The Alcohol Industry - A case study of health versus wealth

Nat O'Connor: The recently completed (Feb 2012) Steering Group Report On a National Substance Misuse Strategy has taken a public health approach to the issue of alcohol, and it estimates the costs to Irish society of dealing with alcohol abuse to be €3.7 billion. At the same time, the alcohol manufacturing and retail industry provided €2 billion in VAT and excise to the State, as well as 50,000-60,000 direct and indirect jobs.

There’s just no way to reduce the €3.7 billion of social harm and retain the same levels of tax and jobs. One of the recommended societal goals is to reduce alcohol consumption by nearly a quarter (page 7), which would have to significantly affect the alcohol industry.

It's a good case study of a genuine dilemma facing the Government about how to curb the societal harm and economic costs from alcohol abuse while minimising the loss of jobs or tax revenue from the alcohol industry.

Minority reports from both the ABFI and MEAS disagree with the steering groups findings. This suggests that the alcohol industry sees the report's recommendations overall as a financial threat, although it would be unfair to infer from this that the industry is unwilling to deal with the issue of abuse.

Table 7 (page 78) gives the breakdown of the €3.7 billion cost to society:
• €1.2 billion (32%) Costs to healthcare system of alcohol-related illnesses
• €1.2 billion (32%) Alcohol-related crime
• €526 million (14%) Alcohol-related road accidents
• €330 million (9%) Output lost to alcohol-related absence from work
• €197 million (5%) Alcohol-related accidents at work
• €167 million (5%) Alcohol-related suicides
• €110 million (3%) Alcohol-related premature mortality

The economic role of alcohol production and consumption is addressed too (page 71):
• €7.2 billion personal expenditure on beverages
• €2.9 billion turnover in drinks manufacturing, including €1 billion in drinks exports
• The on-trade provides 43,629 full-time job equivalents, and off-licences another 2,850.
• Manufacturing and retail provide €2 billion in VAT and excise.

Alcohol consumption in Ireland (at 11.3 litres per capita) is higher than the OECD average of 9.1 (page 64), but more significantly, Irish adults binge drink more than any other European country, with one quarter of Irish adults binge drinking every week (page 7).

A summary of some of the recommended actions (listed in full on pages 54-62) are as follows:
• Increase the price of alcohol over the medium term to ensure that alcohol becomes less affordable, using excise, including linking excise more closely to alcohol content;
• Minimum pricing per gram of alcohol;
• Increase enforcement of some existing laws, including physical separation of alcohol in mixed retail outlets;
• Develop proposals for an all-island initiative in relation to alcohol issues;
• Allow the HSE to object to the granting of a court certificate for a new licence or renewed licence;
• Introduce a statutory code of practice on the sale of alcohol in the off-licence sector;
• Develop a system to monitor the enforcement of sale, supply, delivery or online advertisement of alcohol to minors, with particular emphasis on age verification;
• Consider the possible need to strengthen the legislative controls on distance sales;
• Establish standards for mandatory server training programmes in the on-trade and off-trade sectors;
• Engage with EU colleagues to explore the feasibility of introducing common restrictions on advertising on a European level.
• Restrict alcohol advertisement generally, including a 9pm watershed for tv and radio, alcohol ads for over-18s cinema screenings only, and prohibition of all outdoor advertising of alcohol;
• Phase out drinks industry sponsorship of sport and other large public events by 2016;
• Introduce appropriate hospital procedures to provide alcohol testing of drivers who are taken to hospital following fatal/injury collisions;
• Monitor and regularly publish the volume of driver alcohol testing by An Garda Síochána;
• Introduce a ‘social responsibility’ levy on the drinks industry;
• Reduce the low-risk weekly guidelines to match the UK levels;
• Develop and implement more detailed clinical guidelines for health professionals relating to the management of at-risk patients;
• Increase information on alcohol products sold in Ireland to include grams of alcohol, calorific content and health warnings;
• A wide range of preventative measures, especially targeted at high risk groups, particular communities, and children and families of those abusing alcohol;
• Encourage the provision of alcohol-free venues for young people, with an emphasis on those most at risk (e.g. Youth cafés, alcohol-free music and dance venues and sports venues);
• Further integration of alcohol strategy with other national addiction and mental health strategies;
• Various clinical guidelines and protocols;
• Improve detoxification services;
• Continue to implement and develop, as appropriate, epidemiological indicators and the associated data collection systems and a research programme to examine the economic, social and health consequences of alcohol and the impact of alcohol policy measures.

Of course, some of these actions, particularly local action and prevention, may require additional financial resources at a time when the Government is still battling a massive deficit. Yet, the economic gains of tackling alcohol-related harm may be a good social investment that will pay dividends in later years.

From an equality perspective, excise increases will disproportionately affect people on low incomes. While there are good arguments in favour of using price to disincentive negative behaviours (i.e. pignovian taxes), this compounds poverty and an already unfair distribution of income. Ideally, we should ensure a minimum adequate income for everyone in Ireland before relying on flat taxes to dissuade people from alcohol abuse. There is also a risk that people with an alcohol addiction and/or related mental health problems will simply spend more of their incomes on alcohol and less on everything else. Therefore education and other action to support people in tackling alcohol addiction will be crucial, and this will require significant investment in healthcare and social support services, not least specialist interventions with the highest risk groups.

Many of the recommendations, particularly the earlier ones, will cost money to the alcohol industry to implement. Not least the call for a ‘social responsibility’ levy on the drinks industry, which could help pay for the required healthcare and social services. So the stage is set for conflict between the long-term health costs and the short-term economic benefits of alcohol to the Irish economy and society.

Chemical solutions to economic problems?

Rory O'Farrell: I feel it rare that I have reason to be thankful to the FF/PD government of 2002-2007. However, they had one policy that was so dramatic, that we can smell the change.

Last Saturday evening, while enjoying the Tall Ships festival in Waterford, a friend and I decided to go for a beer in a popular city centre pub. The lack of indoor seating pushed us outdoors into the 'smoking area'. At one point a stranger interrupted our conversation and asked for a light. I told him I don't smoke, and we looked around the 'smoking area' to find someone who did. We noticed only a minority of people smoking, and in the relaxed atmosphere and dimming sunlight of the summer evening the stranger laughed at how even in the smoking area people don't smoke. Since Charlie Haughey was Minister for Health Ireland has been at the vanguard of restricting the advertising of tobacco, a tradition which continued when Micheál Martin banned smoking in the workplace. The success of these policies are measured by reduced lung cancer, lower levels of tobacco use, and the fact that our policies have been imitated throughout Europe, rather than vice-versa. Let’s hope Micheál Martin is selective in how he emulates his predecessor as both Minister for Health and leader of Fianna Fáil.

In an article from the Sunday Independent that contained errors in as diverse a range of topics as etymology, and statistics, Marc Coleman says "high taxes on drink and cigarettes are not designed to curtail drinking or smoking" and "unless we want another civil war, we have to put an end to highly paid servants of the State using spurious morality to defend indefensible restrictions on our right to live the way we want to live." I am not sure which highly paid public servants he is referring to (certainly not I as I’m not a public servant).

To back up his claim he states "Those in the lowest income decile spend one-tenth of their income on drink and tobacco, compared with 4 per cent for those in the highest income decile." In fact, Table 2 of the 2004-2005 Household Budget Survey gives very interesting details of spending by income group. Marc Coleman does make a silly error when he calculates "the lowest income decile spend one-tenth of their income on drink and tobacco, compared with 4 per cent for those in the highest income decile". He appears to confuse the average gross income for the bottom (top) ten percent with the upper (lower) bound for that group. Accurate data can be seen in the below Figures, 1 and 2. The first shows average weekly expenditure on a selection of items, and the second give the expenditure as a share of gross income (one could argue that disposable income is more appropriate, but as the CSO only gives percentiles by gross income, this was used). Nevertheless, the core point that the poor spend a larger proportion of their income on cigarettes and alcohol than the rich remains.

However is this information shocking to the average follower of the TASC blog? Does it alter the general policy prescriptions for recovery? Not at all. It is common knowledge, that across the world, that the poor spend all their income, while the rich are more likely to save. In fact, the poorest 10% spend more than their income, possibly incurring debts or getting some help from others. The poorest spend less on drink and tobacco, but their income is also lower. It is said that “as with stamp duty and other taxes, the penal levels of indirect taxation are bringing our social contract into disrepute and killing the economy.” As Marc Coleman correctly states, indirect taxation (such as VAT, or excise duty) is usually regressive. This is commonly accepted. A more egalitarian tax policy will boost the economy, by increasing demand in the economy. Other policies, such as maintaining the minimum wage, and proper enforcement of JLCs, can also help boost the economy.

However, Marc Coleman also says “high taxes on drink and cigarettes are not designed to curtail drinking or smoking. It is precisely because the Government knows that the consumption of these products is inelastic that they are easy targets for a selfish state-driven tax trap”. Past governments are open to accusations of economic illiteracy, but if past governments were cynically trying to wring cash from smokers, would they really have banned tobacco advertising and smoking in pubs? It’s not a government conspiracy. Smoking is bad for you.

Of course economics is the study of choices over scarce resources. Irish alcohol and tobacco cost 70% more than the EU average. This is not a problem of structural competitiveness, it is purely due to taxation. As a country we made a choice to put high taxes on these items, and this choice could be reversed tomorrow if we wanted to. If we slash prices on tobacco it is unlikely to be a major boost to competitiveness. Tourists are unlikely to flock to Ireland because 20 John Player Blue no longer cost €8.65 (which coincidentally is the minimum wage). A choice has been made that it is better to tax tobacco highly, and questions of equality are not best dealt with through excise duty.

There is no chemical solution to an economic problem.