A tax loophole by any other name

I tend to agree with Jennifer Hewitt when she suggests that it says something about the Rudd Government’s first budget when perhaps the most publicly contentious issue is an increase in the level of tax on “ready-to-drink” pre-mixed alcoholic beverages – beverages the mainstream media have cutely termed “alcopops”. Brendan Nelson even took the time to target the initiative in his reply speech in parliament:

Labor is giving with one hand and taking back with the other – and not just through kneejerk measures, such as a new Tarago tax on cars or the $1 slug on responsible Australians who happen to enjoy a pre-mixed Bundy and Coke or Scotch and Dry.

According to the Government, the principal cause and the source of binge drinking is the so-called ‘alco-pops’ and pre-mixed drinks.

A whopping 70 per cent increase in excise, we have been told, would make significant inroads into binge drinking.

The evidence does not support the Government’s deception.

I am not sure that the government is being deceptive, but what is certainly true is that Federal Labor has not done itself any favours by selling the policy in the way that it has. The government’s own budget overview describes the policy as a “price signal” designed to target binge drinking. While this is no doubt one potential justification, I think realistically speaking we need to consider the two other obvious incentives the government had for proposing this tax increase:

1) Alcohol in ready to drink alcoholic beverages is taxed at a lower rate than alcohol in standard beverages. This represents a tax loophole in anybody’s language.

2) The fiscal environment that the government is operating in has no doubt made it a challenge to fund all its desired spending commitments whilst still attaining the desired level of surplus.

Needless to say the Opposition will be bolstered by the usual blinkered suspects who doggedly oppose any measure that will result in an increase in taxation. However, even if it is true that the evidence suggests that the increase will have no impact on “binge” behaviour, it remains true that a tax loophole is being closed. In a period when constraints on spending are called for and there is a strong incentive to have a sizable surplus, it is in unequivocal terms economically responsible for the government to seek to close any taxation loopholes that exist.

Some may not like it, but the current excise arrangements for “ready to drink” pre-mixed alcoholic beverages represent just such a loophole.

ELSEWHERE: Christian Kerr comes in a very juddering way to the same conclusion, but portrays it all as a piece of spin and a “cover up”. When the realpolitik here is so obvious I am not sure that his breathlessness is warranted.