Monday, 26 April 2010

NBR on Palmer Report

Friday's National Business Review on the forthcoming Palmer Report:

Puritanical nonsense

As is usually the case with Sir Geoffrey Wowser, these recommendations combine a love for finger-wagging nanny state with a desire to tax “undesirable” behaviours out of existence.
How fair is it to ban 18 and 19 year-olds, who can legally vote, drive cars and get married, from buying some beers?
The anti-alcohol zealots keep using the “cost of alcohol to society” to justify their assaults on freedom.
But the only reason alcohol costs “society” and in particular the taxpayer so much is because New Zealand has decided to privatise the benefits of alcohol while socialising the costs through ACC and the public health system, which is clogged up by drunken idiots with stupidity-related injuries and who refuse to be treated.
Here’s a novel idea – if people injure themselves or damage property or other people while in a drunken stupor, make them liable for the cost of the damages.
Bankrupt those who can’t pay. Maybe then these incoherent inebriates won’t be able to afford any more nights out on the town on the taxpayer tab.
I'd disagree slightly.  As Matt and I showed last year, the costs to "society" only tally up to really sizeable figures if you're happy to include a raft of private costs as social.  Under normal economic method, external costs roughly match the tax take.  So drinkers are already, on average, paying their way through the health system; moderate drinkers are heavily subsidizing the right tail of the distribution, but that's always going to be the case with a linear per unit tax that can't vary tax levels with the amount consumed. The sad bit is that an alcohol tax increase will do more to punish moderate drinkers than to curtail the problem end of the distribution given relative demand elasticities.

NBR is right that putting more focus on punishing the activities that generate negative externalities is likely to be more helpful than putting a tax on an activity that correlates only weakly with generating negative externalities.

I'll look forward to reading the report....

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