Taxing 'Alcopops'

News over the weekend that the federal government has raised the excise on pre-mixed drinks ('alcopops') from $39 to $67 per litre of pure alcohol caught my eye, given my interest in using economic instruments for public policy.

These drinks are sweet and taste less alcoholic than they are and have therefore been a drink of choice for young people, women in particular, and the move is designed to help arrest the increase in dangerous drinking among teens and young adults.

On first thoughts, this seems to me like a sensible move:

1. It closes a loophole where spirits were taxed at a substantially lower rate if they were mixed with soft drinks and put in a can or bottle. So just on a tax efficiency basis it seems justified.
2. This is quite a targeted tax increase in that it focuses on drinks that I understand are largely consumed by young people who - given their lower incomes - are more likely to respond to a price hike.

The alcohol industry has claimed that young drinkers will just switch to beer or spirits. Some will, but I think that switch will be limited by two factors:

1. Spirits are taxed at the higher rate too.
2. Spirits and beer are not complete substitutes for pre-mixed drinks. From my experience, pre-mixed drinks tastse like soft drinks and are extremely easy to drink quickly. Spirits and beer just aren't the same.

I'll try and find some figures to assess my initial thoughts. What do you think of the move?

Other views:

Harry Clarke

Tim Dunlop

We need some clear thinking on plastic bags - Part 2

What planet are our politicians inhabiting?

Here's Queensland Premier Anna Bligh on plastic bags, as reported by the Brisbane Times:

Queensland will oppose a levy on plastic bags at tomorrow's meeting of federal and state environment ministers. Premier Anna Bligh today told state parliament the levy would be another impost on families already struggling to meet rising household costs.

"Queensland does remain committed to completely phasing out non-biodegradable plastic bags," Ms Bligh said. "In this government's ongoing fight to protect our environment, Queensland will push for a total ban on non-biodegradable plastic bags..."

Let me get this right. Putting a 10c levy on plastic bags would hit struggling families too hard, so we'll just ban the things altogether? Well I admit there is a certain logic to that. Maybe we could apply that to petrol too when the emissions trading scheme comes in?

My government understands that effective action on climate change requires an
immediate and substantial reduction in fuel use. However, placing a carbon price on fuels would be another impost on families already struggling to meet rising household costs. My government will not take steps that hurts families. Accordingly, we will push for a ban on petrol use from next year.

Hmm, maybe not.

Federal Environment Minister Peter Garrett doesn't seem to have much in the way of solutions:

"I think all Australians really want to see much less use of these ... plastic bags we get at the check-out and when we sit down with the states today we've got to come up with something which is nationally consistent, which doesn't impose additional costs on families, and which starts to see much less of these bags ending up in the litter stream."

Sounds great Peter. And that something would be?

Meanwhile, the opposition's well-thought-through policy is to hope the problem just fixes itself:

"It's extremely important that we move to biodegradeble bags as quickly as possible," [opposition spokesman Greg Hunt] said. "We need to decrease the number of bags, but let's not ban them or put a levy on families that are doing it tough."

Yeah, we urgently need this serious problem to end but, given the pressures facing struggling families, we must be particularly careful not to do anything that might help fix it.

I'd love to hear Greg Hunt on fighting inflation:

It's extremely important that we reduce inflation as quickly as possible. I call on the Reserve Bank and government to do everything in their power to restrain demand - other than raising interest rates, increasing taxes or reducing spending at a time when families are doing it tough.

Victoria and South Australia have announed that they'll go ahead with a levy (starting with a pilot) and ban respectively.

Australians currently use some 40 billion plastic bags a year. Leaders who suggest that we can motivate a big change in people's behaviour in a completely painless way are lying to us. Let's be honest, there will be costs. The question is, are those costs worth the environmental benefits? If plastic bags are the serious problem that all these leaders say they are, then the answer is clearly yes. It then just remains to choose the option that has the greatest impact at least cost. For my money, that's a modest levy.

We need some clear thinking on plastic bags - Part 1

I've been observing the debate about plastic bags for years but haven't posted anything on it.

I'm agnostic about whether something really needs to be done about plastic bags in particular.

Good environmental policy, it seems to me, looks at the best ways of fixing identified problems - rather than targeting certain products.

So what are the problems with plastic bags? As I understand it:

• they're a large componenet of litter;
• they're a reasonably important component of waste / landfill;
• they get into waterways where they harm marine life;
• they're made from a non-renewable resource.

To my mind, a more sensible starting point is to look at each of these problems separately.

Let's start with threats to marine life. What are the big threats? What's the most effective way to reduce their impact? Will getting rid of plastic bags make a big difference? These are the questions we should be examining.

Let's look at litter. What are the problems it causes? What are the main components? What are the most effective ways to reduce it?

Ditto for landfill and ditto for non-renewable resources.

I suspect that there's more effective measures to deal with these issues by looking at all contributors to a problem than singling out one product.

I also suspect that plastic bags are being targeted because they're a visible consumer product. The only concrete regulatory measure that the Howard government announced to reduce greenhouse emissions was phasing out incandescent light globes. Now it's a start and probably worth doing but will make an extremely modest contribution. I suspect they chose that because it's something everyone sees and has experience with - people will notice they're dong something. Similarly, Australian governments have had difficulty coming up with solutions to water shortages other than water restrictions on households. Again, a modest measure that looks to the average person like you're doing something, but really does little to fix the underlying problem.

Targeting plastic bags without examining why also creates confusion. Are biodegradable bags a good alternative? Queensland seems to think so. But my understanding is that they take months or longer to break down and in the meantime they create the same litter problems and danger to marine life that plastic bags do. And while they use renewable inputs (eg corn starch rather than petroleum), there's no guarantee that the overall environmental impact of those inputs is any lower: growing corn has its own problems in terms of resource use (think cleared land, water use, petroleum-based fertilisers, petroleum-fueled tractors) and waste (think fertiliser and pesticide runoff - what does that do to aquatic and marine life?). So deciding on alternatives really depends on what we're trying to achieve.

It's tempting to look at energy waste and think 'let's ban old-school light bulbs', to look at water problems and think 'let's water the garden less' and see litter and think 'let's ban the bag'. And yes, we all need to do our bit and those measures probably do some good.

But the challenge for good policy and what will produce real outcomes is to do the hard thinking about what are the real causes of the problem and what are the most effective measures we can come up with to deal with them - not just to go with whatever grabs our attention.