Friday 20 October 2023

NZ Alcohol excise, in context

Posted by Eric Crampton

The Tax Foundation provides some helpful context for NZ alcohol excise.

Well not directly; NZ isn't on this map. But we can add it pretty easily.


So let's add New Zealand.

Excise on beer is $35.451 per litre of pure alcohol.

A 330mL bottle of 5% beer then has $0.58 NZD = €0.32 in excise at current exchange rates.

If NZ were a European country, our excise on beer would be three times the median - at least of the set of countries here listed. There are 28 countries listed. The fourteenth and fifteenth highest have excise of  €0.10 and €0.09. 

We'd be tied for fourth-highest with Sweden. 

Perhaps helpful context. NZ's prohibitionists sometimes like to complain that excise here is less than Finland. Finland is the highest in Europe, at six times the European median. 

FWIW I still like the idea of replacing NZ's messy excise tables. 

Beverages with less than 2.5% alcohol get taxed at 53.170 cents per litre of beverage. Beer and other stuff that's between 2.5 and 6% alcohol gets taxed at $35.45 per litre of alcohol contained in the beverage. Then there are goofy rates for wine, assessed per litre beverage at $2.84 for wine that's 6-9% and $3.55 per litre of beverage for wine between 9% and 14%. And stuff over 14% gets charged $64.57 per litre of alcohol.

It's a convoluted way of assessing a higher excise rate on spirits and higher concentration alcohol, but with a distortion favouring wine over beer - and charging a lower per-unit-alcohol charge on 14% wine than on 9% wine. 

If you put the whole thing on same basis per litre of alcohol in the beverage, evaluating at the top of the range of alcohol concentration, very low-alcohol stuff gets taxed at $21.27 per litre of alcohol; beer is $35.45, wine just at 9% is $31.51, wine at 14% is $25.32, and spirits are $64.57. 

There's a simpler and less distorted way of getting an increasing average excise rate while having a single marginal rate per litre alcohol, regardless of what it's in.

Just exempt the first 1.27% of alcohol from any taxation. 

Why 1.27%? If you drink bathtubs of water that had no more than 1.27% alcohol in it, you'd die of water poisoning before you died of alcohol poisoning. So it makes for a nice cutoff. Ken Henry pointed it out ages ago in a tax review. 

A $45 per litre alcohol excise, across the board, with the first 1.27% exempted, would have the same excise on low alcohol and on 6% beer. It would have a higher excise on wine than is currently the case - the excise in a litre of 14% wine would increase from $3.55 to $5.73. And excise on spirits would come down. $45 would have the thing pivot around current excise on 6% beer. 

Or you could calibrate the thing to pivot at current excise rates on wine. That'd be fine with me too. 

At $37/litre of pure alcohol, the excise on a bottle of 8.9% wine would be about where it is now, excise on a bottle of 14% wine would increase from $3.55 to $4.71, but excise on everything else would drop. 

The current setup is basically war on people who prefer cocktails to wine. I don't know why policy should pick a side in that. I like both.

In other Tax Foundation news, the 2023 International Tax Competitiveness Index is out. NZ dodged a bullet. Labour would have wrecked GST. But we will maintain our Number 1 status. 

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