Drunken Speculation

Embrace the Beer Excise!

Over the break, I had a few ideas rolling around in my head about margins and taxes because I like thinking about money and beer so why not both together? I’ve read some murmuring about the excise on beer, which is typically blamed for crippling growth of the Australian beer industry and making our beer expensive by international standards.

There are no arguments that beer here is not expensive.

However, to build something of a strawman, those who support a lower excise assume that a lower excise will benefit consumers or brewers or both. I, however, don’t think that would be the case and even if it was, I don’t think that it would be a good thing[1]. Here’s why I think everyone should embrace the beer excise.

In the 2014 Federal Budget, the excise on beer contributed $2.4 billion in revenue. Each year, the government’s cut of the beer you drink could pay for one of these:

PA_Hospital

Princess Alexandra Hospital

Or another one of these:

Aerial Shoot of the University of Queensland St Lucia Campus

University of Queensland

Or, if you’re so inclined, fifteen of these:

F35 fighter

(How the government spends its revenue is beyond the scope of this post but, like many people, I’m not optimistic about the current government’s priorities)

Taxes are not paid by chumps. The taxes you pay are literally the only thing separating the country you presently live in from turning into Somalia. A tax-free Australia is an Australia controlled by gun-toting kangaroo cyborgs because the tax-payer-funded government is the only thing stopping them from destroying everything you hold dear. In short, taxes make some good things (and a few awful things) happen.

The flipside of this argument is that we should lower the excise to make beer cheaper. If the excise was lowered, here’s what might happen.

Budweiser_PlantVolume sold will increase

Taking the wide view, Australia should almost certainly be drinking less. Australia is a world-beater[2] at per capita alcohol consumption. I think it’s unlikely that increasing the volume of alcohol consumed would benefit our society. While moderate drinkers live longer than teetotallers, a Pareto-esque principle applies to alcohol sales: a minority consumes the vast majority[3] of alcohol.

I can’t imagine anyone picking up a slab because it’s suddenly much cheaper, so if a lower excise means more beer consumed, it will be consumed by people who likely already drink too much. Heavy consumption of alcohol is associated with a range of long-term health risks and we all pay to treat those problems via our publicly funded healthcare system.

If health costs go up because people are drinking more, we all pay for it.

The revenue raised on the excise will reduce, increasing taxes/cutting services

For each 1% reduction in the beer and spirits excise rates (assuming the balance of excisable products remains the same), $50 million in government revenue is lost.

While I think the argument over the federal budget deficit is pointless political point-scoring with barely a shred of economic sense, revenue short-falls will mean shittier service at your nearest federally funded institution or copping the same amount of tax somewhere else because no one at the federal Treasury seems to have heard of Modern Monetary Theory.

Again, we all end up paying for it.

The Bloke Red AlePrices will not go down

Sure, prices may go down in the short term while retailers sort each other out but in the long term, prices will not go down.

Consumers have already demonstrated that they will pay the price for beer as is. Up to 36% of the retail price is due to taxes and any part of that freed up will be captured by the players along the supply chain: ingredient supplier, brewer, distributor or retailer. With small-scale brewers, I would expect that the retailer will end up taking the lion’s share because of the latter’s superior bargaining power.

“Retailers” means Coles and Woolworths, who have 45% of the market between them, and they will screw everyone out of every single dollar because that’s their business model. That money could then be used to support their own breweries and beer brands to undercut the competition and put independent breweries out of business.

It would be, in effect, a transfer from the government’s coffers to those of the supermarket duopoly.

While a lower excise might benefit brewers in the immediate sense of increased sales – a dubious proposition in itself – it is likely a lower excise would cause everyone to lose out in the long run.

Under the current arrangements, you as a beer drinker are voluntarily doing some of the heavy lifting that keeps this country at the forefront of human development so that others don’t have to. You selfless champion.

(I mean, you’re not doing as much as doctors or soldiers but more than less heroic people, like wine drinkers – unless you are a doctor or soldier in which case, kudos!)

[1] A reminder that this kind of post (specifically these other posts) is not to establish a position that is right or wrong. It is intended to spark a discussion by providing an alternative point of view. [2] Eighth in the World Health Organisation’s 2015 projection per capita and the top country outside of Central/Eastern Europe. [3] Refer slide 35 in particular

5 comments

  1. The only problem I have with the excise is (to my understanding at least), excise is paid once it leaves the brewery and then GST is added onto to this cost, so, rather than paying the tax for the “Goods” part of the GST, which should be 10% of the actual cost, consumers are paying 10% of the cost of the goods plus the cost of excise, so there’s a tax on a tax…

    • There is a fair amount of morality required to judge a “good” vs “bad” tax. In the case you raise, I’m not personally too bothered by a tax on a tax – perhaps because the excise one of the costs of brewing beer in Australia – but I can see why that would bother others.

      • To clarify – by “goods” I meant the the “G” from GST – Goods and Services Tax. Yeah, judging the morality of a tax is a little out of the scope of what we’re discussing here!

  2. Pingback: The Six-Pack – July 18, 2014 | beer is your friend

Comments are closed.

%d bloggers like this: