After the fiasco over alcopops, there’s only one reason Brendan Nelson can survive as Opposition leader. All the potential alternative leaders, with the apparent exception of Julie Bishop, have made just as big fools of themselves as Nelson has.
The decision to tax premixed spirit drinks on the same basis as spirits in general was announced weeks ago, without a peep from the Opposition. There are two justifications for the decision, either one of which is entirely sufficient.
First, it closes an obvious loophole in the revenue system. Since most spirits are consumed in mixed drinks of one kind or another, it makes no sense to exempt premixed drinks from the general tax on spirits. If the Opposition thinks spirits in general should be taxed at a lower rate, they haven’t said so, and of course they had 11 years to make the case from the government benches.
Second, the government has made the case that these drinks encourage excessive drinking among young people, particularly young women. AFAIK, no-one has refuted this, and certainly the Opposition has made no attempt to do so. (updatedin fact, tonight’s ABC news has footage of Nelson making precisely this claim in Parliament back in 1996)
Instead, we have quibbles about the fact that the Budget papers predict an increase in consumption of these drinks even with the tax. This is a weak argument, to say the least, and the government has promptly demolished it.
Turning from the policy to the politics, this shapes up to be a disaster for the Opposition. A backdown now would be disastrous for Nelson, given the general view that he should be given a chance to respond to the Budget before being dumped as a failure. But the alternatives are even worse. The Opposition could fight on the issue until the new Senate takes over in July, then be rolled over. Alternatively, they might somehow persuade Nick Xenophon to take the suicidal step of joining them and handing Rudd a double dissolution trigger with which to take complete control of the Senate.
But of course, there’s more. Having put the richest man in Parliament in as Shadow Treasurer they now intend to fight the government on the issue of a tax on luxury cars. It’s not a great policy (removing the FBT exemption would have been much better) but it’s a political minefield for the Libs.
I’d guess a backdown, followed by Nelson’s rapid departure is the most likely outcome. But perhaps the fact that Turnbull, Abbott and Hockey are all equally implicated may give him a bit of breathing space.
John Quiggin 
Perhaps alcopops are the preferred drink of young Liberals…
Looking forward to the budget reply, it should be a masterpiece of fiction.
What is the position of the Senate after July?
Do the ALP have the numbers post July?
Brendan just promised to cut the fuel excise by 5c/L. Probably the dumbest policy I’ve heard in a long time.
Certainly a dumb policy CS but the average punter will go for it in much the same way as the various fuel tax offers by US presidential candidates – a summer respite (McCain) and a tax switch on big oil (Clinton).
The budget implications of Brendon’s offer must be enormous. I can’t wait for his justification of why 5c/l.
Where did Nelson get his 5c/L figure from?
The US has a federal tax of 18.4 c/gal, which equates to 4.86 c/L, and which rounded off would be 5 c/L.
Clinton (and McCain) have proposed to temporarily suspend the federal gas tax, and Nelson suddenly proposes not to eliminate the Australian tax of 38 c/L, but to reduce the tax by amount that almost exactly matches Hillary’s. WTF? Looks like Brendan has some serious confusion here about what country he’s in, and what battle he’s fighting.
John’s right. He’s toast.
As an after thought, I see BN’s 5c/l as his own trojan horse against the knife wielders sitting behind him. He can bathe in the popular acclaim as a real friend of ‘working families’ while never having to implement the offer and he can watch Malcolm squirm in trying to justify it economically and as a positive move against climate change.
The other striking thing in his budget speech for me was the over-the-top assault on the teaching profession.
Taxes on alcohol in Australia are approximately volumetric – not quite since spirits take a bashing compared to beers. Of course this in no way justifies differential taxing of spirits in different drinks. Generally I favour volumetric charging. It certainly makes sense if you believe that alcohol is a neurotoxin and the major cause of traffic accidents and that damage is proportional to alcohol content.
Alcopops deserve to be subject to a higher tax than other spirits because they bare an attempt to build alcohol dependencies in youth. The milk and fruit-based flavours are clearly designed to mask traditional adult alcohol tastes and to get youth used to the psychic effects of booze.
Drinks that are drunk particularly by youth should also be taxed heavier on externality grounds because of the road accident – booze link. For a given leverl of alcohol intake a young person faces a much higher probability of serious road accidents than an older person.
Brendon Nelson and Malcolm Turnbull have to play the part of an opposition after the budget and to some extent their types of statements are what oppositions always do. But their opposition to the alcopops tax seems to me misguided first because it doesn’t help to internalise clear externalities and second because my guess is the increased tax has widespread community support.
By the way on the 7-30 Report yesterday I thought I heard Turnbull say that the Government wasn’t serious because the tax was anticipated to expected by Treasury to yield increased tax revenue. That of course is consistent with usage decreasing if demand is inelastic. If, as I suspect, demand for alcopos is quite price elastic then you would expect tax revenues to fall and purchases to fall a lot.
The opposition leaders reply was beyond bad.
It was sad, petulant and nnauseating.
It’s true this writer probably circled like a vulture. But the sheer immensity of the eventuating Tory corpse lying immobile prone, awaiting dissection at leisure was breathtaking; beyond even the most rabid neolib loathers wildest dreams.
In the end one was reluctantly forced to feel only pity, after remaining in thrall at the naked emptiness and self absorption revealed in the speech, its contents and delivery.
I’ve said all along, that when petrol prices start to bite, the politicans will respond by cutting fuel taxes. Similarly, any attempt to put a price on carbon will be killed stone dead if there is even slightest chance of political damage.
Not that Swannie’s effort was much better. He’s kept the company car tax break, the imported 4WD tax breaks, and he’s done his best to kill the Australian PV industry. And for what? To save 0.00001% of government expenditure?
You’d have to be pretty disappointed with the quality of our politicans after this week.
I hold out some hope for Turnbull. Ok, so this wasn’t his finest week, but anyone standing alongside Brendan is going to look a bit of dill. I don’t believe for a moment Turnbull actually supports populist nonsense like Brendan’s fuel excise cut. I think this very fine speech by Turnbull indicates he has a deep understanding of the challenges we face. (Note: the first couple of pages are party political drivel. Read from “this brings me to the topic of climate change”)
Harry Says:
What’s this supposed to mean?
The taxes are exactly volumetric on end-product, but the rates differ for different types of alcohol, so that the tax on the alcohol component is all over the place, varying from about $5 per litre of alcohol (for light beer in barrel quantities) to about $55 per liter of alcohol for spirits in 02/03.
Click to access 2002EXC05.pdf
personal attack deleted – please stop this SJ
The government was vulnerable on its climate change measures – taking money from solar power rebates and lack of attention to other matters.
This may have made some impression but the alcopop stunt made me wonder what planet they thought we were on. People in general won’t worry about the fine detail – anecdotally they know that young people are drinking in worrying amounts at times and that sweet drinks are favoured by girls who are then subjected to abuses.
Stunts just made the opposition look like they were looking after their mates’ profits not children. Hollow words and insincere concern.
@SJ #5
This is a quote from Nelson’s budget reply, it says where the 5c/L figure comes from:
“It was the Keating Labor government that put five cents onto the excise in 1993. I challenge the Rudd Labor government to help us take it out in 2008.”
http://www.news.com.au/adelaidenow/story/0,22606,23705911-5006301,00.html
So…because Keating added 5c/L to the excise “15 years ago”, we should remove that 5c now…? lol. We’ve got a policy genius here.
If you get a chance, skim through the budget reply. It’s mildly entertaining. As JQ said, put a fork in him, he’s done.
I agree that Nelson’s policy substance was foolish and his claims outrageous but let’s give him credit for delivering it all with grat aplomb.
What worries me more is the systematic attack by well-respected economic journalists like Gittins Colebatch and Martin on the Swan budget. While I expected all our business economists to demand much bigger spending cuts, I find it odd, with unemployment expected to rise by up to one percentage point, that they are not lauding Swan for courage in implementing a deflationary budget (which I believe will withdraw between 1/4 and 1/2 per cent from domestic demand).
The older we get the better we all were eh? In my day it was a bottle of Brandivino or Stones Green Ginger Wine as the cheap hit to get tanked up on before hitting the disco and largely avoiding those ugly drink prices, because you only had so much to spend on the weekend. Hockey’s got a point about the Passion Pop vs Alcopops, as anyone with early 20s kids know only too well. The 24 yr old son and his mates are not too proud to drink it before heading out. This is simply a tax grab all wrapped up with pretty paper and bow by the usual, morally concerned suspects. Sweet Jesus, even mother hen, Jill Rush wants to protect and cosset the offspring of the Helen Reddy generation now. Tax alcopops heavily volumetrically and they’ll hit the Passion Pop or switch to buying a bottle of spirits and adding their own mixers. Harry(as well as Nelson more obliquely but alcopopularly) has nailed the underlying problem of differential volumetric taxing and that’s the logical compromise that will emerge from all this storm in a teacup, but woe betide the Grange tipplers having to dig a bit deeper into their pockets eh what?
I think it’s very legitimate to point out that the government’s figures predict an increase in pre-mix consumption after the tax change. This is fairly strong evidence that the main concern is for the revenue rather than the welfare of Australia’s little ones. The government’s saying that it will reduce the growth of consumption does not constitute a demolition of this argument.
As for the sideshow of the 5c/L cut in fuel excise, why not you may well ask? After all the Govt is playing politics on fuel and grocery prices with their pet ‘working families’. Funny, I seem to recall, these same omniscient, Notradamuses on climate change (yes I know it was global warming then), calling for a suspension of indexation of fuel excise when the first tranche of rising oil prices began to bite. What’s changed all of a sudden guys, when you all knew then we really needed a good dose of cap and trade price rises in the long run? Crying foul on Brendan in Opposition nowm when he’s playing by your rules.
Not me mate. I thought it was crazy then, and its even crazier now. I’ve been banging on about the stupidity of freezing the fuel excise for years. Its diluting the price signal coming out of the oil markets.
I dare say several thousand 4WDs have been bought since 2001 that wouldn’t have been bought if:
a) the fuel excise hadn’t been frozen
b) the Aussie dollar hadn’t doubled against the USD
c) we didn’t give a tax break to imported 4WDs
d) Queensland didn’t have that nutty fuel excise rebate thing (8c/L I think)
While there are many issues where I don’t know how Nick Xenophon would vote, I am very confident that there would be a snowball’s chance in hell that he would vote against an alcopops tax. He is not exactly in favour of anything that would encourage problematic drinking.
Prof.Argy:
‘…the systematic attack by…respected economics journalists like Gittins, Colebatch and Martin on the Swan budget”.
The discourse between Davidson and Legge, and Gittins, over the NSW electricity privatisation issue in the Fairfax and “Dissent”, where Gittens union bashing was effectively refuted, was amplified by the stunning reportage silence over Iemma’s disastrous behaviour over the last month, indicates the extent to which Walker and co have emasculated Fairfax. The violence done the Canberra Times web site (let alone the continued weakness of public broadcsting outlets) is yet further evidence of the terminal decline of substantial discourse in this shell of a country.
You could view the luxury car stand as same.
Is 009 that cynical?
Yes carbonsink, I don’t know whether they all think it’s clever playing these short term political games, telling us what they think we want to hear. Failing to stick to long term truths or tenets, however prickly, always comes back to bite them on the bum eventually. A lack of any real long term blueprint by either party now I suspect.
The Liberals are under-estimating the public’s intelligence by going on about the projected growth in alcopop consumption.
It is a silly point, and no-one is going to pay it much attention.
Having put the richest man in Parliament in as Shadow Treasurer they now intend to fight the government on the issue of a tax on luxury cars.
Having put the richest ever prime minister in The Lodge, Labor now intends to throw thousands of people out of work and bundle hundreds of thousands into a second-rate hospital system.
observa:
Don’t count out Turnbull yet. He might just be crazy enough to go for a Fightback! for the 21st century with a carbon tax (or ETS) at its centre instead of Hewson’s consumption tax. Read this speech by Turnbull from “this brings me to the topic of climate changeâ€?.
Why, why, why did the government increase tax on “luxury” cars but not fix the tax breaks for 4WDs? People have been suggesting this for YEARS. They could always have a tax rebate for a 4WD for a tax return that is specifically filled in for a rural primary producer. Why did they not fix this problem?
I think this bloke here has worked it all out for us carbonsink-
http://www.realclearpolitics.com/articles/2008/05/too_complex.html
“If you want cheering crowds, don’t bother to study economics. It will only hold you back. Tell people what they want to hear– and they don’t want to hear about supply and demand.
No, supply and demand is not too “complex.” It is just not very emotionally satisfying.”
As some have already said, proposing to cut the fuel excise makes no sense on policy grounds, but it might just make sense on political grounds.
It’s pretty simple why it’s bad policy:
1. Cutting the fuel excise by 5c/litre won’t decrease the price of fuel by the full 5c/litre, as it’s clear that the producers/refiners won’t allow the full savings to be passed through to consumers. So a policy that will cost the Government billions probably won’t do much more good at the bowser than the Fuel Watch scheme, which will cost significantly less.
2. It’s pretty clear going forward that if the Government is serious about climate change, a tax increase on fuel is probably necessary to bring the price of fuel closer to the true costs to society of burning it. Such a move, while easily justifiable on economic grounds, would probably be akin to political suicide (as can be attested to by the reaction of US consumers to calls for an increase in the US fuel tax). The only likely way for it to slide past the Australian public would be to reindex it in some way. So given all this, it makes no sense to cut the tax on policy grounds, as this will only make a future necessary increase in the tax all the more difficult.
Which gives rise to why it’s probably not a bad idea politically for the Opposition:
1. To the majority of the (somewhat economically illiterate) Australian public it will probably make the Opposition look pretty good; “acting” desicisvely to reduce the costs of petrol, rather than just talking about it, and arguing that such a move might reduce inflation.
2. The Opposition has cornered the Rudd Government somewhat by “challenging” them to match the proposed policy. It won’t look so good for the Government to deny the people a (apparently) lower fuel price, in the face of an Opposition who is promising to do so. In fact it looks as though the Rudd Government is already looking at ways of achieving these kind of reductions, albeit through slightly different means.
3. The Opposition doesn’t have to worry about the implementation of the policy, and won’t bare any of the difficulty associated with having to raise the excise by even more (as a result of the proposed reduction) in the years to come.
Whether it all pans out this way is another matter altogether. But on the surface, while it is ludicrous in policy terms, it might not be such a bad move politically by boxing the Government into a politically unpalatable position.
Cheers
Steve,
1. Cutting the excise will have the same effect as cutting the cost of crude. It is a myth that refiners have any sustained market power.
2. I doubt 5c will make a tremendous amount of difference either way, other than on government revenue. If you don’t believe me, look at how consumers have reacted to recent prices increases at the pump.
1. Preferring lower prices doesn’t make people economically illiterate, it makes them economically rational.
2. —
3. That’s one of the few joys of being in opposition.
SJ, The very low rates on low alcohol beer are for barrel containers for pubs. Beer is taxed art around $34/litre alcohol and spirits around $60 so, as I said, spirits cops a hiding. Wine is taxed at 29% of its wholesale value and as it has much higher alcohol content than beer the effective tax rate will be lower than beer.
I don’t know if this is approximately volumetric or not. The main gap seems to be cheap cask wine which has low effective tax tates though quite high alcohol content.
Because we elected a Labor government not a Green government.
Clearly the ALP decision makers don’t have sustainability issues front and centre when they make policy, they’re thinking more about good old class warfare.
I expected better from Lindsay Tanner.
Joseph Clark,
Are you suggesting that a cut in excise would be fully passed through to consumers, or that the oil producers would absorb some part of the cut?
I’m not suggesting that the majority of the Australian public is economically illiterate because they like lower prices. I’m suggesting that they may be somewhat economically illiterate in that they may not, in general reasonably grasp the necessary knowledge to fully comprehend the mechanics of economic policy. For example, they might be likely to perceive that the cut in excise would mean a reduction in the price of fuel by the full amount of the cut, even though this is unlikely to be the case. The implication of this is that this kind of populist proposal by the Opposition might be able to “slide by” the “average Joe” as it looks OK on the surface, even though in reality it’s pretty poor policy.
Cheers
PS. That Preview button is a godsend, nice work JQ.
If Lindsay Tanner hadn’t hairy-chestedly leaked the abolition of carers’ and oldies’ bonuses a couple of months ago, so forcing Rudd to rule them out, they would have had $1.7bn per annum (a bit more than the alcopop thingee, which is over four years) to play with.
One hopes Mr Tanner has learned his lesson.
A SPECIAL PLEA ON BEHALF OF THE LEADER OF HM LOYAL OPPOSITION
[Head shot of Jack’s contorted face, helplessly wracked by sobs.]
Am I the only one tired of these middle class tossers whining about how tough they have it on 150k combined income per year?
And the whining about the means test is vomit inducing. What these self righteous tossers are really saying that only poor people should be means tested for their welfare, and they shouldn’t.
I don’t blame Howard for everything bad that has happened under the sun (Like some people do). However, I do blame him for this enormous growth in middle class welfare and the sense of entitlement its given some people.
It’s a joke that the Liberals are still pandering to these tossers.
By the way, does anybody really care about the alcopop thing? It seems to me as a lot of media and opposition windbaggery. Nobody I know seems to care all that much.
Harry, there’s not much in your last comment that I would disagree with, and I agree that the tax should be based on volume of alcohol contained within the product, rather than on total volume of product or value of the product.
John @10: OK. Sorry.
Interesting as these little storms in teacups are, there was one big potential storm you all missed with the Budget and that was because it was cleverly released to do exactly that. However, when you place emotion above rational policy, you may find not even economists can calm the impending tsunami you’ve brought upon yourself. Did you all spot the early tsunami warning signal?
Here-
http://www.theage.com.au/text/articles/2008/05/15/1210765057420.html
and then here-
http://www.thepersecution.org/world/indonesia/08/05/cv15.html
Talk about sticking a bloody great fork into yourself.
Carbonsink:
Not really, the ALP had less votes (43.38%) than the Coalition (47.3%), it was the Green prefs (7.79%) that pushed them over the line. Without those Green prefs JH would have held Bennelong, by the slimmest of margins.
Greens hate 4WDS (except Subarus)
Rog is comparing Labor’s primary vote with the Coalition’s two party preferred one.
He should go into politics!
if he whinged about the solar rebate he would have obtained more traction plus have the greens onside.
wouldn’t that be a turn up for the books.
double the solar rebate and means test to $250,000 pa?
I have to say that the most disappointing aspect of the reply was the mythologising of conservative economic prowess. It seems like Dr Nelson is caught in a different century and hasn’t yet realised that the arguments have moved on. To phrase it as James Carville did: It’s the environment too, stupid.
I have to say that the most disappointing aspect of the reply was the mythologising of conservative economic prowess. It seems like Dr Nelson is caught in a different century and hasn’t yet realised that the arguments have moved on.
You are correct – I’ve mixed apples with oranges
I know this is a bit late, but I would just like to say that I think the claims about alcopops and teenage drinking need to be taken with a pinch of salt. There is one obvious practical reason why they can’t encourage teenage drinking: they have an extremely high cost of alcohol per milliletre compared to the binge-drinkers drink of choice, cask wine, or even beer. But secondly, as far as I’m aware young people’s preference for these drinks hasn’t been researched effectively, at least in Australia.
As a perfect example, check out a vodka mudshake. These things are ludicrously overpriced and contain a tiny amount of alcohol – maybe 2%. It’s just silly to think kiddies who drink to get drunk are going to pay the exorbitant amounts they have to pay to get drunk on these things.
SG – that’s the first time I’ve heard anyone but me run that line. These things were ALWAYS grotesquely overpriced, and I have no idea how the average “young person” was meant to be binging on them.
Also, they taste horrid.
I see two main consequences flowing from this, one dreadful, one great, and neither intended:
1) An increase in drink-spiking (actual, as opposed to ad-hoc excuse for either taking drugs or getting too drunk to control yourself in various ways)
2) An improvement in the drink-mixing skills of our youth, preparing them for a lifetime of enjoyment and/or employment.