Will Higher Booze Taxes Drive us to Drink?

These are taxing times.   And it could get worse for those of us who enjoy a glass or ten of something boozy from time to time.  Citing health concerns, the National Treasury has released a discussion paper about booze taxes, launching a process which will inevitably end up in high taxes on wines and spirits, beer, cider, port and all those other delights.    ZA Confidential would be happier about paying more tax if a convincing argument could be made that this would make a real difference to health, and is not just a back-door way of grabbing more of our money for the government to spend.  Oh, and why are booze taxes always referred to as sin taxes?  I know we are all sinners, but to suggest there is something sinful about wine puts a question mark over the actions of a certain well-known prophet, whose party trick (every pun intended) was to turn water into wine!   But what do our experts make of it all?

Chris Gilmour from Barclays Africa:

The first point to note is that alcohol, taken in moderation, is good for you. Red wine has been proven to reduce harmful cholesterol, while beer prevents kidney stone formation. The watchword, of course, is moderation. But I believe that the great majority of alcohol drinkers do, in fact, drink in moderation. It is a relatively small minority who spoil it for the majority. And yes, if the total cost to society of alcohol abuse were factored into the selling price of alcoholic beverages, then the price of beer, wines and spirits would undoubtedly rise. But why stop at alcohol? Why not do the same for junk food, salt, and virtually all carbohydrates….the list is virtually endless.  And yes, there is a duty by government to protect the vulnerable in society from the impact of alcohol abuse. So, for example, education about the impact of alcohol on foetal alcohol syndrome should be more readily available. And the same goes for over-indulgence in anything. But as the old saying goes…you can lead a horse to water but you can’t make it drink (no pun intended).   There is a danger in over-burdening the alcohol industry with regulatory costs that inevitably get passed onto consumers. And that is in the realm of smuggling of poor-quality alcohol products. If excise duties and other costs are reflected in significantly higher selling prices, then the likelihood is that ersatz products, on which no duties or taxes are payable, will find their way into the market. So government needs to balance its priorities very carefully when deciding on whether or not to burden the consumer and the alcohol industry with more regulation and costs.

Miguel Chan.  Chief Sommelier, Tsogo Sun:

Prohibition in the 1930s in America has shown the world the folly of authorities trying to regulate the alcohol industry for the betterment of society, and to prevent and control alcoholic consumption, thinking it will reduce the state’s expenses in dealing with issues related to alcohol abuse.   We all know so well that prohibition backfired against the authorities and no matter how harsh the penalties were, they did not have a single effect in reducing alcohol consumption.  In fact all they did was to increase illegal supplies through various and effective undercover channels, and product disguise.  This is exactly what may happen should the authorities proceed in enforcing and increasing the taxes.   Not only will it not benefit the consumers, it will affect the production side (distillers, brewers and wineries) but also the delivery and service side (hotels, restaurants, bars), which is a huge job creator and will have a drastic effect in the long term, as this will put service providers under huge pressure.   Indirectly it will make South Africa uncompetitive as a tourism destination, and this will result in a reduction in consumption. They have to realise there is no overnight answer and solution to alcohol-related issues in society.  This will take time to adjust, and the only way out of it is through educating young generations about the benefits and dangers of alcohol consumption.  This should rather start as early as possible in schools, so that they can make better decisions and appreciate the product better, and in moderation, when they grow up. 

Duane Newman from Cova Advisory:

The debate around what is the most effective way to tax the alcohol industry has been a long drawn out one. In the past it has been dominated by one large industry player, but now there is more competition, which means more consultation is needed to get agreement on the way forward. It is vital that the taxing of alcohol is part of a broader health strategy, and it needs to be led by the health department.  It is important to decide what role taxes need to play in reducing consumption, taking into account the unrecorded consumption increases if prices increase beyond a certain price point.  Also SA has a large poor population – which also impacts how you tax alcohol. This has manifested itself in the lack of increases in excise tax on traditional African beer. It is hard to determine the price elasticity, but international experience has shown that an increase does result in a reduction in consumption.  In South Africa beer is still the product which is consumed the most – about 45% of total consumption, so whatever changes are made need to take the product mix into account. As the World Health Organisation found in their studies, “pricing policies” is one of the 10 policy instruments that can be used to reduce consumption. The question is: has South African considered the other 9 carefully enough or are we looking at raising more tax? 

Mario Pretorius from Telemasters:

Since Noah, we have grappled with the separation of personal choice and its effect on innocent bystanders.  The proposed amendments offers no solution, only a justification for a tax increase and social tinkering. We will shortly succumb to the legalisation of Marijuana and more, yet the mechanisms of control evade the participants and the authorities.  Make liquor sellers liable for consequences. This may lead to a 2-drink-max rule at pubs. Licence purchasers to drink responsibly. The possibilities of modifying behaviour to couch enjoyment without serious consequences is surely possible, but with maximum intoxication targets driving State revenues, we’re serving two disparate gods. Jacking up prices will separate the illusion of ‘good, natural products’ like beer and wine from ‘cheap intoxication stuff’ that is poised to flood the market. Powdered alcohol, anyone?  

Chris Hart from Investment Solutions:

One hopes that the tax review on the alcohol industry is aimed at helping to underpin the South African economy and to improve employment.  The wine industry, for example, is a critical cornerstone of the local economies in the Orange River Basin and Western Cape, for example.  We need to look at a tax regime that is more about enabling these industries to help underpin employment, but also the value-add of that industry, so that better wages can also be afforded.  This is an industry that is also important for exports and tourism, and we need to find a way that South Africa is a more competitive destination.  The beer manufacturing industry is also of huge interest, especially with the craft beer industry taking off.  This is another way to create more jobs and enhance the tourism appeal of South Africa.  The danger is if the tax review is looking to curb consumption, where the majority are moderate and responsible consumers – which means that you constrict the industry without necessarily resolving the problem of alcohol abuse.   Furthermore, when taxes become too high, they end up creating a space which is lucrative for criminal activity – and South Africa’s crime problem is much bigger than its alcohol abuse problem. 


Let us by all means have an open, honest and comprehensive discussion of alcohol taxes.  And then let’s throw all the conclusions in the bin and head off to the pub.

Tweets of the day:

Mark Twain (@MarkTwainQuote):  Whenever you find yourself on the side of the majority, it is time to pause and reflect.

Jerm (@mynameisjerm): Zuma said, yesterday, that people who are worried about Nkandla are clever. Put another way, he said most ANC supporters are stupid.


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