House of Representatives

Excise Tariff Amendment Bill (No. 1) 2002

Explanatory Memorandum

(Circulated by authority of the Treasurer, the Hon Peter Costello, MP)

Chapter 3 - National scheme for low alcohol beer

Outline of chapter

3.1 This chapter explains amendments to the Excise Tariff Act 1921 which introduce new rates of excise duty for certain beer.

3.2 Item 7 of Schedule 1, alters item 1(C) of the Schedule to the Excise Tariff Act 1921 by reducing certain rates of beer. [Schedule 1, item 7]

Context of amendments

3.3 The new rates give effect to the Governments decision to implement a national excise scheme for low alcohol beer, announced by the Treasurer on 22 March 2002 following the meeting of the Ministerial Council for Commonwealth-State Financial Relations and Outcome of Loan Council Meeting. The key feature of this scheme is the cessation of State and Territory subsidies for low alcohol beer, with assistance to be delivered through lower excise rates.

Summary of new law

3.4 The Excise Tariff Act 1921 will be amended to reflect a number of changes to the excise duty rates for certain beer. Excise duty rates for certain beer will be reduced to give effect to the Governments decision to introduce a national scheme for low alcohol beer. The amendments will also remove an anomaly in the current excise rates that has allowed manufacturers to reduce their excise liability by marginally increasing the alcohol content of the beer from 3.5% to 3.6%. [Schedule 1, item 7]

Comparison of key features of new law and current law
New law Current law
The States and Territories will cease to pay rebates in respect of wholesale low alcohol beer products and assistance is through lower excise rates. Assistance for low alcohol beer products is through State and Territory rebates.
The rate for low alcohol beer (3.0% alc/vol) will be reduced to $5.69 per litre of alcohol for beer packaged in individual containers exceeding 48 litres. The rate for low alcohol beer (3.0% alc/vol) is $16.46 per litre of alcohol for beer packaged in individual containers exceeding 48 litres.
The rate for low alcohol beer (3.0% alc/vol) will be reduced to $28.49 per litre of alcohol for beer packaged in individual containers not exceeding 48 litres. The rate for low alcohol beer (3.0% alc/vol) is $45.46 per litre of alcohol for beer packaged in individual containers not exceeding 48 litres.
The rate for mid strength beer (>3.0 and 3.5% alc/vol) will be reduced to $33.22 per litre of alcohol for beer packaged in individual containers not exceeding 48 litres. The rate for mid strength beer (>3.0 and 3.5% alc/vol) is $38.59 per litre of alcohol for beer packaged in individual containers not exceeding 48 litres.

Detailed explanation of new law

3.5 Subitem 1(c) of the Schedule to the Excise Tariff Act 1921 will be amended to reduce certain rates of excise duty on beer as follows:

·
the rate of excise duty for beer packaged in individual containers exceeding 48 litres has been reduced from $16.46 to $5.69 per litre of alcohol for low alcohol beer with less than 3% alcohol by volume;
·
the rate of excise duty for beer packaged in individual containers not exceeding 48 litres has been reduced from $45.46 to $28.49 per litre of alcohol for low alcohol beer; and
·
the rate of excise duty for beer packaged in individual containers not exceeding 48 litres has been reduced from $38.59 to $33.22 per litre of alcohol for mid strength beer with less than 3.5% alcohol by volume.

3.6 In each case, the excise rates of duty are calculated on that alcohol content over 1.15%. All other duty rates for beer are unchanged.

Application and transitional provisions

3.7 The new rates for certain beer are taken to apply on and from 1 July 2002.

Consequential amendments

3.8 Complementary amendments to the Customs Tariff Act 1995 for low alcohol beer are being addressed through Customs Tariff Amendment Bill (No. 2) 2002.

REGULATION IMPACT STATEMENT

Background

3.9 The national scheme will eliminate the requirement for wholesalers to lodge a claim for a rebate from the States and Territories that is equivalent to part of the excise paid on the beer to the Commonwealth. Currently wholesalers are required to lodge a claim for rebate of a portion of the excise that they have paid to the Commonwealth in each State or Territory where the wholesaler operates. This will no longer be the case as the subsidy is provided through lower excise rates. The cost to comply with excise requirements will remain unchanged and changes required to adjust to the new lower rates of excise are already in place to accommodate biannual indexation changes.

3.10 Health policy appears to favour the continued subsidisation of low alcohol beer. Current research suggests, however, that there are likely to be decreasing social benefits from subsidising products with higher alcohol contents such as mid and full strength beer.

3.11 The introduction of a national scheme also presents an opportunity to remove an anomaly that allows manufacturers to reduce their excise liability. Beer manufacturers have been able to reduce the amount of excise payable on locally produced beer by approximately $0.84 on every carton by marginally increasing the alcohol content of the beer from 3.5% to 3.6% alcohol by volume. This increase in alcohol volume allows for duty to be paid at $33.22 per litre of alcohol (full strength beer rate rather than $38.59 per litre of alcohol (mid strength beer rate)). Reducing the excise duty rate of mid strength packaged beer from $38.59 to $33.22 per litre of alcohol will counter this anomaly.

3.12 The State and Territory rebate arrangements in place prior to 1 July 2002 require wholesalers to lodge claims for rebate from the States and Territories that is equivalent to part of the excise paid on the beer to the Commonwealth. The rebates range across the States and Territories, which results in a variety of pricing outcomes.

Policy objective

3.13 The purpose of the national excise scheme for low alcohol beer is to replace existing State and Territory rebate schemes with a uniform and administratively efficient concession in the rate of excise duty on low alcohol beer. The national scheme will eliminate the requirement for wholesalers to lodge a claim for a rebate of excise that they have paid. It will also reduce compliance costs for industry and eliminate administration costs for the States and Territories.

Policy proposal

3.14 While the principal objective of the State and Territory schemes is to subsidise low alcohol beer, the merit in applying the same criteria to all alcohol products was considered. The working party noted that the different market characteristics of other alcohol products, including their different demand elasticities, product and marketing characteristics, and the different health aspects of consumption of these products required careful consideration.

3.15 Given the complexity of the issues, the negligible level of existing State and Territory subsidies and the principal focus being the tax treatment of beer, the working party noted that the policy option to extend the concession to other alcohol products would be more appropriately considered by the Commonwealth at a later date. Whether the State and Territory subsidies for other alcohol products should continue would be a matter entirely for the discretion of each State and Territory government.

3.16 Most State and Territory schemes extend subsidies to mid strength beer (alcohol content of more than 3.0% alcohol by volume but no more than 3.5% alcohol by volume). It is questionable whether such schemes could reasonably be described as low alcohol subsidies. The concession threshold should therefore be set at 3.0% alcohol by volume. While this will reduce the subsidy for mid strength beer and may lead to small price increases in some States, the continued subsidisation of mid strength beer is also questionable from a health policy perspective.

3.17 To ensure that there are minimal price increases for beer in moving to the national scheme, the concession threshold and rate of subsidy would have to be consistent with the maximum currently applying in jurisdictions. As half of the State and Territories have a 12% rebate (including the 2 largest States), a 12% concession represents a reasonable balance between minimising the price effects and not substantially increasing the cost of the subsidy. Tasmania was the only State with a higher subsidy at 13%.

Implementation options

3.18 The implementation of a national excise scheme for low alcohol beer requires alteration to the excise duty rates in the Schedule to the Excise Tariff Act 1921 for certain beer. It was considered that the national scheme could be implemented within a 6 week period from the date of public announcement. While the administrative aspects of gazetting a tariff notice are relatively straight forward and could be implemented sooner, industry preferred at least 6 weeks notice of the new arrangements in order to amend their pricing schedules and arrangements. Accordingly, other options were not applicable. The commencement of the scheme on 1 July was considered appropriate by the Commonwealth as there would be no benefit gained if the scheme were to begin earlier than this.

Impact group identification

3.19 The changes to the excise duty rates for certain beer are expected to affect beer manufacturers and wholesalers, consumers and State and Territory governments.

Assessment of impacts

Consumer impacts

3.20 Consumers in Queensland, Western Australia and the Northern Territory are expected to benefit from the new national scheme. Prices for low alcohol beer are expected to decline by up to 8% in those States and Territories. Some price increases may occur in some market segments in some States and Territories, but the increases are not expected to be significant for these consumers. This is because either the price effects are negligible or the market share of the affected products is quite small.

3.21 Estimated price effects of the national excise scheme are as per the table below:

Estimated price effects - transition to the national excise concession scheme
NSW VIC QLD WA SA TAS ACT NT
Low alcohol beer
Draught price impact(a) (dollars) 0.00 0.00 -0.04 -0.03 0.00 0.00 0.00 -0.02
Packaged price impact(b) (dollars) 0.00 0.00 -1.97 -1.47 0.00 0.22 0.00 -0.87
Market share (per cent) 16.6 19.5 10.6 6.8 16.2 13.9 16.5 20.3
Mid Strenght beer
Draught beer impact(a) (dollars) 0.06 0.06 0.00 0.03 0.06 0.06 0.06 0.00
Packaged price impact(b) (dollars) 1.59 1.59 -1.25 -0.02 1.59 1.83 1.59 -1.25
Market share (per cent) 2.4 3.4 5.2 15.7 2.7 1.0 2.4 8.7

(a) Change in the retail price of a 285ml glass of beer (middie).

(b) Change in the retail price of a carton of beer (24 375ml).

Analysis of costs / benefits

Costs of compliance

3.22 The national scheme will eliminate the requirement for wholesalers to lodge a claim for a rebate from the States and Territories that is equivalent to part of the excise paid on the beer to the Commonwealth. Currently wholesalers are required to lodge a claim for rebate of a portion of the excise that they have paid to the Commonwealth in each State or Territory where the wholesaler operates. This will no longer be the case as the subsidy is provided through lower excise rates. The cost to comply with excise requirements will remain unchanged and changes required to adjust to the new lower rates of excise are already in place to accommodate biannual indexation changes.

Administration costs

3.23 There are negligible changes to administration costs for the Australian Taxation Office as legislative and administrative arrangements for the collection of excise duty and alteration to excise duty rates are already in place. This scheme will reduce administration costs for the States and Territories as existing subsidy schemes are replaced.

Financial impact

3.24 The States and Territories will make financial contributions to the national scheme in 2002-2003 based on their subsidy expenditures for 2001-2002. The States and Territories will advise the Commonwealth of their subsidy expenditures for 2001-2002 in sufficient time for their financial contribution for 2002-2003 to be incorporated into the December 2002 quarterly Budget Balancing Assistance payments.

3.25 The cost of the scheme for the Government is estimated to be about $68 million in 2002-2003. This will be about $5.1 million per annum higher than the cost of current State and Territory subsidies. The States and Territories will continue to make a financial contribution to the national scheme, which is commensurate with their current State and Territory subsidies (approximately $62.9 million), and the Commonwealth will fund the shortfall of $5.1 million.

3.26 The State and Territory contributions to the funding of the national scheme would be indexed to the March on March CPI outcome to maintain the real value of their contributions. The Commonwealth will eventually fund the entire cost of the national scheme once all States and Territories cease to receive Budget Balancing Assistance from the Commonwealth and consequently cease to make a financial contribution.

3.27 Overall, the national scheme is designed to minimise price effects, while at the same time ensuring that the cost of subsidies does not increase significantly.

Consultation

3.28 A national scheme was proposed by the Commonwealth Treasurer in correspondence to State and Territory Treasurers. Treasury officials participated in a working party to consider the scheme arrangements, and reported through Heads of Treasuries in the States and Territories.

3.29 Industry representatives were consulted in regard to receiving notice of the new arrangements in order to amend their pricing schedules.

3.30 The working party also undertook a survey of literature and research relating to the health policy aspects of beer consumption to determine whether taxation concessions for low alcohol beer lead to improved health outcomes and, if so, how effective that policy option is when compared with alternative policy options.

Conclusion and recommended option

3.31 The national excise scheme for low alcohol beer was a measure announced by the Treasurer on 22 March 2002 following the meeting of the Ministerial Council for Commonwealth-State Financial Relations and Outcome of Loan Council Meeting. As amendments to the excise duty rates are legislated in the Schedule to the Excise Tariff Act 1921 , only amendments to legislation can give effect to the Governments decision.


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