Alcopop Tax Folly

The Australian Government's new Alcopop Tax Hike, in addition to being an unfortunate attempt at paternalism, suffers from an even greater shortcoming: failure to understand what economists call the substitution effect. It is fairly obvious that increasing the tax on the alcohol content of premixed drinks by 70% will reduce the consumption of these drinks, but the Rudd Government doesn't seem to have asked the question of where these consumers will now choose to spend their money. I'm pretty sure the answer is not bubble gum and soda pop. I'm willing to bet that we simply see a substitution away from premixed drinks into hard liquor, beer, or wine, and I'd be surprised if this substitution wasn't pretty much on a 1-for-1 basis.