Cola or Haig and Dry is not very impressed with the suggestion they are binge drinkers of "alcopops."
But the debate has started and alcohol is back as a priority on the political agenda. As wine drinkers we should all be very concerned about arguments for volumetric equality in alcohol taxation. During the 1980s the effective tax rate on wine increased from 10% to over 40%. In 2000 the Wine Equalisation Tax of 29% was introduced to complement the GST. This means that if a producer receives $100 for a box of wine we pay $141.90. Can the wine industry handle an increase? Here's an article from today's Sydney Morning Herald that's worth a read. Let's just hope the Winemakers Federation of Australia argument is successful. What the article doesn't mention is that the vagaries and lead times of wine production is a compelling argument to treat wine differently to other categories of alcohol :

"Tax on alcopops sets off alcohol lobby war

Mark Metherell
Sydney Morning Herald June 12, 2008

"THE huge tax increase on alcopops has unleashed a fresh lobbying war, with the alcohol industry raising obstacles for further tax changes being sought by community groups.
With most health and drugs groups arguing the Government should tax drinks uniformly by volume of alcohol, the drinks industry has turned out in force to protect its interests at the Senate inquiry into the new and controversial tax on alcopops.
The Australian Medical Association was one of several health organisations demanding an end to the varying tax treatment of different alcoholic drinks, arguing for "volumetric" taxation based on the percentage of alcohol in a drink.
The AMA has told the Senate committee inquiring into the issue that the focus on alcopops alone "may provide perverse incentives for young people to shift their preference to potentially more harmful behaviours or alcohol substitutes" such as cheaper cask wines or the self-mixing of spirits.
Under the latest tax changes, $5 buys only 1.8 standard alcoholic drinks of alcopop products compared with up to 14 standard alcoholic drinks of discount cask wine, the Distilled Spirits Industry Council of Australia has argued in its bid to overturn the new 70 per cent tax on alcopops.
Meanwhile, the Australasian Associated Brewers has warned that any shift to a uniform volumetric tax would push up the price of a schooner of full beer by 50 cents to $4.34 and more than double the price of a cask of wine to $31.23.
The figures are reached by assuming the Government collects the same total taxes on alcohol but by imposing a uniform volumetric tax.
The Winemakers Federation of Australia fiercely defended the overall lower tax burden on wine, as it was "different to other alcohol products".
Wine production was a major contributor to the economy - particularly to regional areas - and Australia had "one of the highest-taxed major wine producers" in the world, the federation's chief executive, Stephen Strachan, argued in his submission.
The National Drug and Alcohol Research Centre in Sydney said the new tax had played a big role in triggering debate over drinking in Australia.
"It has drawn into the spotlight the place of alcohol in Australian society and our collective acceptance of intoxication as a 'rite of passage'.
"The debate had starkly highlighted the glaring inconsistencies in the current tax approach, which needed to be reviewed in totality, not one product at a time," the centre said."

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