Let's Support The Excise Tax Rise

[nzbrewer]

Excise tax will disadvantage budget beer more that craft beer.

Here is the explanation from a recent email discussion I had with economist Eric Crampton

"Let's suppose excise taxes double. A bottle of mass market beer that currently sells for $1 including $0.40 in tax would ramp up to $1.40 (assuming full pass through for simplicity for now) while a bottle of craft beer that sells for $3 including $0.40 in tax and whatever in existing margin would ramp up to $3.40 plus excess margin: $3.54. I'm there assuming that the retailer charges an extra 35% on the wholesale price increase of $0.40. Excise tax on both beers is $0.80 but the craft beer is charged an extra total of $0.28 in margin: effectively, $1.08 ($0.54 of pre-hike, $0.54 post hike). Ok, I can buy that.

Now here's the part that I'm still less convinced about. Comparing the before-hike and after-hike prices, the mass market beer has increased in price by 40% while the craft beer has increased in price by 18%, even including all of the markups (and assuming zero excess markups on the mass market beer)."

Bottomline the cheapest beers are the most disadvantaged.

[Toot]

Is the excise tax based on a % and not a blanket $0.40 increase for all beers?

ie $1 beer plus 2.8% excise increase = $1.03 ($0.03 increase)
$3 beer plus 2.8% excise increase = $3.1 ($0.1 increase)

Or is similar to income tax where the first 40c of every beer is tax and the excise will increase this rate by 2.8%?

[Soren]

the excise is an absolute dollar amount per litre of alcohol, not a percentage of the price. the excise on a liter of tui is the same as for a liter of bookbinder, the price of the product is irrelevant. that is why the extra excise "hurts" the cheap swill more than the good stuff. But of course the big guys have more buffering to overcome swings like this and in reality it may hurt the little guy the most.

[Toot]

I see

[vdog]

"Other beverages not affected by the tax would become comparatively cheaper"

Um, no. Because it's a tax on a litre of pure alcohol, the only beverages not affected will be non-alcoholic. Which as we know, is not a good substitute for beer!

[Stu McKinlay]

This is crazy. Totally.

It is a very simplistic argument that people have tried to use on me before (to say that craft beer is actually relatively better off with excise taxes than mainstream beer). It doesn't have anything to do with the consumer's perceived value, just with margins and mark-ups. In reality there are several other factors - both measurable and non-measurable - that come into this equation.

A few of these (off the top of my head in 5min) are:
Craft beer generally tends to have a higher ABV than mainstream swill (5%-7%, as opposed to 4-5%), so the absolute tax increase will be considerably more on craft beer.
This could well be compounded by the retailer's margin, which will often be a simple percentage mark-up. 30% on top of $3 is a lot more than 30% on top of $1.
It does not take into account price elasticity, even in its most simple forms. So as while the swill purchaser grumbles about a 30% rise from $1 to $1.30. The craft beer purchaser actually switches to another beer (or worse: wine) when his/her favourite jumps that same percentage from $3 to $3.90.


Do we want all craft beer producers to suddenly pull their beers down into the 4-5%abv area, like mainstream breweries do, so that they can combat excise increases?

[Stu McKinlay]

ps. consider my argument not as a take down request but a request to change the title of your post!

[Tony]

Agreed Stu! The higher excise may hurt the price of swill more, but they can absorb the cost more also. Crampton wrote a good paper, but at the end of the day he is still a bean counter, not a business man. Typical fucking academics, all theory and no practical knowledge.

All the big boys need to do, is replace a few kg more of malts with sugar and they've recovered the cost.
I understand the maths, but the economics of scale circumvent that.

as Soren puts it
But of course the big guys have more buffering to overcome swings like this and in reality it may hurt the little guy the most.

[James P]

Beat the excise tax, home brew..... oh wait...

[Toot]

How much is the excise tax per litre?

[Toot]

So looking at that, beer above 2.5% is going to go up about 70c a litre so about 24c a beer? or $2.88 a dozen.

Will that be significant to craft brewers given that a fair amount of craft breers are $30+ a dozen?

I think those buying a box of do bros from the supermarket at $15 a doz instead of $12 will be the most gutted.

As for retailers margin I guess it depends on the retailer and if they increase prices on a % basis?

[Steve Nally]

It's one man's simple opinion... just cos he's an eco-mist doesn't mean shite. The model is too simple!!!
I don't see doubling tax as an option, politically it's dumb

[Steve Baker]

I don't think Eric is advocating doubling the tax, he likes his craft beer too much.

He has been totally kicking ass in the economist nerdfight with BERL. Based on his calculations the amount collected from excise tax exceeds the social costs to society from misuse of alcohol. This implies a drop in excise is in order.