Raise Alcohol Tax to Boost Economic Output, Says OECD

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The FINANCIAL — A tax increase that would raise alcohol prices by 10% is among the most effective means of countering excessive consumption, which reduces economic output in most developed countries and contributes to early death and disability, the Organization for Economic Cooperation and Development said on May 12, according to Nasdaq.

The Paris-based research body said in a report that while alcohol consumption has been declining in most countries over the past two decades, it is heavily concentrated, with the majority accounted for by the heaviest-drinking 20% of the population. “Hazardous” and “binge” drinking is on the rise among young people, and especially young women.

The proportion of children aged 15 and under who haven’t yet drunk alcohol shrank from 44% to 30% of boys and from 50% to 31% of girls during the 2000s. The proportion of children who have experienced drunkenness increased from 30% to 43% of boys and from 26% to 41% of girls over the same period.

The OECD estimated that harmful alcohol consumption results in annual losses in output of roughly 1% of gross domestic production in most developed economies, while it rose from eighth to fifth as the leading cause of death and disability in the world between 1990 and 2010, and is now responsible for a greater proportion of deaths world-wide than HIV/AIDS, violence and tuberculosis together.

“The cost to society and the economy of excessive alcohol consumption around the world is massive, especially in OECD countries,” said Secretary-General Angel Gurría, launching the report in Paris. “This report provides clear evidence that even expensive alcohol abuse prevention policies are cost-effective in the long run and underlines the need for urgent action by governments.”

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The report simulated the effect of a number of policies in Canada, the Czech Republic and Germany, finding that they helped reduce rates of heavy drinking by between 5% and 10%.

It said that while heavy drinkers should be persuaded by doctors to start dealing with their problem, broader actions are also needed. In particular, it urged governments to raise alcohol prices, either by increasing taxes or raising the minimum price of alcohol. It also said that greater regulation of alcohol advertising may help.

However, alcohol producers questioned the OECD’s reliance on simulations that the research body itself admitted partly rely on data that “may be of limited quality.”

Peter Cressy, president of the U.S. Distilled Spirits Council, said the report was “tarnished by its use of a flawed model.”

“Raising the price does not deter heavy alcohol abusers,” he said. “Rather, it is the moderate consumer who cuts back the most when prices are increased. Additionally, raising taxes invariably leads to an increase in illegal and potentially poisonous illicit alcohol in some countries.”

The OECD found that levels of alcohol consumption are lower in the U.S. than the OECD average, and more concentrated. The 20% of the population who drink the most account for more than 70% of total consumption, a share that is second only to Hungary among the 13 countries for which such figures were provided.

By contrast, alcohol consumption is above the OECD average in the U.K., and has increased over the past two decades, while heavy drinking is particularly common among men and women with high educational attainment.

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“Selecting an appropriate mix of policies in any given context requires political judgments that individual governments are best placed to make, taking into account the social, cultural and epidemiological characteristics of their respective countries,” the OECD said.


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