Poor bear brunt of ‘nanny taxes’

Adam Creighton, Economics correspondent
The Australian
April 26, 2012

AUSTRALIA’S poorest households are being increasingly punished for their choices as the government’s “nanny tax” haul surges past a record $13 billion.

Analysis from the Institute of Public Affairs, to be released today, shows taxes on alcohol, tobacco and processed food amounted to $13.1bn last financial year, making up 4.7 per cent of government revenue, a 15 per cent increase from four years earlier.

Nanny taxes, such as tobacco excise, are designed to dissuade people from buying particular goods. The report’s author, IPA research fellow Julie Novak, told The Australian the nanny tax take next financial year would surpass the projected revenue from the carbon tax and the mining tax combined, which were expected to raise about $11bn in 2012-13.

“Not only is the revenue haul from nanny taxes larger, but their burden falls heavily on the poor,” Ms Novak said.

The poorest 20 per cent of households, which are facing annual price hikes of up to 10 per cent for education, health and childcare expenses, pay about three times as much in nanny state taxes proportionally to their disposable income as those in the top 20 per cent, the report finds.

Families in the bottom fifth of the income distribution pay about $26 a week in nanny taxes, or almost 7 per cent of their disposable income. The richest fifth, however, pay a 2.6 per cent nanny tax rate, or about $46 a week. Although wealthier households pay greater sums of tax on alcohol and processed food, they pay $1.50 a week less in tobacco tax because smoking is more popular among poorer people. “It is astonishing that groups like the Australian Council of Social Services, whose mission it is to defend the poor, pay little attention to the burden of nanny taxes on the poor,” Ms Novak said.

An ACOSS spokesman said the effect of alcohol and tobacco taxes on the poor was “not an area we do much work in”.

Taxes on tobacco increased significantly when the Rudd government lifted tobacco excise by 25 per cent in 2010, raising an extra $1.3bn a year. They now make up more than half the nanny tax total. The government also increased tax on flavoured alcoholic drinks, “alcopops”, by 70 per cent in April 2008, which increased alcohol excise by about $800 million a year. Ms Novak, who has worked at the commonwealth Treasury and the Productivity Commission, said that the Gillard government was likely to increase nanny state taxes “in a quick grab for revenue” as it tries to deliver its promised surplus in 2012-13.

As The Australian reported last week, the Distilled Spirits Industry Council of Australia is arguing for increases in tax on cider. In a pre-budget submission it shows the government could net a further $500m over four years if it increased tax on plain apple and pear cider, which are currently taxed more leniently than flavoured ciders.

While processed food does not attract a specific excise or tax, Ms Novak argues the GST functions like a nanny state tax to the extent it is levied on food. She said the Democrats’ support for the GST, which the Howard government needed to introduce the tax in 2000, was secured only once it imposed a relative penalty on “junk” food. Fresh food was excluded, which then Democrats leader Meg Lees said served public health interests.

Last year the Australian Greens proposed taxing junk food following Denmark’s introduction last year of a surcharge on foods with excessive fat content, a tax British Prime Minister David Cameron also suggested should be adopted.

In Australia, the National Preventative Health Taskforce recommended in 2009 “tax incentives” be used “to promote production, access to and consumption of healthier foods”.

Ms Novak estimates a 20 per cent ad valorem tax on takeaway meals and fast food “which would punish time-poor consumers” , would raise an additional $268m a year, of which low-income households would pay $39m.