Jerusalem Post Editorial: Taxing alcohol

Israel’s exorbitant taxes on alcohol have just been drastically slashed – in some cases nearly halved – all in contradiction to “nanny state” trends worldwide.

September 15, 2015 21:26
3 minute read.

An old-fashioned cocktail.. (photo credit: Wikimedia Commons)


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Israel’s exorbitant taxes on alcohol have just been drastically slashed – in some cases nearly halved – all in contradiction to “nanny state” trends worldwide.

Predictably, the move raised instant objections from anti-addiction activists who warned that it would swamp our society with boozers, who would now be far more able to afford their tipple.

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Indeed there’s justification – even if from the purely moral point of view – to ask why this tax in particular should be so radically reduced.

The tax on alcohol is justly perceived as being a good tax – one whose raison d’être is to accomplish more than enrich the national coffers. It features prominently on the intersection between economic sense and ethical considerations – one of the classic “sin taxes” whose secondary rationale is to diminish the attraction of goods deemed harmful to society.

Hiking such sin taxes is often popular on its own, regardless of any actual efficacy. It is enough that the public trusts it hits “undesirable” transactions and the disruptive behavior associated with the consumption of the taxed products. These are often also perceived as dispensable luxuries and/or health hazards.

This perception is part of what motivated then-finance minister Yair Lapid to egregiously increase taxes on alcohol in 2013 – beer and even some of the light ales included. It was a PR success. The assumption was that it might discourage alcohol consumption among the young and, if not, it would at least increase the state’s revenues.

Neither aim, however, was attained – alcohol consumption failed to plummet as expected (beer consumption actually grew) and tax revenue went up by a puny amount versus the extraordinarily optimistic original forecast. Sales of the more expensive bottles – the luxury products – fell appreciably while sales of the cheaper drinks remained relatively unaffected.

The result flew in the face of the hype. If the aim was to keep adolescents from drinking, this certainly did not happen. The Lapid tax hike was entirely disproportionate and this was perhaps the root cause of its failure.

What happened now wasn’t so much an effort to cheer up the public with a pre-holiday tax cut on alcohol. The aim certainly wasn’t to signal that alcohol consumption will henceforth be regarded more favorably and with less preachy negativity. There was no implied rejection of the “sin tax” or “nanny state” conceit.

All that happened was a return to the status quo ante that paved a path to an alcohol taxation rate commensurate with the OECD average.

A folly had been removed from our marketplace, which is why the Health Ministry, for example, wasn’t bothered enough to protest. Nothing occurred that is liable to change drinking habits in this country.

It is a shame, though, that the Finance Ministry under its new management appears incapable of restraining its populist ardor. It appears keen to resort to any opportunity to boast of its benevolence to the common man. Hence the tax cut announcement practically on Rosh Hashana Eve that appeared designed to draw attention to the Treasury’s largesse.

It would have been incalculably better not to pretentiously herald another tax decrease but to reasonably explain that for the past two years an ill-considered tax was in force, one that failed to live up to the potential ascribed to it. Less fanfare was called for and an admission that all that is afoot is a return to how things were a couple of years ago, when taxes on alcohol were still higher than in much of the developed world.

A more modest approach would have dispelled the impression that the current Treasury powers-that-be look more approvingly than their predecessors on drinking and are making booze less prohibitive in price.

This willy-nilly was the impression imparted to the public and that impression – fueled by the irrepressible zeal to score popularity points, significantly amid a plethora of other populist tax reductions – sends out as wrong a message as can be.

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