Why the cost of alcohol is set to get more expensive as excise increases with indexation for inflation

Aussies who enjoy a night out at the pub to have a drink with friends are about to be hit harder in the hip pocket from next month.

Drinks with a higher alcoholic content such as hard spirits, in particular, will incur more excise which is indexed for inflation every six months.

This means vodka drinkers will notice the difference a lot more than those who love a beer should excise taxes climb by 2 per cent, as Westpac is forecasting.

Spirits & Cocktails Australia chief executive Greg Holland said the upcoming tax increase simply could not be justified during a cost-of-living crisis. 

‘Enjoying a drink with friends is one of life’s few simple pleasures for Australians who are currently struggling with the cost of living,’ he said.

‘Sadly, this custom is increasingly being priced out of reach for many people, thanks to relentless alcohol tax hikes every six months.’

Another high inflation reading for the June quarter on Wednesday next week could particularly hurt those who enjoy a vodka.

Westpac is expecting the consumer price index data to show prices rising by 1 per cent during the final three months of 2023-24, following a 1 per cent rise during the March quarter.

With excise indexed every six months for inflation, that would mean a 2 per cent increase in alcohol taxes, should Westpac’s forecasts materialise.

Someone buying a one litre bottle of vodka, with 40 per cent alcohol content, would be paying 81 cents more from August 5 as excise climbed to $41.55, up from $40.74.

A one-litre bottle of Smirnoff already costs $61 at Dan Murphy’s. 

The alcohol by volume tax would climb to $103.89 per litre – up from $101.85 now. 

A drinker enjoying a full-strength VB beer in a 375mL can, however, would only be paying three cents more in excise.

The popular beer, with 4.9 per cent alcoholic content, already incurs a $60.12 a litre tax which would rise to $61.32.

For a can, the excise would only rise slightly to $1.13 – up from $1.10 now. 

For a $57 slab with 24 cans, the tax is $26.40 but would go up to $27.10.  

Brewers Association of Australia chief executive John Preston said it was a myth to suggest spirit drinkers were the only ones worse off. 

‘Almost 50 per cent of the price of a slab is federal tax so it’s just as significant for beer as it is for spirits – you buy a bottle of spirits, that lasts you a lot longer than a slab of beer,’ he told Daily Mail Australia.

Mr Preston said excise was contributing to the closure of pubs and clubs, with hospitality venues making up 15 per cent of Australian business insolvencies.

‘This is just another blow that they don’t need,’ he said.

‘Increasingly, pubs and hospo businesses are struggling to stay afloat, pub owners are saying the increase in beer tax is making it unaffordable for people to come out for a beer.’ 

Mr Holland said alcohol excise was contributing to Australia’s inflationary problems, even though the tax has been indexed twice a year since 1983.

‘The federal government’s own data has repeatedly demonstrated that rising alcohol excise is contributing to the stubborn inflation problem that it is trying so hard to address,’ he said.

Drinks with a higher alcoholic content incur more excise which is indexed for inflation every six months. This means vodka drinkers will notice the difference a lot more than consumers of beer (pictured is a Sydney bartender)

But monthly inflation data for May showed alcohol prices rising by 3.4 per cent over the year, which was well below the overall inflation rate of 4 per cent.

The quarterly inflation figures from the Australian Bureau of Statistics determine excise.

Westpac is expecting the upcoming June quarter inflation data to show Australia’s headline inflation increasing at an annual pace of 3.8 per cent.

This would be worse than the March quarter’s 3.6 per cent pace, putting inflation further above the Reserve Bank’s 2 to 3 per cent target. 

But over the three months to June, Westpac is only expecting alcohol prices to rise by 0.7 per cent.