National Drug Strategy
National Drug Strategy

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

7. Aggregate results

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7.1 Total costs

This section of the paper presents a summary of the overall social costs of drug abuse, classified by type of drug.

Table 33 presents a summary of tangible costs, Table 34 presents intangible costs and Table 35 presents total costs. Note that commentary on the costs attributable to individual drugs is complicated by the joint nature of some crime costs and by the adjustment to be made to the all drugs total for the interactive effects involved in the estimation of aetiological fractions for conditions attributable to more than one drug.

Table 33, Tangible social costs of drug abuse, 2004/05

 

Alcohol ($m)

Tobacco ($m)

Illicit drugs ($m)

Alcohol and illicits together ($m)

Total ($m)

Total adjusted for interaction ($m)

Labour in the workforce

 

 

 

 

 

 

 

Reduction in workforce

3,210.7

4,969.5

889.4

 

9,069.5

8,872.1

Absenteeism

367.9

779.6

733.5

 

1,880.9

1,840.0

Total

3,578.6

5,749.1

1,622.9

 

10,950.5

10,712.1

Labour in the household

 

 

 

 

 

 

 

Premature death

1,423.9

9,156.4

458.5

 

11,038.8

10,798.5

Sickness

146.9

686.7

37.0

 

870.6

851.7

Total

1,570.8

9,843.1

495.5

 

11,909.4

11,650.2

Total paid and unpaid labour costs

5,149.4

15,592.2

2,118.3

 

22,859.9

22,362.2

Less consumption resources saved

1,611.3

7,583.1

469.5

 

9,663.9

9,453.5

Total net labour costs

3,538.0

8,009.1

1,648.9

 

13,196.0

12,908.7

Healthcare (net)

 

 

 

 

 

 

 

Medical

540.7

158.4

104.7

 

803.8

786.3

Hospital

662.2

223.4

86.5

 

972.1

950.9

Nursing homes

401.2

(177.3)

6.2

 

230.1

225.1

Pharmaceuticals

297.6

77.3

 

 

375.0

366.8

Ambulances

74.8

36.6

4.4

 

115.8

115.8

Total healthcare

1,976.7

318.4

201.7

 

2,496.8

2,445.0

Road accidents n.e.i.

2,202.0

 

527.6

 

2,729.6

2,729.6

Fires n.e.i.

 

63.0

 

 

63.0

63.0

Crime n.e.i.

 

 

 

 

 

 

 

Police

747.1

 

1,716.9

320.2

2,784.2

2,784.2

Criminal courts

85.8

 

146.8

28.0

260.7

260.7

Prisons

141.8

 

348.6

146.6

636.9

636.9

Property

67.1

 

445.4

144.6

657.1

657.1

Insurance administration

14.3

 

94.6

30.7

139.6

139.6

Productivity of prisoners

368.0

 

892.1

387.7

1,647.9

1,647.9

Total crime

1,424.0

 

3,644.5

1,057.8

6,126.3

6,126.3

Resources used in abusive consumption

1,688.8

3,635.6

892.7

 

6,217.1

6,217.1

Total

10,829.5

12,026.2

6,915.4

1,057.8

30,828.9

30,489.8

Proportion of total unadjusted tangible costs

35.1%

39.0%

22.4%

3.4%

100.0%

 


Notes: n.e.i. denotes not elsewhere included. Numbers in brackets are negative.

Tangible costs attributable to alcohol in 2004/05 were $10.8 billion, to tobacco were $12.0 billion, and to illicit drugs were $6.9 billion. Alcohol and illicit drugs acting together in the causation of crime contributed a further $1.1 billion. Labour and health costs constituted the major cost component for alcohol. Workforce costs were a large component of tobacco tangible costs. Crime costs comprised a very high proportion of illicit drug costs.

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Table 34, Intangible social costs of drug abuse, 2004/05

Alcohol ($m)
Tobacco ($m)
Illicit drugs ($m)
All drugs ($m)
All drugs adjusted for health interaction ($m)
Loss of life
4,135.0
19,459.7
1,204.7
24,799.5
24,259.6
Pain and suffering (road accidents)
353.6
69.7
423.4
423.4
Total intangible costs
4,488.7
19,459.7
1,274.5
25,222.9
24,683.0
Proportion of unadjusted total intangible costs
17.8%
77.2%
5.1%
100.0%

In relation to intangible costs, with the exception of pain and suffering of road accident victims, only the value of loss of life (to be precise, the loss of a year’s living) could be estimated. Intangible alcohol costs were $4.5 billion, tobacco costs $19.5 billion, and illicit costs $1.3 billion. The predominance of tobacco-attributable intangible costs is a direct result of the high level of premature mortality caused by smoking.

Table 35, Total social costs of drug abuse, 2004/05

Alcohol ($m)
Tobacco ($m)
Illicit drugs ($m)
Alcohol and illicits together ($m)
All drugs ($m)
All drugs adjusted for health interaction ($m)
Tangible
10,829.5
12,026.2
6,915.4
1,057.8
30,828.9
30,489.8
Intangible
4,488.7
19,459.7
1,274.5
25,222.9
24,683.0
Total
15,318.2
31,485.9
8,189.8
1,057.8
56,051.8
55,172.8
Proportion of unadjusted total
27.3%
56.2%
14.6%
1.9%
100.0%
Note: health-related cost components in final column have been adjusted by 2.18% to take account of drugs interaction.

Of the total social costs of drug abuse in 2004/05 of $55.1 billion, alcohol accounted for $15.3 billion (27.3 per cent of the unadjusted total), tobacco $31.5 billion (56.2 per cent) and illicit drugs $8.2 billion (14.6 per cent). Alcohol and illicit drugs acting together accounted for another $1.1 billion (1.9 per cent).

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7.2 Incidence of abuse costs

The term incidence as used here describes how the burden of drug abuse costs is split among various sections of the community (households, business and government). As indicated in Section 2 above, the concept of incidence used in these estimates is impact incidence, a term explained in that section.

The following three tables relate only to tangible costs. Intangible costs by their nature are borne 100 per cent by individuals. It was not possible to determine the incidence of the property losses associated with crime, although it is to be expected that households would have borne a substantial proportion of these costs. Neither Table 36 nor Table 38 take account of the crime-attributable costs which are attributable jointly to alcohol and illicit drugs.

Table 36, Incidence of the tangible social costs of alcohol misuse, 2004/05

Households ($m)
Business ($m)
Government ($m)
Total ($m)
Workforce labour
0.0
2,811.9
766.6
3,578.6
Household labour
1,570.8
0.0
0.0
1,570.8
Hospitals
21.6
111.4
529.2
662.2
Medical
60.0
54.9
425.8
540.7
Nursing homes
84.3
1.0
316.0
401.2
Pharmaceuticals
56.2
0.0
241.4
297.6
Ambulances
23.3
8.6
43.0
74.8
Road accidents n.e.i.
742.0
481.2
106.4
1,329.6
Crime n.e.i.
n.a.
418.4
494.8
913.2
Resources used in abusive consumption
0.0
1,688.8
0.0
1,688.8
Total quantified tangible costs
2,558.2
5,576.3
2,923.2
11,057.7
Percentage of total quantified costs
23.1%
50.4%
26.4%
100.0%

Note: n.a. signifies not available.

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Table 37, Incidence of the tangible social costs of tobacco abuse, 2004/05

Households ($m)
Business ($m)
Government ($m)
Total ($m)
Workforce labour
0.0
4,517.4
1,231.6
5,749.1
Household labour
9,843.1
0.0
0.0
9,843.1
Hospitals
7.3
37.6
178.5
223.4
Medical
17.6
16.1
124.8
158.4
Nursing homes
(37.2)
(0.4)
(139.6)
(177.3)
Pharmaceuticals
12.7
0.0
64.6
77.3
Ambulances
11.4
4.2
21.0
36.6
Fires n.e.i.
16.4
36.5
10.2
63.0
Resources used in abusive consumption
0.0
3,635.6
0.0
3,635.6
Total quantified tangible costs
9,871.2
8,247.0
1,491.1
19,609.3
Percentage of total quantified costs
50.3%
42.1%
7.6%
100.0%
Note: numbers in brackets are negative.

Table 38, Incidence of the tangible social costs of abuse of illicit drugs, 2004/05

Households ($m)
Business ($m)
Government ($m)
Total ($m)
Workforce labour
0.0
1,275.2
347.7
1,622.9
Household labour
495.5
0.0
0.0
495.5
Hospitals
2.8
14.5
69.1
86.5
Medical
11.6
10.6
82.4
104.7
Nursing homes
1.3
0.0
4.9
6.2
Pharmaceuticals
0.0
0.0
0.0
0.0
Ambulances
1.4
0.5
2.5
4.4
Road accidents n.e.i.
146.3
94.9
21.0
262.2
Crime n.e.i.
n.a.
986.8
2,212.3
3,199.1
Resources used in abusive consumption
0.0
892.7
0.0
892.7
Total quantified tangible costs
658.9
3,275.2
2,739.9
6,674.1
Percentage of total quantified costs
9.9%
49.1%
41.1%
100.0%
Note: n.a. signifies not available.

The government sector bore a relatively small proportion of the tangible costs of drug abuse (26 per cent of alcohol-attributable costs, 8 per cent for tobacco and 41 per cent for illicit drugs). In all cases business bore a greater proportion of the burden (50 per cent for alcohol, 42 per cent for tobacco and 49 per cent for illicit drugs). By their nature, all intangible costs are borne by individuals.

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7.3 Budgetary implications

The following three tables present estimates of the budgetary implications of drug abuse— that is, of its impact upon public expenditures and revenues at both federal and state levels. It should be noted that the estimates here relate to the budgetary impact of drug abuse, not drug consumption. Furthermore, they incorporate estimates of the revenue losses resulting from drug-induced morbidity and premature mortality. Results are presented for the overall budgetary impact of drug abuse, as well as estimates for federal and state governments separately for each type of drug.

7.3.1 Alcohol

Table 39, Impact of alcohol misuse on the federal government budget, 2004/05

Outlays

$m

Health

 

 

Hospitals

277.5

Medical

425.8

Nursing homes

300.5

Pharmaceuticals

241.4

Ambulances

8.7

Total health

1,253.9

Road accidents n.e.i.

18.6

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total outlays

1,272.6

Net revenue minus outlays

1,802.9

 

Receipts

$m

Excise tax

 

 

Beer

1,653.0

Spirits

739.0

Total excise tax

2,392.0

Customs duties

 

 

Beer

83.0

Wine

5.0

Spirits

980.0

Total customs duties

1,068.0

Wine equalisation tax

676.0

Total alcohol revenue

4,136.0

Less

 

Revenue forgone

 

 

Income tax

667.7

Indirect taxes

392.9

Total revenue forgone

1,060.6

Total net revenue

3,075.4



Table 40, Impact of alcohol misuse on state government budgets, 2004/05

Outlays

$m

Health

 

 

Hospitals

251.7

Medical

0.0

Nursing homes

15.4

Ambulances

34.3

Total health

301.4

Road accidents n.e.i.

87.8

Crime n.e.i.

 

 

Police

747.1

Criminal courts

85.8

Prisons

141.8

Total crime n.e.i.

974.6

Total outlays

1,363.8

Net revenue minus outlays

(387.3)

 

Receipts

$m

GST

976.5

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total net revenue

976.5



Note: numbers in brackets are negative

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Table 41, Total budgetary impact of alcohol misuse, 2004/05

Outlays

$m

Health

 

 

Hospitals

529.2

Medical

425.8

Nursing homes

316.0

Pharmaceuticals

241.4

Ambulances

43.0

Total Health

1,555.3

Road accidents n.e.i.

106.4

Crime n.e.i.

 

 

Police

747.1

Criminal courts

85.8

Prisons

141.8

Total crime n.e.i.

974.6

 

 

 

 

 

 

 

 

Total outlays

2,636.4

Net revenue minus outlays

1,415.6

 

Receipts

$m

Excise tax

 

 

Beer

1,653.0

Spirits

739.0

Total excise tax

2,392.0

Customs duties

 

 

Beer

83.0

Wine

5.0

Spirits

980.0

Total customs duties

1,068.0

GST

976.5

Wine equalisation tax

676.0

Total alcohol revenue

5,112.5

Less

 

Revenue forgone

 

 

Income tax

667.7

Indirect taxes

392.9

Total revenue forgone

1,060.6

Total net revenue

4,052.0



Alcohol tax revenue in 2004/05 exceeded alcohol-attributable costs borne by the public sector by $1.4 billion. The Commonwealth Government accrued an alcohol-attributable surplus of $1.8 billion, while the states were in deficit to the amount of $387 million.

7.3.2 Tobacco

Table 42, Impact of tobacco abuse upon the federal government budget, 2004/05

Outlays

$m

Health

 

 

Hospitals

93.6

Medical

124.8

Nursing homes

(132.8)

Pharmaceuticals

64.6

Ambulances

4.3

Total health

154.4

Fires n.e.i.

0.4

Total outlays

154.8

Net revenue minus outlays

2,709.3

 

Receipts

$m

Excise tax

5,220.0

Customs duties

518.0

Total tobacco revenue

5,738.0

Less

 

Revenue forgone

 

 

Income tax

1,025.0

Indirect taxes

1,848.9

Total revenue forgone

2,873.9

Total net revenue

2,864.1



Note: numbers in brackets are negative.

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Table 43, Impact of tobacco abuse on state government budgets, 2004/05

Outlays

$m

Health

 

 

Hospitals

84.9

Medical

0.0

Nursing homes

(6.8)

Ambulances

16.7

Total health

94.8

Fires n.e.i.

9.8

Total outlays

104.7

Net revenue minus outlays

832.7

 

Receipts

$m

GST

937.4

 

 

 

 

 

 

 

 

 

 

 

 

Total net revenue

937.4



Note: numbers in brackets are negative.

Table 44, Total budgetary impact of tobacco abuse, 2004/05

Outlays

$m

Health

 

 

Hospitals

178.5

Medical

124.8

Nursing homes

(139.6)

Pharmaceuticals

64.6

Ambulances

21.0

Total health

249.3

Fires n.e.i.

10.2

 

 

Total outlays

259.5

Net revenue minus outlays

3,542.0

 

Receipts

$m

Excise tax

5,220.0

Customs duties

518.0

GST

937.4

Total tobacco revenue

6,675.4

Less

 

Revenue forgone

 

 

Income tax

1,025.0

Indirect taxes

1,848.9

Total revenue forgone

2,873.9

Total net revenue

3,801.5



Note: numbers in brackets are negative.

Tobacco tax revenue in 2004/05 exceeded tobacco-attributable costs borne by the public sector by over $3.5 billion. Of this surplus $2.7 billion accrued to the Commonwealth and around $800 million to state governments.

7.3.3 Illicit drugs

Table 45, Impact of abuse of illicit drugs on the federal government budget, 2004/05

 Outlays

$m

Health

 

 

Hospitals

36.2

Medical

82.4

Nursing homes

4.6

Ambulances

0.5

Total health

123.8

Road accidents n.e.i.

3.7

Total outlays

127.5

Net revenue minus outlays

(427.0)

 

Receipts

$m

Total revenue

0.0

 

 

Less

 

Revenue forgone

 

 

Income taxes

185.1

Indirect taxes

114.5

Total revenue forgone

299.5

Total net revenue

(299.5)


Note: numbers in brackets are negative.

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Table 46, Impact of abuse of illicit drugs on state government budgets, 2004/05

 Outlays

$m

Health

 

 

Hospitals

32.9

Medical

0.0

Nursing homes

0.2

Ambulances

2.0

Total health

35.1

Road accidents n.e.i.

17.3

Crime n.e.i.

 

 

Police

1,716.9

Criminal courts

146.8

Prisons

348.6

Total crime n.e.i.

2,212.3

Total outlays

2,264.8

Net revenue minus outlays

(2,264.8)

 

Receipts

$m

Revenue

0.0

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total net revenue

0.0



Note: numbers in brackets are negative

Table 47, Total budgetary impact of illicit drugs abuse, 2004/05

Outlays

$m

Health

 

 

Hospitals

69.1

Medical

82.4

Nursing homes

4.9

Ambulances

2.5

Total health

158.9

Road accidents n.e.i.

21.0

Crime n.e.i.

 

 

Police

1,716.9

Criminal courts

146.8

Prisons

348.6

Total crime n.e.i.

2,212.3

Total outlays

2,392.2

Net revenue minus outlays

(2,691.8)

 

Receipts

$m

Revenue forgone

0.0

Income tax

185.1

Indirect taxes

114.5

Total revenue forgone

299.5

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total net revenue

(299.5)



Note: numbers in brackets are negative

By their nature, illicit drugs yield no tax revenue. Their production or importation by a clandestine industry renders taxation impossible. Indeed, overall tax revenue is reduced (by an estimated $299.5 million in 2004/05) because drug-attributable mortality and morbidity reduce revenue from general taxes on income and consumption. At the same time, the consumption of illicit drugs imposes substantial costs, particularly crime costs, on the public sector. In 2004/05 attributable public sector outlays together with revenue losses amounted to a total of almost $2.7 billion, of which 84 per cent was borne by state governments.

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7.3.4 Summary of budgetary impacts

The 1999 Intergovernmental Agreement, which inter alia created the GST and removed the states’ abilities to tax tobacco and alcohol except through the GST (see Section 3), caused a very significant adjustment of taxing powers between the states and the Commonwealth. It is now the Commonwealth Government which is the major beneficiary of the tax revenue from tobacco and alcohol.

7.4 Drug-attributable costs and gross domestic product

Estimates of aggregate drug-attributable social costs tend to produce numbers which are very large in absolute terms. This study is no exception. Commentators often attempt to put these numbers in context by expressing them as a percentage of gross domestic product (GDP), which is a measure of the total value of national production or national income. Similarly, attempts to make international comparisons of the relative sizes of aggregate drug abuse costs in economies of very different sizes (for example, Australia and the USA) tend to be made by comparing aggregate costs expressed as a percentage of GDP.

One problem with this approach is that estimates of drug abuse costs contain certain (sometimes very large) components that are not measured in conventional national account measurements of GDP. In the present study these unmeasured components consist of all intangibles (loss of life, and pain and suffering) and production losses in the household (unpaid) sector. Thus, when total drug-attributable costs are compared with GDP, like is not being compared with like.

In order to address this problem, Table 48 below compares GDP at factor cost (that is, not including taxes and subsidies) with only those components of drug abuse costs which are conventionally measured in national accounts data.

Table 48, Comparison of some tangible cost categories with gross domestic product, 2004/05

Alcohol ($m)
Tobacco ($m)
Illicit drugs ($m)
Alcohol and illicits ($m)
Alcohol (% of GDP)
Tobacco (% of GDP)
Illicit drugs (% of GDP)
Alcohol and illicits (% of GDP)
Labour in the workforce
3,578.6
5,749.1
1,622.9
0.45
0.73
0.20
Net healthcare
1,976.7
318.4
201.7
0.25
0.04
0.03
Road accidents n.e.i.
2,157.0
420.7
0.27
0.05
Fires n.e.i.
123.4
0.02
Crime
1,611.5
3,840.5
1,261.0
0.20
0.48
0.16
Resources used in abusive consumption
1,688.8
3,635.6
892.7
0.21
0.46
0.11
Total
11,012.6
9,826.5
6,978.5
1,261.0
1.39
1.24
0.88
0.16

Note: The"Alcohol and illicits" columns refer to the impact of alcohol and illicit drugs, jointly consumed, in the causation of crime.

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7.5 Sensitivity estimates of results

Given the nature of the epidemiological and other data which underpin the calculations for this report, it is not possible to produce a complete sensitivity analysis. However, this report does indicate the impact which the adoption of a range of alternative assumptions or methodologies would have upon the results:
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