How much should your beer cost?


Setting a minimum price for alcoholic beverages based on the amount of alcohol a drink contains will reduce harm to health and boost provincial and federal tax revenues, suggest alcohol policy researchers.

Tim Stockwell, director of the Centre for Addictions Research of B.C. (CARBC) at UVic, collaborated with the University of Sheffield in the U.K. and Toronto’s Centre for Addiction and Mental Health (CAMH) on a study to find the potential impact of such a policy. They estimated the effects on consumption and harmful outcomes, such as deaths, illnesses and hospital admissions. Other considerations included effects on the number of crimes committed and impacts on employment.

According to the Canadian Centre for Substance Abuse (CCSA), alcohol-related costs in Canada add up to $14.6 billion every year. Currently in B.C., a minimum price is set for alcohol sold in government-operated stores, but it is not based on ethanol content.

“It could be 75 per cent rum, and it would have the same price per litre of beverage as a 30 per cent spirit. Or, [for] a beer that is 12 per cent strength, a litre of the drink would have the same minimum price as a three per cent beer. From our point of view, that makes no sense,” said Stockwell.

The report estimates there would be 39 fewer premature deaths, 244 fewer hospital admissions and 1 346 fewer crimes committed in the first year of implementing the policy if the minimum price were set at $1.50 per standard drink (a standard drink contains 13.45 grams or 17.05 millilitres of ethanol). The report also makes estimations for six other minimum-price thresholds ranging between $1 and $3.

“[The $1.50 amount] is benchmarked against other provinces. We looked at best-practice benchmarks that would be achievable compared with other provinces and would also result in a significant advantage. Also, the provincial health officer has recommended this level,” said Stockwell.

The estimated average reduction in consumption is 1.36 per cent in B.C. The report suggests heavier drinkers will cut down on consumption the most because they tend to purchase cheap alcohol.

Chris Auld teaches applied economics at UVic and has conducted research on alcohol pricing policies with Stockwell. “We might wonder why we don’t just increase the regular tax rate rather than implement minimum prices. By putting a minimum price and taxes on alcohol, we better target the people who cause the most harm. That’s the essential economic rationale for minimum pricing,” said Auld. “Minimum pricing is only going to affect people who drink relatively cheap alcohol,” he added.

Several studies, including one conducted by Stockwell, have suggested that affordability determines how much alcohol is consumed in a region. Current alcohol pricing policies in Canada also don’t keep pace with inflation, according to Stockwell, so alcoholic beverages are actually becoming cheaper.

Like Stockwell, the CCSA also recommends adjusting prices for inflation, setting minimum prices and basing those prices on alcohol content.

Stockwell says New Brunswick and other Atlantic provinces are currently most successful in reducing consumption. But he says Saskatchewan has the most comprehensive approach in trying to do so. In 2010, Saskatchewan adopted a minimum pricing policy similar to the one Stockwell proposes for B.C. He recently completed a study in Saskatchewan on the impacts of their policy change and found alcohol consumption had decreased.

“They approached the ideal of a minimum price per standard drink, but not quite,” said Stockwell of Saskatchewan’s alcohol pricing policy.

When alcohol consumption drops, researchers of the report expect provincial and federal tax revenues will increase moderately.

“That’s what happens if we hold tax rates constant and increase minimum prices. But it’s theoretically ambiguous. It depends on how much consumption falls when we increase minimum prices,” said Auld.

“If consumption fell a whole lot, then since the tax base is in effect, even if we’re charging a higher average tax, we might reduce revenues. It’s an empirical question, and the empirical evidence suggests that it’s roughly a wash that revenues will rise moderately if we increase minimum prices,” he added.

Specifically, the report estimates that with a $1.50 minimum price, federal tax revenues will increase by $1.7 million, and the B.C. provincial tax revenue from HST will increase by $2.8 million.