The Drinks Business reported on Jan. 15 that the World Health Organization or the WHO, believes that governments should make more of an effort to tax alcoholic beverages over claims that they have become “too affordable” to purchase. According to The Hill, the organization argued that alcoholic beverages are too cheap, yet the cost of caring for people due to easily preventable health issues from drinking remains high.
“Health taxes are one of the strongest tools we have for promoting health and preventing disease,” WHO Director-General Tedros Adhanom Ghebreyesus said in a statement according to The Hill. “By increasing taxes on products like tobacco, sugary drinks, and alcohol, governments can reduce harmful consumption and unlock funds for vital health services.”
It mentions that such initiatives would especially work to curb drinking among young adults, and if alcohol brands raise their taxes high enough, members of Gen Z and Gen Alpha won’t want to spend their disposable income on them.
The organization believes that because alcohol is so inexpensive, it contributes to higher obesity, diabetes, heart disease and cancer rates amongst young people. The WHO recommends that countries implement these excises taxes, “to at least account for inflation and ideally income growth.” Countries that increase the taxes should implement “soft earmarking” of the funds for other public goods. Such a tactic will increase support for governments raising taxes on alcoholic beverages.
Yet one question remains: during an era where many face the repercussions of a cost-of-living crisis, and alcohol consumption is already trending down, how effective will raising alcohol taxes actually be?
WHO Findings Have Already Shifted Alcohol’s Image
In January 2023, the WHO reported that no amount of alcohol was safe, leading to an industry-wide panic. The findings appeared to be eerily similar to what happened to tobacco in the 1950s. Those working in the industry claimed the organization was denormalizing alcohol. From a financial standpoint, it could have disastrous repercussions for distillers, vintners, and brewers everywhere.
Over the last three years, the landscape for the alcohol industry changed at a rapid pace, validating some of those concerns. Reports of closures, layoffs, and massive revenue losses have dominated headlines. Inflation and tariffs driving up household costs remain a key factor as to why people are drinking less. Yet alcohol’s image crisis has also contributed to consumer shifts.
Younger generations, like Gen-Z and Generation Alpha appear to be leading the charge as far as sober curiosity is concerned. These generations came of age with less disposable income and culturally focus on wellness at large. Other outlets have reported that younger generations prefer socializing online over in-person outings, also driving drinking in a downward trend. Such behaviors could largely be a byproduct of the Pandemic.
In August, Gallup polls shared that America’s alcohol consumption dropped to a 50-year low. Whether or not higher excise tactics will continue to drive that trend down both within the states and abroad remains to be seen, yet we can look to certain states with high excise tactics and see if there are any shifts.
Do Higher Taxes on Alcohol Curb Drinking?
Some states, like Washington, already have high taxes on alcohol. The state passed a Spirits Sales Tax (SST) of 20.5% and a Spirits Liter Tax of $3.77 per liter. The tax was introduced after 2012, according to The Tasting Table.
Prior to that, liquor was “monopolized” by Washington. This meant that anybody who wanted booze would have to purchase it at a liquor store, bar, or a restaurant. In 2012, alcohol sales were privatized. This meant liquor could be purchased in stores with a minimum of 10,000 square feet or less. In exchange, the state’s high taxes went into effect.
One would think that after these taxes went into effect, alcoholic consumption would have declined significantly. Yet in reality, alcohol purchases actually increased by 82%, and many Washingtonians ended up purchasing liquor out of the state. The state purportedly lost income as a result, because those residing in it decided to leave it and purchase alcohol elsewhere.
From a consumer behavior standpoint, many drinkers shifted away from harder liquors and drank more beer, according to a survey performed by the Public Health Institute.
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