South Africa wants to make alcohol more expensive. Why it’s a good idea – health economist
The harmful use of alcohol causes approximately 3 million deaths every year.
Alcohol consumption is linked to over 200 diseases and other health conditions. These include liver diseases, heart diseases and different types of cancers.
This is a significant burden on public healthcare systems around the world. Governments must bear costs related to medical treatment, road accidents and violence.
The World Health Assembly has endorsed a Global Alcohol Action Plan
that gives all member states guidance on ways to reduce the harmful use of alcohol.
Worldwide, studies have consistently shown that taxation and pricing policies bring down alcohol consumption.
South Africa’s National Treasury has proposed raising excise taxes to curb excessive drinking in the country.
According to a 2018 World Health Organization report, 60% of South African drinkers aged 15 and older engage in heavy episodic drinking.
Evidence suggests that tax increases on alcohol have contributed to reducing consumption, particularly among lower-income groups who are more sensitive to price changes.
Hence, there is a belief that a rise in excise taxation of alcohol would reduce harm caused by alcohol.
Treasury has also recommended that government look into minimum unit pricing, which sets the price floor below which no unit of alcohol should be sold. Minimum unit pricing prevents producers and retailers from absorbing some of the tax increases and reducing prices or offering large discounts.
As a public finance economist and lecturer at Priceless SA, the Centre for Health Economics and Decision Science, I argue that increased excise taxes and minimum unit pricing should be implemented promptly.
Priceless SA looks at ways to improve public health through interventions such as taxes.
Cost-effective strategies
Evidence from countries such as Canada, Scotland, Wales, Ireland and England demonstrates that excise tax is a cost-effective strategy for reducing alcohol-related harm.
Public Health Scotland found that after minimum unit pricing was adopted, alcohol-related deaths fell by about 13.4%. Hospital admissions dropped by 4.1%. The most significant reductions were among men and individuals in the most economically deprived communities.
Similarly, research published in the Journal of Economic Inquiry highlighted the impact of minimum unit pricing in Wales following the outbreak of the coronavirus pandemic in 2020. Prices increased by 15% and alcohol purchases declined by around 20%.
These examples also underscore the potential that taxes have to mitigate the harms associated with alcohol misuse.
Industry influence
Worldwide, the alcohol industry frequently lobbies lawmakers in an effort to influence taxes on their products.
In Ireland the alcohol industry met with government officials over 360 times in one year to push back against taxation proposals and other public health measures.
Case studies from the US, the UK and Nordic countries show that the alcohol industry has successfully delayed or diluted health-focused taxes by warning of job cuts and the negative effects on the economy.
Industry attempts to influence policies aimed at protecting population health should be resisted.
Urgent action needed
Priceless SA has previously researched the cost-effectiveness of health-focused taxes.
One study, published in BMJ Global Health, estimated that over 50 years, taxes that raised the retail price of tobacco, alcoholic beverages and sugary beverages by 20% could result in a global gain of 160.7 million, 227.4 million and 24.3 million additional life years respectively.
The measures proposed by Treasury should be implemented without delay. This is needed to achieve South Africa’s global health targets of 10% reduction in alcohol consumption by 2025 and 20% by 2030.
Tax revenues should be directed at prevention programmes such as mass media campaigns. Evidence from tobacco control measures shows that these help reduce consumption of harmful products.
