National Drug Strategy
National Drug Strategy

The costs of tobacco, alcohol and illicit drug abuse to Australian Society in 2004/05

1. Introduction

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This study estimates the social costs of the abuse of drugs (alcohol, tobacco and illicit drugs) in Australia in the financial year 2004/05. It is the fourth in a series of such studies prepared for the Department of Health and Ageing by the present authors. Previous studies of these costs were undertaken for the years 1988, 1992 and 1998/99 (Collins and Lapsley, 1991, 1996 and 2002 respectively).

Since the production of the 1998/99 estimates, the present authors have been involved in two significant international developments in this area. They are two of the authors of the World Health Organization publication International Guidelines for Estimating the Costs of Substance Abuse (Single et al., 2003). They are also the two lead authors of the Health Canada publication International Guidelines for the Estimation of the Avoidable Costs of Substance Abuse (Collins, Lapsley et al., 2006). The latter, produced after a Health Canada-sponsored international workshop on the avoidable costs of substance abuse, represents the first systematic attempt to develop a sophisticated methodology to estimate avoidable, as opposed to aggregate, costs. The Australian Government Department of Health and Ageing has commissioned the present authors to undertake a pilot study applying this new methodology to the estimation of the avoidable costs of alcohol abuse in Australia, to be undertaken after the completion of the study published in this report. This avoidable cost study will inform and constitute part of a set of international studies in this area. It is intended that the avoidable cost guidelines will be reviewed in the light of the experience gained in the pilot studies.

Previous studies in this series have analysed the theory and methodology of social cost estimation in considerable detail. This can present a problem to the reader in that the present study runs the risk of largely repeating the methodological explanations of previous studies. On the other hand, if the methodological discussion were too brief or completely eliminated, this paper would not be able to be read as a stand-alone document. This potential conflict is addressed by presenting in Section 2 a methodological discussion which is largely a repeat of discussions in our previous papers. This section need not be read by those readers who are completely familiar with the underlying methodology. We proceed in Section 3 to explain and discuss areas of estimation where new or revised methodologies or new data have become available. Section 4 examines epidemiological issues and Section 5 examines issues in the estimation of drug-attributable crime costs. The aim in the above
sections is to present sufficient methodological information so that this paper can be read independently of the previous ones.

Section 6 presents detailed disaggregated cost estimates for crime, health, productivity, road accidents and fires. It also presents a partial disaggregation of the mortality and morbidity costs of illicit drugs by type of drug. Section 7 presents the full results disaggregated by category of drug (alcohol, tobacco and illicit drug). Section 8 considers the comparability of the results with those of previous studies by the present authors. The final section discusses implications of the study for future research.

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The approach of the present authors, both of whom are economists, is to concentrate on the economic aspects of the analysis. Where analysis in other areas of scientific specialisation is called for, experts in these areas have provided data and been consulted. Three appendices, specifically attributed to their authors, provide detailed expositions of the non-economic methodologies used in this study—demographic, epidemiological and criminological.

It is recognised that, in spite of the existence of the International Guidelines (Single et al., 2003), full consensus does not exist on the methodology of social cost estimation. Thus, the present authors, in common with others in this research field, must decide between various available methodologies. The approach of the present report is to disaggregate the estimates as far as possible, in order that readers are able to identify the impact which the adoption of different methodologies would have upon these estimates. For example, this report incorporates, and separately identifies, the reduction of the costs of health service resources which results from premature deaths caused by drug abuse. Most other cost studies do not identify this impact, preferring to estimate only the gross healthcare costs. Similarly, there has been discussion as to the proportion of total alcohol consumption in the Australian community which can be deemed abusive. This report indicates the impact of different assumed levels of abusive alcohol consumption on the aggregate estimates.

The uses of substance abuse cost estimates are discussed in some detail in Single et al. (2003).


The purpose of the study presented here is to provide reliable estimates which can inform all of these public policy objectives.

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