David Farrar: How much should we pay for a drink?

Parliament will soon debate the committee stages of the Alcohol Reform Bill. Photo / Thinkstock

Parliament will soon debate the committee stages of the Alcohol Reform Bill. One amendment they will consider is a proposal by Labour to allow the Minister of Justice to set a minimum price per unit of alcohol. Justice Spokesperson Charles Chauvel said "This power, if properly exercised, will put an end to $6 bottles of wine being sold in supermarkets. "

I'll later touch on the pros and cons of minimum pricing as a concept. First it is important to understand how this would work in practice. You need to know what is a "unit of alcohol" and what would the minimum price be.

A unit of alcohol, is called a standard drink, and is 10 grams of pure alcohol. You multiply the litres of a beverage by the percentage alcohol by the density of ethanol (0.789) to work it out. Or you cheat, and get Excel to do it for you. The number of standard drinks then is:

• A dozen 5% 340 ml beers - 16 standard drinks
• A 750 ml bottle of 13% wine - 8 standard drinks
• An 1125 ml bottle of 47% spirits - 42 standard drinks

So if Parliament votes for a minimum price regime, what does Labour advocate the minimum price should be? Their primary spokesperson, Lianne Dalziel, on alcohol issues said in Parliament on 13 September last year that "we should set a minimum price that would prevent wine from being sold for less than $2 for a standard drink".

Being generous, I'll assume the $2 per standard drink includes GST. That means however that what has been proposed would not just see an end to $6 bottle of wines, but also $12 bottles of wine. At $2 per standard drink it would be illegal for any retailer anywhere in the country to sell for under that price - even if it is bulk catering for a function.

The effective minimum prices would then be:

• A dozen 5% 340 ml beers - $32
• A 750 ml bottle of 13% wine - $16
• An 1125 ml bottle of 47% spirits - $84

To borrow a phrase from Chris Trotter, I am unsure how this policy would go down with "Waitakere Man".

However there will be support for minimum pricing from one sector of society - the alcohol industry. This policy would result in windfall profits for them. Unlike an increase in the excise tax, where the price increase goes to the Government as revenue, a minimum pricing regime sees the manufacturers, wholesalers and retailers keep all the profits. They gain a price monopoly - no one can sell a bottle of wine for under $16.

There way alcohol is currently taxed and priced is not great. Younger drinkers do tend to go out and buy on the basis of "biggest bangs" for the bucks. The labels which tell you how many standard drinks are in a bottle were designed as a health warning. Some young drinkers ironically use it as a purchasing guide - they divide the price by the number of standard drinks to work out how to get drunk as cheaply as possible.

Bottle of spirits tend to provide the best "bang for the bucks" and unlike lower strength products, you can drink yourself to death with a bottle of spirits. So there is indeed some sense in trying to have a pricing regime that doesn't have spirits as the cheapest alcoholic beverage.

But good intentions can often lead to perverse outcomes. You stick "standard drink' labels on bottles as a health warning, and people in fact use them as a buying guide. You increase the tax on RTDs as they did in Australia, and many drinkers substituted to mix your own spirits (which cause much more harm). A minimum price for alcohol might see a fall off in off-license sales, but could see an increase in on-license drinking, and drink driving.

Do readers think there should be a minimum price for alcohol, and if so what should it be? Do you agree with Lianne Dalziel that it should be a minimum of $2 per standard drink? Or is putting the price up punishing all those who enjoy an occasional drink for the harms caused by a minority?