Posted on February 23rd, 2011
Saved in Wine talk
It may seem a little trivial in the context of the greater economic problems, but both incumbent parties for Friday’s general election have planned to increase the excise duty on wine over the coming years as well as VAT.
Predictably, they’ll use the nation’s drink problems and health-related issues as the excuse. Remember the excise and VAT increase two years ago.
Remember the tailbacks to Newry and the reduced tax take?
What it actually means in real terms is an even greater pinch on independent wine importers, retailers and restaurateurs who are having a torrid time as it is.
What are the parties proposing?
- Increases in standard rate of VAT to 22% in 2012 and 23% in 2013
- €1 increase in excise duty on a bottle of wine by 2014
- Ban on below cost selling
What does the independent trade think about these proposed changes?
I asked the following question to a number of independents involved in the wine trade in Ireland.
What could these proposals mean for your business and for your customers?
Here’s what they had to say, it’s worth a read if you value local businesses regardless of whether you enjoy wine
1. Paul Foley, The Corkscrew Wine Merchants
A ban on below selling will only serve to make the supermarkets more money as we still won’t be able to compete on price, which we don’t do anyway.
2. Emma Tyrrell, Tyrrell & Company (importers and distributors)
At a €1 increase at 22% VAT (we have taken the €1 excise to be inclusive of vat as this is usually the case), a bottle at 9.99 will move to about 11.85
Currently for us to be able to find a wine that a retailer can sell for €9.99, we have to find it at source at €1.85 – to be able to still sell a wine at €9.99 after proposed changes, we would need to find the wine for 1.00, not a palatable thought in terms of quality.
Depending on what happens north of the border we could well see more people driving to Newry for their wine, and so the VAT revenue will be lost. Excise has to be paid end of month following it would seriously impinge on our cash flow (as an aside, do you know that November’s excise has to be paid earlier: a week before the end of December instead of the end, and this is due to civil servants’ holidays – this to suit them, not us!).
The VAT/excise increase is disguised as a means of combating the alcohol problem in this country, it’s seen as an easy target because it’s very hard to argue against it without the alcohol police accusing you of promoting all that is wrong in this country. And while it’s true that we have too many alcohol related problems clogging A & E especially on a Friday and Saturday night, I would hazard a guess that it’s not due to a glass or 2 or even 3 of red consumed with a meal in a restaurant or at home – but to say so means you’re seen as some sort of a snob “I’m a wine drinker therefore better than a lager or alcopop drinker”.
In general if VAT goes up across the board we have to accept it – sharing the pain and all, that but the excise is another thing completely. There are powerful lobbies out there who claim that the only way to stop alcoholism in this country is to up the excise, these lobbies e.g. The National Substance Misuse Strategy, have very much got the present government’s ear, and probably have the same hold on the incoming one and the civil servants in the relevant departments who will not change after the election. It’s very much the “topic du jour” and it is hard to speak out without seeming like you want to encourage alcoholism and underage drinking. No doctor will put their head above the parapet and claim that alcohol is good for you, but if we’re allowed to feed out kids complete crap with no one looking over our shoulder why can’t an adult enjoy a glass of wine in the evening without having the alcohol police charging them a fortune to do so.
As a small family run business we cannot compete with the likes of Tesco, Aldi or any other supermarket. An increase in excise, while crippling us and hurting an already ailing restaurant and hotel industry in this country, will in no way prevent the large chains from engaging in below cost selling. Increasing the excise rate is not going to raise the price of alcohol across the board, it will just squeeze the smaller guys out of the business. We already have one of the highest rates of excise in Europe and yet we also have a high rate of underage drinking and alcohol abuse – so obviously the price thing is not working – it’s so embedded in our culture that it will take at least generation to change our attitude to alcohol, and this can only be done through education – which let’s face requires more effort than just hiking the excise to placate a loud lobby group.
3. Gary Gubbins, Red Nose Wine
I think it will be the final nail on the coffin as retail is already on its knees and while people are trying to keep things local, there is such pressure at home and the media are not making it any easier. Unfortunately, the ban on below cost selling will more than likely not go through as the lobby groups will put huge jobs pressure on the government.
A bottle of wine that currently sells for €10 will increase to about €12 based on the €1 excise duty increase (and based on 21% VAT).
4. Michael Kane, Curious Wines
The incredulous proposal to increase excise duty once again on wine is short-sighted and fundamentally stupid.
It’s a policy decision that’s severely flawed economically, showing naivety and blinkered thinking on the part of the proposers. The yo-yo decision-making of the last government, first increasing the duty rates at the end of 2009 then reducing them again a year later, shows that there’s a significant knock-on effect in tinkering with excise levels. The ‘Newry Effect’, of the same products being available at different prices across the border, means any gain from higher excise charges will be quickly lost in revenue displaced to the Northern Ireland economy. If this was only a zero-sum game in terms of direct revenue to the Irish Exchequer it might not be so dangerous but the real impact will be on small businesses, relying on a level playing field on the island on which to compete, struggling to cope with punitive tax differences between the states.
As a company attempting to lead the way in internet retailing in Ireland, I am deeply concerned about any policy that disadvantages our ability to grow our business and contribute long-term to job creation and the growth of the national economy. Whereas larger international companies can trade across borders, it’s the indigenous Irish businesses, the lifeblood of the economy and the last bastion of choice and competition, that will suffer and die from this idiotic, short-termist policy-making.
5. Ally Alpine (Wines on the Green/Celtic Whiskey Shop)
This is a disastrous decision for the market. Basically, it will make Ireland less competitive at a time we’re all striving to be as competitive as possible. It will drive consumers to the North, put tourists off as we’ll look extremely expensive (house wine going from €19.95 to €23.95). When Brian Lenihan reduced duty in 2009 the tax take went up and cross border shopping went down.
Consumers don’t have the funds to buy better wines at present. Therefore, consumers who are currently paying €8 for a bottle of wine will be getting a €6-6.50 (generally crap) bottle for the same price once this increase goes through.
It seems a very ill-judged & naive idea. Would like to know the thought process for it.
6. Evelyn Jones,National Off-Licence Association (NOFFLA)
The problem with trying to ban below cost selling is coming up with an mechanism that will actually work. If it is based on invoice price the large multinational supermarkets can merely invoice the Irish division at a low price to ensure that they are not breaking the law by selling below cost. Alcohol is used as a driver of footfall to increase the multiples market share of grocery. They are competing against each other using alcohol.
The reduction in off-licence trading hours to 10 pm has impacted most on the independent off-licence.
- We need to open later to sustain and remain in business.
- e require a return to the original hours of trading in order that we can look after our local customer (and visiting tourist) who should have the right to purchase alcohol off-sales within pub opening hours.
- Not everyone works 9 to 5. Many people finish work at 10pm and we are closed.
- If we are prepared to put in more hours in order to ensure the survival of our business why can’t we?
- What is the logic in differentiating between on and off-trade?
- Why can we not operate pub hours?
The Liquor Bill of June 2008 has an important Section that the then Minister for Justice, Dermot Ahern, did not sign in. Section 16 bans the use of alcohol as a promotional tool in advertising. It only requires the signature of the new Minister for Justice to enact this measure. The newspapers are awash with volume deals of alcohol as the large retailers compete for their grocery market share at our expense.
7. Peter Boland, Cases Wine Warehouse, Galway
When they upped the duty on wine in 2009 it had a profound effect on my business in that I lost bulk purchases to the North (Enniskillen in my case). While it wasn’t worthwhile getting the weekend bottles North of the border, it was perceived to be well worth travelling up for bulk purchases like weddings, communion & confirmation parties etc. I also lost considerable restaurant and retail business to the supermarkets in Enniskillen.
When they brought it back down in December 2009, it had an immediate and profound effect, bringing Galway customers back to us immediately.
Fine Gael’s plans? In terms of the changes, duty is the big one. A €1 increase in excise duty on a bottle of wine by 2014 – massive impact. €10.00 bottle moves up to about €11.85 or so. Migration across the border starts again.
Ban on below cost selling? This is unlikely to be reintroduced as Tesco and Dunnes appear to have an effective veto on Government policy in this area.
Labour is proposing a 1% increase in the standard rate of VAT that will raise €310 million in a full year (no biggie). Labour’s proposals include modest increases in excise on wine and cigarettes – depends on your definition of modest!
8. Gabriel Cooney, On The Grapevine
A €1 increase in duty has a massive impact, because the way we (and I think everyone) build up our costings is that the cost of the wine from the producer and other “fixed costs” – shipping, warehouse costs and the duty go in at the bottom of the costing. Margins and VAT are then multiplied up from there, so that an increase in the duty is magnified by an even higher increase in RRP.
This crazy idea would have people driving to the North in their hordes. We saw it 2 years ago, when they put up duty by €0.50 and cross-border traffic soared, resulting in a reduction in the tax take on duty and a reversal to the previous duty level the following year.
It would be catastrophic, not only for my business, but also for the whole hospitality industry and whatever hopes we have of increasing tourism could be forgotten about. At a time when we are desperately trying to offer vale, cut costs and reduce prices as much as we can, this would be the straw that broke the camel’s back for many people in the wine trade.
So, if it goes ahead, it will:
- reduce the tax take for the government
- cost a huge number of jobs in retail and hospitality trade
- destroy tourism
- increase smuggling
- cause traffic jams for the lovely people of Newry
As you can see, I am not exactly in favour. The only hope is that they will be distracted by the next 100 billion we need for Anglo Irish or whatever other crisis awaits us!
The likelihood of needing alcohol addiction help in the future would be minimal if alcohol consumption is done in moderation.