Thursday, March 19, 2009

Kill Bill

The alcopops tax has been defeated in the Senate, and as a result premixed spirit drinks will no longer be taxed on the same basis as spirits.

What was the Opposition and Senator Fielding's justification for re-instating this loophole? Was it that:

1. The current rate of taxation on externality generating activities is generally too high (perhaps because of (i) the welfare argument that in an economy already distorted by a high initial level of taxation, it may be efficient to tax these activities at a lower rate than in a distortion free world or (ii) taxes crowd out the intrinsic motivation to internalise externality generating behaviour)?
2. The current rate of taxation on spirits is too high compared to the rate of taxation on other kinds of alcohol (ie volumetric pricing based on the volume of ethyl alcohol across all classes of beverages is wise policy, and the tax rate on spirits should be reduced to match the much lower rate on beer)?
3. There are grounds to treat premixed spirit drinks on a different basis from spirits (eg a lower proportion of externality generating consumers in the case of premixed drinks)?

I haven't seen any discussion of these issues.

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