A Canadian study has revealed an uncomfortable truth that challenges how governments approach alcohol taxation policy. Research shows that government revenue from alcohol taxation falls short of covering the broader social and economic costs imposed on society.

The Canadian Centre on Substance Use and Addiction conducted a comprehensive analysis that found between 2007 and 2020, total federal and provincial government revenue from alcohol reached $13.3 billion, whilst total social costs hit nearly $20 billion. Governments generate revenue from alcohol through taxes, markups, licensing fees and government-run liquor stores.

The Real Cost of Alcohol

“The most misunderstood thing [about alcohol], at least in North America, is the fact that alcohol is costing taxpayers and governments money, not bringing in revenue,” said Timothy Naimi, director of the Canadian Institute for Substance Use Research and a professor at the University of Victoria.

“Taxpayers are subsidising the production of alcohol and people who drink heavily.”

The study shows that alcohol taxation policies must consider these broader economic impacts. Health care and lost productivity contribute the largest factors to social costs, according to the research.

“It’s not really providing revenue… because the secondhand costs are not really being fully recouped,” said Naimi.

Policy Problems

Tim Stockwell, a scientist at the Canadian Institute for Substance Use Research and a psychology professor at the University of Victoria, says governments either are not aware of alcohol’s true costs or do not see the political benefits of addressing them.

“[T]here is not much political gain in rendering our most popular recreational drug less available or more expensive,” he said.

Naimi says that it is like the government’s left hand does not know what its right hand is doing, since finance departments do not track health and social costs.

“Alcohol policies run out of departments of treasury or finance, so they only see the revenues,” said Naimi. “But they’re not the ones that are spending on all these other things that are caused by alcohol on the other side of the government.”

Productivity Debate

Some critics argue that analysts should not consider lost productivity. Economists have pointed out that productivity losses are difficult to reliably quantify.

“This assumes society is ‘owed’ some net contribution from each person,” a commenter posted in the popular online discussion forum Reddit. “That would be like saying video game producers owe everyone because people choose to play games instead of contribut[ing] more to society.”

However, a spokesperson for the Canadian Centre on Substance Use and Addiction told Canadian Affairs in an email that “productivity losses have wide-ranging impacts on the economy and the well-being of people in Canada, which are squarely within the realm of government responsibility.”

They say alcohol-related productivity losses include lost value of work when people die prematurely, suffer disability and take time off work. These losses hurt overall GDP, shrink income tax revenues and strain public services like health care.

Effective Solutions

Naimi says minimum unit pricing, which sets a floor price per drink, is a highly effective policy because it targets the cheapest alcohol, which the heaviest drinkers consume disproportionately. Some provinces have already implemented minimum unit pricing, and this alcohol taxation approach reduces harmful consumption without significantly hurting revenue.

Alcohol consumption only drops slightly as prices rise, Naimi says. “If I raise the price 10 per cent, I’m only going to reduce consumption by seven per cent,” he said.

“If you do the math, when you raise taxes, you raise revenue.”

Experts say alcohol taxes – which raise prices across all products – are also a key tool to reduce alcohol-related harm.

“The primary objective of alcohol taxation policy is to reduce the affordability of alcoholic beverages in order to lower consumption — both overall and among heavy drinkers,” Guillermo Sandoval, an economist with the WHO, told Canadian Affairs in an email.

“Alcohol demand is relatively inelastic — meaning that consumption falls, but by a smaller proportion than the price increase.”

WHO Recommendations

In a report the WHO released on July 2, the organisation called for a 50 per cent global increase in taxes on alcohol, tobacco and sugary drinks by 2035. The goal is to reduce chronic disease and generate $1 trillion in public revenue over the next decade.

The Canadian Centre on Substance Use and Addiction recommends taxing all alcoholic beverages based on ethanol content and indexing rates to inflation.

Public Opinion

Industry groups like Beer Canada and Spirits Canada and the Canadian Taxpayers Federation call automatic alcohol tax hikes “undemocratic” and unpopular with the public.

But Naimi argues most people prefer so-called “sin taxes” over property or income taxes.

“In public opinion polls, when you match up alcohol taxes or cigarette taxes in comparison to paying more property or income taxes, taxpayers overwhelmingly would prefer to pay higher sin taxes compared to higher property or income taxes,” he said.

Patra suggests using some of the revenue to fund addiction treatment or hospitals.

Looking Forward

Jayadeep Patra, a scientist with the Centre for Addiction and Mental Health, says Canada needs to better predict the long-term costs of alcohol. Canada needs “smarter forecasting tools that combine data from health care, justice, and the workplace,” he said.

“Right now, most budgeting is short-term, but we need models that look 10, 20, or 30 years ahead — especially since alcohol-related harm often builds up slowly over time.”

A Canadian Centre on Substance Use and Addiction report that appeared earlier this spring showed the country drinks too much. Canadians who drink consume, on average, more than 13 standard drinks a week, far beyond the recommended low-risk threshold of one to two drinks a week.

Stockwell says stronger public messaging on alcohol’s health harms could shift public opinion. “People have assumed the health risk only applies at high levels,” he said.

“When people realize [alcohol causes cancer] their support for governments taking stronger action to increase price and reduce availability increases.”

Source: Breaking Needles