Flavoured Alcoholic Beverages and Reducing Teenage Drinking Harm

Submission to 2004 Youth Parliament (some amendments following the presentation on 17 August, 2004).

Keywords: Health; Regulation & Taxation;

0. Introduction

0.1. My name is Brian Easton. I hold degrees, including a D.Sc., from the University of Canterbury in mathematics and economics, and from Victoria University of Wellington in economics. I am a Fellow of the Royal Statistical Society, a Charted Statistician, and hold university positions at the University of Otago, Victoria University of Wellington, and Auckland University of Technology, where I am an adjunct professor at the Institute of Public Policy.

0.2. I have considerable experience in research, analysis, teaching, and writing in the areas of economics, social statistics and public policy. Particularly relevant for this submission I have a long record of the research and public policy analysis on alcohol consumption and other drugs. I have been on the International Working Party which prepared the WHO published International Guidelines for Estimating the Costs of Substance Abuse. (2.ed, 2002) I have written he most authoritative study of the social costs of alcohol and tobacco in New Zealand The Social Costs of Tobacco Use and Alcohol Misuse (1997) In 2002 I prepared the report Taxing Harm: Modernising Alcohol Excise Duties for the Alcohol Advisory Council, some of which’s recommendations were implemented in May 2003, and which is discussed further below.

0.3. I have been asked to prepare a brief on whether the excise duty on Flavoured Alcoholic Beverages (FABs a.k.a Alcopops) should be increased. (Section 3)

0.4 In order to do this properly I have set out my understanding of public policy towards alcohol consumption (Section 1), explained how my Taxing Harm report fits into this context (Section 3), and also briefly looked at alternatives policy options (Section 5). The focus of the paper is on teenage drinking (Section 2).

0.5 My conclusion is that while an across-the-board increase of excise duty is likely to reduce drinking harm, increasing taxation on FABs is unlikely to do so. In regard to the problem of teenage drinking I suggest there may be other more effective policy options. (Section 6.)

1. Public Policy Towards Alcohol Consumption: the Context

1.1 My understanding of the current public policy framework towards alcohol consumption is that it treats alcohol consumed in moderation as a pleasurable social activity which is socially benign like most other consumption. However, it recognises that some alcohol consumption can be socially damaging. Public policy aims to minimize the potentially harmful consumption with the least impact on benign consumption as possible. A number of policy instruments including education, legal proscription and regulation, and taxation are applied. Typically they are targeted on particular harmful consumption. However alcohol specific taxation is not a well targeted policy instrument. It is intended to reduce the harm on which no other policy instrument can be targeted, but in doing so it also reduces benign consumption.

(1.2 There is a case that some alcohol consumption can be beneficial. The research evidence suggests any benefits are for very low levels of consumption, and are small in comparison to the harm from excessive drinking. Probably the most important benefit is for those with a degree of heart disease. This only applies to older men and women, so it is of little relevance to the young. Mild benefits are not uncommon for many other acts of private consumption (e.g. eating food prevents starvation), but the general approach of public policy is not to take any specific action to promote such consumption, other than use education to enlighten consumers, and stress the benefits of moderation where it is necessary.)

1.3 A particular issue is that people have to learn to drink safely. Under the most favourable circumstances, the socialisation of the young into sensible drinking is bound to be difficult for most, and hazardous for some. This is not because they are ‘irrational’ but because the process of socialisation involves complex tasks in a context in which the body’s physiology and the social environments are changing. It is compounded for this generation by their elders, who having grown up in a much more restrictive drinking environment, not always being able to give the younger generation the guidance and support which is normal in the socialisation process, nor of always setting a good example.

2. Teenage Drinking Practices

2.1 While every society with a liberal approach to liquor will have teenage drinking problems, New Zealand seems to be facing a rising one. There is a public awareness of the problem but there has been little additional public policy response.

2.2 The annual Auckland surveys (the longest continuous set we have) show that the average number of drinks consumed on one occasion among 14 to 19 year olds increased from 3 to 4 in 1990 to 5 to 6 drinks in 1999. The rise was particular strong at the younger end, with the 14 to 17 year olds increasing from 2 to 3 drinks in 1990 to 5 to 6 in 1999. (In this context a ‘drink’ is equivalent to a standard stubby of beer, or 15g of alcohol. A ‘standard drink’ is only 10g of alcohol, so a stubby is 1.5 standard drinks.)

2.3 The National Alcohol Survey found that the average quantity of ethanol consumed by 14 to 17 year olds doubled between 1995 and 2000. It also rose for 18 to 19 year olds, but fell or was much the same for older age groups. A similar pattern applies for frequency of drinking (occasions per year). The survey also found that the 14 to 19 year olds were consuming more over time, in contrast to the older age groups whose rate had not changed much over the five years.

2.4 There are no long term series but currently over a third of 14 to 17 year olds consider themselves ‘heavy drinkers’. The National Survey found that 7 percent of 14 to 15 year old males, 25 percent of 16-17 year old males and 40 percent of 18-19 year old males were involved in a session of at least 6 standard drinks at least once a week. The latter proportion was more than for 20 to 24 year olds, and the 16-17 year old proportion more than occurs for those over 25 years old. The same patterns apply for females, except their levels are slightly lower (7, 22, and 28 percent).

2.5 These trends are reinforced by the evidence that the age of first drinking seems to be lowering, although the surveys were not well designed to measure this. It seems that the earlier the age of onset of drinking the more likely the young person is to be involved in heavy drinking in later years.

2.7 While heavy drinking is associated with harm, it is more difficult to measure the actual harm that occurs. Typically the data is not collected by association with alcohol, so that it is difficult to draw rigorous conclusions.

2.8 In summary there has been rising drinking among teenagers in the 1990s, older teenagers appear to be at least as prone to heavy drinking as young adults and, because they are less experienced, they are likely to be in more harm generating situations.

2.8 However, the same surveys show that most harmful drinking occurs in the 18 to 26 year old group. This submission does not directly address the problem of young adult harmful drinking, but it notes that if teenagers learn appropriate drinking, they are less likely to drink harmfully when they are 18 to 26 years. On the other hand, were drinking among young adults less harmful, then they would set a better example for younger drinkers. So bad drinking habits in both groups have to be addressed.

3. The Taxing Harm Report

3.1 My report, Taxing Harm: Modernising Alcohol Excise Duties, was commissioned in 2002 by the Alcohol Liquor Advisory Council as a review public policy on the taxation of alcohol. The following review of the report focusses on those parts concerned with reducing harm from teenage drinking.

3.2 Additional taxation on alcoholic beverages raises prices, which deters some drinking. Some of the deterred drinking will be benign but some will be (potentially) harmful. Thus public policy has to trade-off reductions in benign drinking which represent a social loss, from reductions in harmful drinking which represent a social gain. That is the reason that economists argue that taxation should be the policy instrument of last resort, after all other effective instruments are properly targeted.

(3.3. For instance, harm from alcohol-induced road accidents could be reduced by punitively high excise taxes on alcohol. However that would discourage drinking which was not related to road accidents. A more effective strategy is heavy penalties for drink-driving and effective enforcement.)

3.4 The research evidence suggests that biggest reductions in harm from rising alcohol prices are likely to arise from
– reduced teenage consumption;
– inhibiting moderate and heavy drinkers becoming very heavy drinkers, and
– reduced additional drinking in a session.

3.5 The report suggested the relevant price target was the unit cost of absolute alcohol (i.e the ethanol in the alcoholic beverage). This supports the approach where excise duty is levied on ethanol content, irrespective of the source of the alcohol. The effect of such a tax is to raise the cost of cheap beverages relative to expensive ones. For instance the current excise duty increases the price of a bottle of wine by about $2.00 irrespective of whether the wine costs $10 a bottle or $100 a bottle. Since each contains the same amount of alcohol, each has the same potential to do harm, and so the levy is the same.

3.6 At the time of the report, the cost of light spirits – spirits based drinks which are 23 percent absolute alcohol by volume – assessed by unit costs of ethanol, was much lower than for other sources of ethanol. It was possible for as little as $8.00 to purchase 23 standard drinks, enough to kill a person – sadly on least two cases it did. Anecdote had it that light spirits was a significant source of ethanol for those teenagers who wanted to consume to harmful excess rather participate in socially benign drinking.

3.7 When I examined the reasons for the low cost of light spirits, I found a major factor was some anomalies in the taxation system. I recommended these be eliminated. In May 2003 the government removed the anomalies, which doubled the cost of the light spirits. As a result light spirits are no longer attractive to those who simply wanted to get drunk, and their demand fell substantially. I am told that they are no longer available.

3.8 Of course that has not stopped those who want to get drunk. Rather they have switched to other sources of alcohol. However, because the other sources are more expensive, teenagers – in particular – are likely to purchase less ethanol and get drunk less often.

(3.9 A collateral effect of the government removing the tax anomalies which favoured light spirits was that excise taxation of fortified wines (such as sherry) and liqueurs was also raised. Apparently the fall-off in consumption was much smaller, consistent with the notion that consumers of these other forms of alcohol were not simply purchasing ethanol, that they were purchasing less per drinking session, and that being older they were not as price sensitive.)

4 Flavoured Alcoholic Beverages

4.1 Favoured Alcoholic Beverages (FABs) are typically spirits based drinks with added flavour which come in containers similar to beer (i.e. bottles and cans) and which have a similar level of absolute alcohol per unit volume (4 to 8%). (they are also called ready-to-drink or RTDs).

4.2 When I looked at the price of FABs measured by the cost ethanol I found them similar to, and not markedly below that of, beer in similar containers. I found no tax anomaly which favoured FABs.

4.3 Suppose a higher excise duty was placed upon FABs relative to beer. (I assume it would be levied on the basis of it being a spirit.) My conclusion is that higher priced FABs would result in their drinkers switching to other (now relatively cheaper) alcohol products. Because FABs tend to be sweeter than beer, we might also expect breweries to create sweeter beers, while it seems likely that wine producers would provide a diluted sweet wine to fill the FAB niche. In summary, I concluded on that raising the excise duty only on FABs would not significantly reduce the consumption of ethanol nor alcohol harm, because consumers would switch to cheaper drinks.

4.4. I was aware of the anecdotal argument that FABs are particularly seductive to new drinkers (especially young women) because of their sweetness. Whatever the truth of this argument, the introduction of sweet light wines and beers would mean that there would be comparably seductive drinks. I add that it is not obvious that a particular type of beverage which introduces the young to drinking is necessarily a bad thing. The test has to be whether it causes more harm than the alternatives. There is little rigorous evidence to support such a conclusion.

4.5 An alternative strategy would be to raise excise taxation on all alcohol, including FABs. This would reduce alcohol induced harm through reductions in consumption, but some of those reductions would be of benign consumption.

(4.6 I would personally support a hike in excise duties on alcohol, not only to reduce harm but because the extra revenue could be used for socially useful public expenditure (say more spending on education) or personal tax cuts. Because of the pattern of drinking – which is concentrated in particular small groups – over half the population, perhaps three quarters, would benefit from a hike in alcohol excise, despite having to pay more for their beverages and cutting back on consumption, providing the additional revenue is used effectively.)

5. Alternative Policies to Reduce Harm from Teenage Alcohol Consumption

5.1 Nevertheless we have a teenage drinking problem. Even if raising the price of FABs will not reduce it, we might consider what other measures we might take to reduce harmful drinking while enabling teenagers to learn how to drink. The following are some frequently proposed ones:

5.2 More public and school education, although we need to be careful, because there is a tendency to propose education as a solution to everything, without much attention to whether the program is effective.

5.3 Advertising is a sort of education. There is much dispute over whether advertising has increased harmful alcohol consumption. Those who argue it does not, say that since alcohol is just about like any other commodity, it should be advertised so people can make better choices. Those who argue it does, say that the advertising encourages people to consume more. (There are some restrictions on advertising which exclude the most blatant encouragements, especially those which might encourage harmful drinking.) Obviously the young are more likely to be influenced by any advertisements, and we might be more restrictive where they may see them although, other than eliminating alcohol advertisements for teenage-only programs, it is hard to know how to do this without banning all advertisements.

5.4 Raising the general level of alcohol excise duties (see para 4.5). But it would impact on benign consumption of alcohol by adults and teenagers.

5.5 Raising the ‘drinking age’. This is often advocated, although not always in an informed way. Currently a person who is under 18 has various restrictions on where they may drink, whether they may be on a licenced premise, and they may not purchase liquor. The argument for a higher drinking age is the ‘shadow’, the group below the legal age who break any law. (What is a group of friends of 17 and 18 year olds to do? Stay out of pubs? Breakup?) The main argument for 18 is that it is the minimum voting age. There is little evidence that when the legal age of purchase was reduced there was any acceleration in the upward trend of youth drinking, although it may be too early to tell. (Note that a phased approach by age to drinking to reflect the stages of learning to drink sensibly makes public policy sense in terms of the young learning to drink.)

5.6 Better enforcement of the law. It is argued the police do not put in enough effort policing underage illegal drinking in public places. The police say they dont have enough resources, and they have higher priorities.

5.7 The restrictions on drinking in public are greater than drinking in private situations – say parties in private homes. Should they not be the same?

5.8 Currently we restrict supply to under 18s, by not allowing them to purchase liquor. However others can do it on their behalf. The law could be changed so that anyone who supplies an underage drinker – seller (who are already prohibited), parent or guardian, or someone else, say an over age friend – is responsible for any harm the underage drinker causes as a result of that drinking, including being drunk. I am in favour of this change, not because it would have a lot of such suppliers jailed, but because it would bring home to people that they must take responsibility for the act of supply alcohol to a person who is judged to be not yet fully competent to consume it. (I would also have a less onerous, but parallel, law about supplying alcohol to persons over the age of 18 who is drunk.)

5.9 My report Taxing Harm recommended eliminating the excise duty on alcoholic beverages with an ethanol content below 2.5 percent, thus making them more attractive to consumers by their greater cheapness. Experts told me that one would ‘drown’ before getting inebriated on such diluted alcohol.

5.10 While the law is important, actions by other groups in the community are also important. Schools which regulate liquor usage before and after school events are example. Do all schools have good practices? Are there any other institutions which should take a similar responsibility? (For instance should functions – some university fresher events sometimes do – offer a fixed entrance fee, and allow those there to drink as much as they can?).

5.11 The previous two paragraphs are illustrative of a more general proposition. We cannot markedly reduce harmful teenage drinking unless their elders set a good example.

6. Conclusion

6.1 Learning good drinking habits is a challenge for the young, made more difficult because not all their elders have good drinking habits.

6.2 There is evidence of rising teenage harmful drinking.

6.3. Even if Flavoured Alcohol Beverages are important in teenage drinking, it is not obvious that proscribing them or raising excise duty on them will reduce harm from teenage drinking, because teenagers are likely to switch to substitutes.

6.4 Raising excise duties on all alcohol is likely to reduce some harmful drinking, but it will also reduce some benign drinking.

6.5 There are other ways of reducing harmful teenage drinking. Among those proposed are the following (although they may not all be helpful):

(i) More public and school education (para 5.2)

(ii) Advertising restrictions (para 5.3)

(iii) Higher excise duties on all alcohol (para 5.4)

(iv) Raising the drinking age (para 5.5)

(v) Better enforcement of the law (para 5.6)

(vi) Extending the law in regard to drinking in public places to drinking in private places (para 5.7)

(vii) Placing a legal responsibility on all those who supply under age drinkers to ensure that the drinking should not be harmful (para 5.8)

(viii) Making low ethanol content drinks more price attractive by eliminating excise duty for those with an ethanol content of 2.5 percent.

(ix) Institutions which are involved with teenagers should ensure that the drinking environments do not promote harmful drinking (para 5.10)

(x) Elders need to set a good example by reducing their harmful drinking (para 5.11)

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