Friday, October 19, 2012

A euro is not a euro

The fear has begun again. We are heading into our fifth nightmare budget and kite-flying season is in full swing. Property tax, water charges, cuts to child benefit, cuts to social welfare, all have been floated on the airwaves to try and gauge the level of outrage that various measures will cause.

There never seems to be a coordinated plan of what is right and just and appropriate - it is merely a case of what can they get away with, politically.

One area that hasn't really been mentioned directly, but is almost certain to be hit, is excise duty. There has certainly been no shortage of anti-drink propaganda in the media. For a proper rant on this, feel free to read a more articulate and better-researched piece here . The Late Late Show (surely Ireland's greatest example of what a long, slow death looks like) came blazing back to our screens with not one, but two, programmes featuring the evils of having a glass of wine. The second on was a lecture by that great paragon of virtue, Alistair Campbell. When we need to be told what to do by Mr. Iraq-can-attack-us-in-40minutes, it really is time to flee for the hills. When it comes to wine, or indeed pretty much any other topic, Mr. Campbell can, if you will pardon my unparliamentary language, fuck right off.

Obviously, I am completely biased and think that excise on wine should be decreased. I am probably wrong, the best we can hope for is that it remains unchanged. However, I fully expect excise duty on wine to increase in this year's budget. If you were a sensible person, thinking clearly, the best way to do this is to have a moderate increase, implemented at the start of the year, or midway through. At the same time, you would ban below-cost selling and ensure that the recommendations on alcohol selling from a numebr of years ago be fully implemented -primarily in the case of having separate sales areas and tills in supermarkets and that proper training of staff takes place. It won't happen like that though.

Instead, we will have a big increase in the first week of December which will kill off the Christmas trade, the only thing that keeps most of us in business at all. There will be a rush north of the border and then they will reduce the duty again in a year's time because excise revenues have collapsed and when many more businesses have already closed down and the supermarkets have an even larger share of the market flogging an even smaller range of wines.

What does a rise in duty do to retail prices? 50c increase in duty just means 50c increase, right? Wrong. Duty, along with the cost of the wine, go in at the very bottom of the costing equation in pricing a bottle of wine. By the time it is multplied up with importer/retail margins and lets not forget the 23 % VAT at the end, it results in a €1.25 increase in retail price, all else being equal. A €1 increase in duty will increase RSPs by €2.50. So that bottle you buy now for a tenner will be €12.50. It would mean we would have nothing at all in the shop at less than €10.

That's just at retail - in restaurants, the differential will be even greater.

A grim vista indeed. Hopefully some kind of sanity can prevail in the Dept of Finance.

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