ACADEMICS HAVE DONE US A SERVICE BY RUBBISHING BERL'S ALCOHOL STUDY

Academics Eric Crampton of the University of Canterbury and Matt
Burgess of Victoria University have performed a huge public service
(not commissioned by any outside party) by exposing the flaws in a
study of the social costs of alcohol.

The study was undertaken for the Ministry of Health and ACC by
Business and Economic Research Ltd (Berl). It was cited approvingly by
Sir Geoffrey Palmer, SC, president of the Law Commission, in a speech
relating to the liquor review which the commission is
undertaking.

Berl calculated the annual social costs of alcohol to be around $4.8
billion. Crampton and Burgess show that this is a gross
over-estimate.

Much of the critique is technical, focusing on the erroneous
assumptions and methodology of the Berl study.

For the purposes of policy, the key issue is the external costs of
alcohol consumption in the form of crime, publicly funded healthcare
and road accidents.

Other costs, such as lost production and lower incomes sustained by
drinkers, are "internalised"; that is to say, they are borne by
consumers themselves.

Crampton and Burgess estimate that the policy-relevant net external
costs amount to $146.3 million, less than 5 per cent of Berl's
headline $4.8 billion figure.

Berl also ignores the benefits to consumers of alcohol consumption.
These benefits are not the savings in public expenditure on healthcare
due to moderate consumption, which have been documented in medical
research. These are external benefits.

Rather, they are simply the benefits people derive from the enjoyment
of alcohol, and are approximated by what they are willing to pay for
alcohol products.

The Berl report should not have passed the smell test at the Law
Commission. It is well known that some past studies have made similar
mistakes.

Crampton and Burgess state that "The Berl report is wholly inadequate
for use in assisting policy development".

A senior Treasury official has rightly commented that the Law
Commission's reputation is at risk if it relies on it. Unless Berl can
refute significant criticisms, the chief executives of the Ministry of
Health and ACC should also be held accountable for such a poor use of
$135,500 of taxpayers' money. Indeed they should be demanding their
money back.

Many of the social trends associated with liquor consumption have
improved with liberalisation starting 20 years ago.

Drinking habits are regarded by many New Zealanders as even better in
some European countries which have fewer restrictions overall.

For example, many countries allow spirits to be sold in supermarkets.
Why should this not be allowed here?

Liquor is in many ways not special. Hundreds of products - matches,
detergents, electricity, pharmaceuticals, motor vehicles and firearms,
for example - cause problems if misused.

Nevertheless, there are external social costs, such as drink driving,
which give rise to legitimate concerns.

The challenge for policy is to target these problems with effective
interventions (and enforcement of existing laws), not to penalise with
regulations or taxes the vast majority of responsible drinkers.

As one commentator has noted, "Raising taxes on alcohol to prevent
problem drinking is akin to raising the price of petrol to prevent
people from speeding."

The last government's official tax review recommended in 2001 that
excise taxes on alcohol should be scrapped now that a comprehensive
GST is in place.

The Law Commission needs to engage with this analysis and follow the
Generic Tax Policy Process for any recommendations on tax.

Similarly, it should follow the required Regulatory Impact Statement
process for any recommendations on regulations in its forthcoming
discussion paper.

That process requires a demonstration that the benefits of any
recommendations or regulations exceed the costs. Competent analysis
requires benefits and costs to be quantified, not just asserted,
otherwise serious public policy errors could be made.

It is highly unlikely that proposals to restrict liquor outlets, for
example, would meet a cost-benefit test.

Instead, the Law Commission should focus on ways of internalising the
external costs of alcohol abuse. For example, why should those who
injure themselves in alcohol-fuelled assaults or burglaries enjoy
generous ACC benefits?

Many foreigners would regard such treatment as ludicrous. Will Sir
Geoffrey Palmer, one of the "fathers" of ACC, be open-minded enough to
look at such an obvious remedy?

Similarly, if we are willing to confiscate the vehicles of boy racers,
why should we not confiscate the vehicles of serial drink drivers?

There are limits to what can be achieved with alcohol-specific
interventions.

Research suggests that problems of destructive behaviour often go back
to family, childhood and individual experiences.

The Regulatory Impact Statement framework requires "the range of
feasible options" for meeting a public policy objective to be explored.

The Law Commission must range broadly and look at all options in a
rigorous and dispassionate way. It should not compound the flawed Berl
analysis with substandard work of its own.