National Drug Strategy
National Drug Strategy

The avoidable costs of alcohol abuse in Australia and the potential benefits of effective policies to reduce the social costs of alcohol

Executive summary

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Alcohol abuse in Australia is a serious problem whose social costs in 2004/05 have been estimated to be over $15 billion. The present study estimates the extent to which these costs could be reduced by the implementation of appropriate public policy interventions. It indicates that it should be possible, over a period of time, to reduce these costs by approximately half.

The study arises from the participation of the authors as the lead authors in the development of International Guidelines for the Estimation of the Avoidable Costs of Substance Abuse, published by Health Canada. These guidelines represent the first major attempt to examine in detail the issues involved in estimating the avoidable costs of substance abuse—that is, those costs that would potentially be able to be eliminated or reduced if appropriate public policies were adopted.

The Health Canada avoidable cost guidelines identify four possible approaches to the estimation of avoidable costs. For the purposes of the present study it was decided to adopt two of these, the ‘Arcadian Normal’ and ‘exposure-based comparators’ approaches, to estimate the overall proportion of the social costs of alcohol which are potentially avoidable. However, neither of these approaches provide specific information on the interventions which would need to be implemented to achieve these cost reductions. Accordingly, the preferred approach in this study relates to the implementation of alcohol interventions which the research literature has shown to be effective.

This study identifies the interventions for which strong Australian or international evidence exists as to their potential benefits, and attempts to value these benefits in terms of the reduction in the social costs of alcohol abuse which it would be possible to achieve. In addition, a range of interventions is identified which the research literature has demonstrated to be effective but for which it did not prove possible to value the potential benefits.

The study estimates both the proportion of Australian social costs which are potentially avoidable and the values of the potential benefits of the identified interventions.

Interventions identified as being effective and whose benefits are quantifiable are:

Further interventions identified as being effective, but whose benefits could not be valued, were: The table below presents estimates of potential percentage reductions in Australian alcohol consumption and alcohol-attributable mortality. It indicates that up to one-half of the social costs of alcohol abuse is potentially avoidable.

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Potential percentage reductions in per capita alcohol consumption and alcohol-attributable mortality

Impact on
Potential percentage reduction
Alcohol consumption per capita
40%
Male alcohol-attributable deaths
47%
Female alcohol-attributable deaths
49%
Total alcohol-attributable deaths
48%

Estimates of the values of the potential benefits of the identified interventions are presented in the following two tables. The first of these provides estimates of the potential benefits of higher alcohol taxes, while the second presents estimates of the benefits of the other identified interventions. This presentation is adopted as a result of a major difference between taxation and the other forms of intervention.

It would in principle be possible by the use of tax instruments to achieve almost any level of reduction in per capita alcohol consumption, as long as tax rates were not so high as to encourage large-scale alcohol smuggling or illicit alcohol production. The performances of other countries having similar economic and social characteristics are, therefore, taken as a guide for target reductions in Australian per capita alcohol consumption. The estimates of social cost reductions are based on the performances of Norway, the comparable country with the lowest per capita alcohol consumption rate, the United States and Italy.

Potential benefits of higher alcohol taxation in terms of reductions in social costs (expressed in 2004/05 prices), based on performance in Norway, United States and Italy

Based on per capita alcohol consumption in
Norway
$m
United States
$m
Italy
$m
Potential reduction in Australian social costs
5,940
2,190
2,810


Estimates of the potential benefits of the other identified interventions appear in the next table. Because, by the nature of these estimates, absolute precision is not possible, minimum and maximum estimates are presented, as well as ‘best’ estimates.

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Potential benefits of policy interventions in terms of reductions in social costs (expressed in 2004/05 prices)

Intervention
Best estimate
$m
Minimum
$m
Maximum
$m
Individual-based interventions
Brief interventions
5,830
3,490
8,160
Population-based interventions
Greater BAC enforcement
940
780
1,090
Reduced BAC level
280
250
310
Partial advertising and marketing controls—overall impact
2,450
1,680
3,210
Complete advertising and marketing
controls—overall impact
3,860
2,500
5,150
Partial advertising and marketing controls—impact on road accidents
310
160
470
Complete advertising and marketing controls—impact on road accidents
960
690
1,210

Interpretation of the results in a study of this type should, for a variety of reasons, be undertaken only with great caution.

The translation of research results into potential reductions in social costs is necessarily imprecise. The determination of the upper and lower boundaries of the estimates must usually be based on judgmental decisions by the researchers. However, even when the lower-bound estimates are chosen, estimates of the potential cost savings for the interventions analysed above are very high in absolute terms.

Although the potential cost savings are expressed in terms of constant price values (that is, in 2004/05 dollars), these savings would usually only accrue over a period of several years. Expression in constant price terms is the most sensible way to present the results given that, in the current state of knowledge, the time profile of the accrual of benefits is not known.

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The above summary of results presents the estimated benefits of each of the recommended interventions. It is not possible to aggregate these results to produce an estimate of total savings because there is substantial overlap between the impacts of the various interventions. On the other hand, there is no reason to believe that the benefits of these individual interventions would be completely mutually exclusive. The estimated total benefits of a package of interventions, which were implemented simultaneously, would not be the sum of the benefits which would accrue to each of the interventions individually, but it would certainly exceed the benefits resulting from the highest yielding of these interventions.

In conclusion, the research indicates that it should be possible to reduce the social costs of alcohol by approximately half, if the interventions evaluated here are adopted.

The authors recognise that some of the policies evaluated may not prove to be currently politically feasible or acceptable. However, all of the policies considered have been implemented in one or more comparable jurisdictions and, therefore, have been proved to be politically feasible in some comparable overseas jurisdiction or Australian subjurisdiction. The objective of the present study is not to recommend the adoption of a particular set of alcohol policies. It is to consider from an economic perspective a range of policies which have been shown to be effective and to indicate, as far as the data allow, the economic benefits likely to flow from the implementation of these policies. The information is intended to assist in the development of evidence-based strategies for the reduction in the social costs of alcohol abuse in Australia.

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