The National Treasury has proposed increasing excise taxes and introducing a minimum unit price for alcohol. In response, industry bodies have released a flurry of articles through business media, arguing that such changes will encourage illicit trade, reduce tax revenues and worsen unemployment â and corporate leaders are bound to be targeted even more over the next few months.

Itâs a clever tactic. Our political leaders know the desperate need for jobs but also witness firsthand the impact of heavy drinking in their own communities: domestic violence and homicides that occur late at night and over weekends and the babies harmed by alcohol in utero at a rate 10 times higher than in the rest of the world. They wonât be fooled by claims that our nation doesnât have a drinking problem.

Instead, industry envoys aim to influence other business leaders who have direct access to the corridors of power. For as long as they can sustain the myth that liquor control is bad for the economy, they will be able to contrive a tension between pursuing the countryâs prospects for wealth or well-being.

But itâs a faux Faustian choice. The reality is that national health and wealth creation move in the same direction. Only light to moderate drinking is good for business as a whole; higher levels of consumption are not. Heavy drinking is not a necessary evil to be tolerated for the sake of the economy, but a millstone around its neck.

Moderate consumption means up to two drinks a day for men and one drink a day for women. In fact, a review of OECD countries concludes that the tipping point at which economic costs outweigh benefits is at 1½ drinks for men and one drink for women per day. At this point, the risk of harm through illness and injury rises exponentially.

Healthcare and other costs exceed taxes paid by the alcohol industry, productivity losses erode the value of jobs created, and tourism is deterred by crime. In South Africa, three-quarters of drinkers exceed the heavy drinking threshold of two drinks a day and almost a quarter exceed it three times over. These figures tally with official excise statistics that reveal an average daily consumption per adult drinker of 3.3 units (50 ml) of pure alcohol â the level at which a drinker has four times the risk of dying from an alcohol use disorder than a current non-drinker.

Excise taxes

The Copenhagen Consensus on Best Buys to meet Sustainable Development Goals identifies higher excise taxation as one of the most cost-effective strategies to counter the impoverishing effects of heavy drinking. Excise taxes are paid by manufacturers and importers and passed on to consumers through higher prices that discourage excessive purchasing. If higher excise taxes work as intended, they should reduce consumption and lead to lower alcohol-related mortality and fewer hospital admissions, domestic violence and traffic crashes.

Indeed, the evidence from higher-income countries is irrefutable: excise taxes achieve their aims. They are effective in reducing excessive consumption and associated harm and bring in additional government revenue at the same time.

As alcohol consumption in Europe and the United States declines, the liquor industry has turned increasingly to low- and middle-income countries (LMICs). Its nemesis, however, is solid science.

Were LMIC governments to introduce similar evidence-based controls, they would deprive industry of the super-profits derived from heavy drinking. This is why industry argues so vociferously that strategies that work in wealthier countries are untenable in poorer ones. LMICs, the liquor industry claims, lack the regulatory discipline and enforcement capabilities to control illicit markets.

Itâs a defeatist argument, as public policy cannot be predicated on assumptions of governmentâs inability to check illegal behaviour. If it were, we would shut down the social security system due to high levels of administrative fraud and roll over in front of the construction mafia.

Crime must be combatted, wherever it happens. But we also need to be pragmatic. Most commentators conclude that the complete prohibition of alcohol production and sales in the US in the 1920s and early 1930s led to an increase in bootlegging and organised crime. It was a sober lesson on the limits of government control and coercion.

If higher excise taxes in LMICs simply shift production from licit to illicit markets, there would be little sense in implementing them. The net effect on alcohol consumption would be neutral; there would be no drop in societal harm and tax revenues might even decline.

However, scientific studies find the opposite: that higher excise taxes and other regulations that restrict the availability of alcohol work just as well in LMICs. They show that the lower consumption due to higher tax rates reduces alcohol-associated illness and leads to fewer trauma-related deaths. Even in Russia, where the illicit market was sizeable before the implementation of tax hikes and minimum unit pricing, liquor control policies have substantially reduced consumption and related harm.

There is also no consistent evidence that higher excise taxes reduce government revenue by shifting production and sales outside of the tax net, although this relationship has been studied more extensively for tobacco than for alcohol. For example, in a systematic review of Latin American countries, government revenue went up in all nine studies of excise tax increases on tobacco.

Illicit markets

That doesnât mean that governments canât botch it, and South Africaâs own experience with excise taxes on tobacco is instructive. Despite declining rates of smoking, real tobacco tax revenues grew steadily between 2000 and 2008 and then remained constant until the disbandment of the South African Revenue Serviceâs specialised investigating units in 2015.

Since then, there has been a sharp decline in revenue as illegal cigarettes replaced legal ones. The system worked well until undermined by dubious executive action â a phenomenon not confined to developing countries.

Tax increases can, but do not automatically lead to growth in illicit markets â even in low- and middle-income countries. It depends on whether governments implement effective countermeasures and on how feasible it is to counterfeit and traffic the most-consumed liquor at scale.

Faced with higher prices, most drinkers stay loyal to their preferred liquor but just drink less of it. In South Africa, beer is the nationâs most favoured drink among both moderate and heavy drinkers.

Any mildly discerning tippler will tell you that itâs harder to produce a palatable counterfeit beer than passable spirits, and beer drinkers are likely to stick with their chosen brands, especially if they are reformulated to reduce the alcohol strength and attract a lower rate of tax. This is exactly what excise taxes set out to do.

Unlike tobacco trends, UCT researchers dispute the industryâs assertion of a 55% growth in illicit alcohol volumes since 2017. They note weak research methodology and conflicting facts in that the sale of legal alcohol increased by 24% over the same period.

Having said that, illicit markets are corrosive, and claims that they constitute nearly a fifth of the total South African market must be fully investigated. Track-and-trace systems and other controls must be put in place without delay to curtail both the sale of legally manufactured alcohol through illegal outlets and counterfeit smuggling and production.

What is clear, however, is that illicit markets do not neutralise the intent of regulatory liquor controls, which are critical in a country where much of the harm of heavy drinking comes from legal alcohol.

How high?

The question then is: How high should excise taxes be? Certainly, ordinary taxpayers â you and I â should not be subsidising the profits of the alcohol industry. At the very least, excise taxes should cover direct healthcare, policing and social welfare costs attributable to alcohol. The current revenue gap is 14â36%, based on estimates by industry-aligned researchers and health economists respectively, adjusted for inflation.

The industry should not only compensate for harm but be required to steadily reduce the damage caused by its products. That will take time, but a quick win would be to reformulate more popular beer brands to lower alcohol content.

The success of Castle Lite, which has captured one-seventh of the South African beer market, is a case in point. Taxing liquor products on a gradient linked to the amount of pure alcohol (ethanol) they contain will encourage this move, while volume-capped rebates can still be provided to small producers of beer and wine who canât swiftly or easily adjust the alcohol content of their products.

Modelling suggests that it is feasible to design tax rates that achieve a 15% reduction in legal ethanol consumption by 2030. That will reduce the number of serious or fatal life events attributable to alcohol â homicides, foetal alcohol syndrome, sexual violence, intentional injuries and traffic casualties â by several tens of thousands a year and would be our first step on the longer road to recovery.

I have no doubt there are many deeply patriotic South Africans in the liquor trade. For most though, their professional allegiance is ultimately to the shareholders of the dominant global commercial conglomerates, who see South Africa as a market, not a nation.

The onus is on business leaders who care for this country â in Business Leadership South Africa, the Black Business Council, Business Unity South Africa and other chambers of commerce and industry â to confront the fact that heavy drinking is not in the nationâs best interests, neither economically nor in any other way. DM