Drinks Industry Group of Ireland. Submission to the Minister for Finance for Budget 2015

Transcription

1 D I G I Drinks Industry Group of Ireland Submission to the Minister for Finance for Budget 2015 SUPPORTING A SIGNIFICANT IRISH INDUSTRY THROUGH EXCISE REDUCTION

2 CONTENTS 1. Executive Summary 2. Drinks Industry Group of Ireland 3. DIGI s Budget Recommendation 4. Excise is a tax on Jobs 5. Excise is a tax on Tourism 6. Excise is a tax on Consumers 7. Context 2

3 EXECUTIVE SUMMARY The Drinks Industry Group of Ireland (DIGI) calls on the Government to reverse last year s penal excise increase on hard-pressed Irish consumers which has hurt thousands of small Irish businesses and which is negatively impacting on Ireland s reputation as a tourist destination. In less than 12 months (between December 2012 and October 2013) the Irish government increased excise on beer by 44%, excise on spirits increased by 37% and excise on wine increased by 62%. These increases are threatening 92,000 jobs in every parish throughout Ireland that are dependent on the drinks industry. No other industry can claim the same local roots and rich Irish heritage of the Drinks Industry and now the creation of a hostile tax environment is threatening future investment from global companies such as Diageo, Irish Distillers or Heineken. The economic arguments to support reversing last year s penal excise increase are compelling. Excise is a tax on jobs, it is a tax on tourism and it is a tax on hard-pressed Irish consumers. Tax increases have damaged Ireland s reputation as a destination for drinks related capital investment, tourists have identified the high price of alcohol as the second biggest disincentive to visit Ireland (after the weather) and the average Irish drinker is now paying 733 a year in alcohol related tax. This is more than twice the 302 that the average drinker in Germany is paying, despite the fact that consumption levels in Ireland and Germany are nearly identical according to 2010 WHO figures (11.9 LPA vs 11.8 LPA). No other domestic business sector has suffered such a negative imposition by government. Since 2011 the average price of a pint in a pub in Ireland has increased by 0.36 with 0.28 of this increase, or 78%, going straight to the exchequer. We are now in the bizarre position that Ireland is one of the most expensive places in the word to buy Irish whiskey with 68% of the retail price an average bottle of whiskey in this country being taken by government. In fact the tax take on a bottle of Jameson in Ireland is more than the total price of that same bottle ( 16.61) in New York. Excise on wine increased by 62% in less than a year (between December 2012 and October 2013) putting huge cash flow pressure on small businesses at a time when access to credit is at an all-time low. The tax on 1,000 cases of wine has increased by 17,958 since 2012; a huge upfront cost for distributors, independent off-licenses and restaurants to bear. By reversing the excise increase imposed on this sector in last year s budget, the government would immediately: enhance Ireland s appeal as a tourist destination support small and independent businesses that - due to their product offering - cannot spread the consecutive excise increases across their product mix improve Ireland s ability to attract additional investment from multi-national drinks companies reduce indirect taxes on beleaguered Irish consumers, and support jobs in every parish in the country. Therefore, DIGI calls on Government to reverse the excise increase in order to support jobs, support tourism and support the hard-pressed Irish consumers. 3

4 DIGI S BUDGET RECOMMENDATION Excise increases to negatively impact on the wider economy in the medium to long term While the excise increase fulfilled a short-term liquidity requirement for the Government, the reality is that the increase was at the long term detriment of the wider drinks industry and, due to its importance in the overall domestic economy; this will impact negatively on the wider economy over the medium and long term. In summation, DIGI is calling for the reversal of last year s excise increase in order to reduce continuing damage to a vital national industry and to assist the sector to take advantage of the expected economic growth in Government should support the commercial viability of drinks related enterprises in the on-licence sector and the independent off-licence sector and assist in improving business and consumer confidence. Government must support the business strength and capability of Irish drinks manufacturers which will in turn assist in the drinks export drive which is helped by a solid domestic market. This will ensure a significant boost for the agriculture sector and domestic exports. It is also important that the price competitiveness and quality of the Irish tourism product is supported. Substantial economic benefits arose from the excise and VAT reductions in Budget 2010 and from the tourism VAT reduction from 13.5% to 9% for a range of sectors. Implementing the DIGI Budget recommendation on excise will: Generate additional employment Improve the business environment for the hospitality sector Support the commercial viability of drinks related enterprises Support the price competitiveness and quality of the Irish tourism product Support the development of many craft breweries and distilleries Support the business strength and capability of Irish drinks manufacturers which will in turn assist in the drinks export drive which is helped by a solid domestic market DIGI recommends that: The excise increases of Budget 2014 should be reversed DIGI s recommendation for Budget 2015 is based on the following: Excise is a tax on jobs, the Budget 2014 increases caused a loss of about 700 jobs in the sector. Excise is a tax on tourism. Excise is a regressive tax on consumers. Ireland s alcohol excise levels are very high by EU standards. The ongoing substantial decline in average alcohol consumption in Ireland. The macroeconomic position in 2014 and The need to enable the drinks sector to participate in the expected economic recovery. 4

5 The high excise increases in Budgets 2013 and The economic and employment contribution of the drinks industry. The contribution of the drinks industry to tourism which has been recently shown by Fáilte Ireland research. The need to support tourism competitiveness. Excise has been the main driver of recent bar price increases. The economic potential of the emerging craft brewery and distillery sectors. The help that a solid domestic market base gives to export development. The need to support demand in the on-licensed and independent off-licensed sectors. The potential VAT revenue increase from an improved on-licence sector. The very weak position of the on-licensed segment of the drinks industry which has experienced large sales volume declines, large employment declines and significant numbers of closures. The independent off-licence sector is also suffering sales decline, employment contraction and closures. The difficulties of the on- licence sector and the independent off-licence sector are being worsened by the difficulty in getting bank credit and by high input costs. The inability of pubs and independent off-licences to offset excise increases by increasing margins on other products as can be done by the large multiple sector. 5

6 DRINKS INDUSTRY GROUP OF IRELAND The Drinks Industry Group of Ireland (DIGI) is composed of manufacturers, distributors and the on and off licensed trades. Its members include: Alcohol Beverage Federation of Ireland Irish Hotels Federation Licensed Vintners Association National Off-Licence Association Restaurants Association of Ireland Vintners Federation of Ireland Together, these employers groups sustain 92,000 people working in the drinks manufacturing, drinks distribution and hospitality industries in every town, village and city around the country. DIGI is concerned with the taxation and economic development aspects of the drinks industry and has produced a range of research reports on the economic role of the industry, taxation of alcohol and on the structure and performance of licensed premises including Survey of Licensed Premises in Ireland in 2009, The Drinks Industry and Tourism in 2009 and 2011, Purchases of Inputs in 2006, Economic Contribution of the Drinks Industry in 2008, International Comparisons of Irish Alcohol Taxation in the European Union in 2011, Drinks Exports in 2012 and Purchases of Input by the Drinks Industry in 2013 and Drinks related employment in Dáil constituencies in

7 EXCISE IS A TAX ON JOBS The drinks industry in Ireland has experienced a very challenging number of years. However, the sector is now on the cusp of a period of growth. From a surge in global demand for Irish whiskey to the popularity of authentic Irish pubs with tourists, the industry is poised on the verge of an exciting new period and government policy can play a significant role in assisting and accelerating economic growth over the coming years. A hostile tax environment The hostile alcohol tax environment has cost Irish jobs in the drinks industry and will continue to do so unless current government policy is reversed. Rural pubs in particular have suffered greatly in the last number of years and reversing last year s penal excise increases would be an important signal of support from government to this vital sector. Iconic Irish brands in the drinks industry continue to invest in the future; Diageo is investing almost 200 million in a new brewery at St James Gate and Irish Distillers have recently completed a 200 million upgrade of its Midleton facility. However, these plants are Irish subsidiaries of large Multi-National Corporations and must compete for investment with other countries within the Diageo or IDPR portfolio. Future investment from large multi-national corporations will be threatened The hostile alcohol tax system in Ireland is threatening future investment from the likes of Diageo and IDL investments which have created 1,000 construction jobs over the last 5 years and could create an additional 1,000 over the next 5 years. The government has an opportunity to make Ireland a more attractive destination for drinks industry related investment from international brands such as Heineken who are currently evaluating the desirability of developing the old Beamish Crawford Distillery in Cork into a state of the art conference centre. In assessing the business environment for decisions such as these the perceived hostility of a country s taxation system plays an important role in the allocation of funds for potential investments such as the 150 million that could be allocated to develop this conference centre in Cork. Small businesses in decline Public Houses and independent off-licenses are in essence small businesses, which the Drinks related employment in Dáil Constituencies report has proved are employing people in every parish in Ireland. However, these businesses are continuing to face a difficult economic environment as sales in the employment intensive on-trade declining by 35% in the seven years since April Recent data from the CSO has indicated that this trend might finally be coming to a halt this year with the volume of bar sales increasing by small 0.5 % in the first four months of 2014 compared with This weak recovery could be supported with a reversal of last year s panal excise increase to allow small businesses invest in their future. According to Revenue Commissioners data there was a decline of 1,003 or 12.1 % in the number of public house licences between 2007 and Employment in the on-licensed and independent off-licence sectors has been decimated over the past few years. There are many reasons for this including weak domestic demand, lower discretionary incomes, tourism decline, weak credit availability, regulatory changes, market shifts, cost pressures and low priced products from the multiples. The recent excise increases have added to this list of negatives. 7

8 Surveys by different drinks industry associations have confirmed the jobs leakage. A recent survey of members by NOFFLA reported that following the excise increases of the last two budgets 35% of respondents had reduced staff. The 2013 Vintners Federation of Ireland (VFI) survey of members reported that 39% of members had reduced staffing levels in the first quarter of % of respondents reduced the working hours of existing staff. Based on a price elasticity/employment pass- through model similar to the one used by the Department of Finance to assess the impact of the hospitality lower VAT rate, the most recent excise increase was responsible for the loss of over 700 direct, indirect and multiplier jobs. This can be more than doubled when the earlier VAT and excise increases are considered. In addition, where enterprises cannot pass on the tax as price increases there is a reduced possibility of commercial sustainability. As shown in this submission, the higher excise affects cash flow which contributes to closures and reduced scale of operation. The excise increases directly and indirectly reduce employment in the industry. Independent off- licence businesses are also in a very weak economic position with closures, declining sales and reducing employment. The sector also suffers from the sale of deeply discounted alcohol. 54% of independent off-licences reported a turnover decline of greater than 10% in % had a further turnover decline in 2013 while 21% expect yet another decline in Both of these sectors have a very narrow product range and are heavily dependent on alcohol sales. Unlike the large multiples they cannot avoid passing on excise increases by raising prices on other products in their extensive product range. Innovating to survive However, pubs and independent off-licenses who have suffered the recession have been forced to innovate and are now all the stronger for the experience. They are well poised to take advantage of a potential upswing in the economy. A boost to these viable small businesses in the form of reversing last year s penal excise increase would ensure that they are well positioned to grow throughout the year. Cash-flow challenges for small businesses Other small Irish businesses have also been negatively affected by the excise increases of recent years. For example many wine distributors and importers have to pay excise as an up-front cost which can only then be recouped once their product reaches the final consumer. This structure means that every increase in excise has a very detrimental effect on the cash flow of these businesses. Given the current difficulties with securing lines of credit in Ireland these cashflow issues have major implications for small Irish businesses which have had to delay investing in their companies as a result of government policy. An overview of how this plays out for small businesses is shown below: EXCISE DUE ON IMPORTATION OF 1,000 CASES OF WINE PER MONTH Year % Increase Duty per Case Excise per 1000 Cases VAT Payable to Revenue ,640 5,437 29, % ,360 7,673 41, % ,240 8,795 47,035 Overall Increase 62% 14,600 3,358 17,958 8

9 The total payment (incl. VAT) is now 17,958 higher per 1,000 cases than it was in This is particularly problematic at a time when the availability of credit is at an all-time low. Support the whiskey and craft beer renaissance The government has recognised the potential for supportive excise measures to create jobs through the very welcome craft brewery excise rebate. This recognition needs to be applied to the industry as a whole. For the first time in decades new distilleries are being established in Ireland to take advantage of the surge in global demand for Irish whiskey. These small businesses need a solid domestic market base to support commercial viability and allow them develop competitive export offerings. It is extremely difficult for these small enterprises to establish a foothold when 68% of the cost of their product goes directly to the exchequer. A reduction in Ireland s draconian excise levels would be a great help to these entrepreneurs. On-licensed consumption likely to perform more weakly The economic performance of the economy in 2014 and 2015 is expected to be significantly better than 2013 which performed worse than expected. GDP growth will improve substantially in 2014 compared with 2013 and consumption volume performance, which is a substantial determinant of the drinks performance, will also improve. The Government growth projections are shown below. Irish Government growth projections 2014 and 2015 % change in Volume GDP 2013 GDP 2014 GDP 2015 CONSUMER EXPEND 2013 CONSUMER EXPEND 2014 Government Projections % Source. Department of Finance. April 2014 CONSUMER EXPEND 2015 GDP growth will improve in 2014 to 2.1% and 2.7% in 2015, compared with -0.3% in 2013, but consumption volume will grow by only 1.6% in 2015 compared to 2.0% in On-licensed consumption is likely to perform more weakly than aggregate consumption due to the discretionary nature of the activity. Consequently the on-licensed sector will continue to face a difficult situation. Sales volume performance in pubs has been worse than the overall performance of retail sales since Challenging times DIGI is aware of the continuing difficulties in the public finances and that additional austerity measures are needed in However, the overall correction of the public finances must be done in a way which supports the generation of additional economic activity, including such measures as alcohol excise reduction. An overview of the industry s importance to the economic vitality of the country is provided below: Employment: A total of 92,000 jobs throughout Ireland are dependent on the Drinks Industry. This is made up of: o Approximately 3,800 highly paid jobs in beverages manufacturing. However this has declined from 6,146 in

10 o Approximately 63,000 full or part time direct jobs including all segments of the drinks industry in o Public house employment has declined from 54,000 persons in 2009 to 51,700 in 2010 and 50,700 in 2011 according to Failte Ireland estimates, In addition there are about 4,000 persons employed in hotel and other bars giving a 2011 on licence total of just over 54,000 persons based on Failte Ireland data. The 2013 estimated employment level is 52,000 persons in the on-licence sector. o Approximately 7,000 jobs in off-licences and wholesalers. o Indirect employment arising from purchases is about 11,600 and there are a further 17,500 jobs arising from the multiplier process. These jobs support wages of over 2 billion throughout Ireland. 75% of public house employment located outside Dublin. Good quality employment with 15% of public house employees as managers; 5% as supervisors, 8% as chefs/cooks and 45% are bar staff. Exports: Exports of billion in 2013 based on CSO data. Trade surplus in beverages of 370 million in Beverages exports are 1.5 times imports. High domestic content in alcohol exports. Alcohol export performance high by international standards Substantial potential to increase alcohol exports and to diversify markets. Global growth of Irish whiskey sales has been excellent in recent years. 67 % of Irish beer market supplied domestically. 42 % of Irish spirits market supplied domestically. 86 % of Irish cider market supplied domestically. The drinks industry is committed to realising the targets of Harvest Exchequer contribution: billion in excise and VAT in million excise receipts in ,140 million estimated alcohol VAT receipts in Income and profits tax revenues. PRSI receipts. Drinks Manufacturers: Pay 217 million annually in wages and salaries according to latest CSO data. Pays 311 million in total labour costs. Buys 901 million worth of materials for processing annually. Buys 33 million of industrial services. Buys 587 million of non-industrial services such as, information technology and telecommunications, security, advertising, cleaning, maintenance, accounting and insurance and other services. Excluding goods bought for resale without processing, has a total of billion in purchases. Has invested over 80 million in 2010 and will invest over 450 million over the next few years. Uses 46,000 tonnes of apples in production, 160,000 tonnes of barley and malted barley and over 300 million litres of milk. 10

11 Has a high domestic sourced content in purchases of 62% in services and 42% in materials leading to a combined almost 800 million in domestic service and materials purchases. This domestic content greatly exceeds the domestic content levels of the high technology sectors, e.g., domestic services purchased by the chemicals sector are only 8% of their total purchases. The retail /wholesale/on/off sectors Pay a wage and salaries bill of 626 million and a total personnel cost of 690 million based on latest CSO data for retail sector. Buy food inputs valued at 243 million. Spend 583 million on other services and materials apart from food and drink. Invested 67 million in Have retail sales of about 7 billion including food. 11

12 EXCISE IS A TAX ON TOURISM A core aspect of Ireland s tourism offer The drinks industry provides essential economic and tourism infrastructure through the extensive and geographically spread network of 8,305 public houses, hotel bars and other bars and 1,752 wine and 411 full licence restaurants in The sector also provides financial and other supports for festivals and cultural tourism and sporting events. It also directly provides major tourism attractions such as the Guinness Storehouse (the most popular fee paying tourist attraction in the country with 1,087,209 visitors in 2012) and the Old Jameson Distillery (246,617 visitors) and other smaller visitor attractions throughout the country. The pub is the most widely used facility for meals by foreign tourists. The pub is cited as the number one attraction for tourists according to the international travel guide publication, The Lonely Planet Guide and is highly rated by visitors according to Failte Ireland research. Failte Ireland research shows importance of the pub Recent Failte Ireland research of overseas visitors has shown the importance of the pub in the Irish tourism product. The advantages of Ireland most frequently mentioned were (multiple answers given) Irish people 53% scenery 46% culture/history 38% drinks/pubs 22% English speaking 20% All other advantages were each less than 20%. Drinks/pubs ranked fourth in the list. The drinks/pubs scores for different market segments were Britain 27%, North America 17%, mainland Europe 24%, rest of world 15%. High cost of drinks = a disadvantage Among the most frequently mentioned disadvantages were weather, mentioned by 17% of respondents (highest), high cost of living 12%, drink costs 9% and food costs 9%. The high drinks costs were referred to by 16% of British visitors, 4% of Americans, 9% of mainland Europeans and 7% from the rest of the world. An interest in traditional culture, music, song, dance and language was expressed by 80% of visitors, 52% very interested and 28% interested. 80% of visitors plan to visit an Irish pub Visitors were asked what intended experiences (desire to experience) influenced the decision to visit Ireland. The number one answer was an Irish Pub. The scores were: Irish pub 80% Dublin s heritage and culture 61% an Irish castle 56% Cliffs of Moher 46% Ring of Kerry 37% Connemara 36% The pub ranking is substantially above the rest. The pub ranking was 65% for British visitors (still the highest in this cohort) and ranged between 83% and 85% for the other market segments. 12

13 83% of visitors listened to live music in an Irish pub Visitors were asked what they participated in or visited while in Ireland. Listening to live music in a pub was the top answer. The different % responses were: Listened to live music in a pub 83% Visited a coastal town 82% Tasted Guinness 79% Visited a food or craft market 49% City tour 41% Literary trail 11%. Excise as a percentage of the price of a pint Since 2011, when this government took office, average price of a pint in an Irish pub has increased by 36 cent. During that time the government has increased VAT on alcohol (and other goods and services) from 21% to 23% in January 2012 and increased excise twice; once in December 2012 and again in October As you can see from the table below government tax increases were responsible for 78% of the price change on an average pint in a pub since December This is particularly relevant given the high number of tourists who have identified the pub as the most relevant attraction in Ireland, whilst also identifying the high price of alcohol as a deterrent in visiting the country. Tax share of alcohol price increase 2011 to 2014, pint of stout in bar Dec 2011 Mar 2014 Change cent Price of pint in bar VAT Excise Total tax per pint Tax as % of price/change Price excluding tax Source. Based on CSO and Revenue Commissioners data. Whiskey tourism represents a huge opportunity for Ireland Ireland already has a significant Whiskey Tourism offering; Midleton Old Jameson Experience, (106,600 visitors); Kilbeggan (37,100 visitors) and Tullamore Dew Visitor Centre (16,100 visitors). These existing attractions are due to be supplemented by the recently announced Dublin Whiskey Museum, as well as a new multi-million euro visitor centre in Abbeyleix thanks to investment by Quintessential Brands. The newly formed Irish Whiskey Association has a stated aim of rivalling Scotland for both Whiskey production and Whiskey related tourism. The right policy support from government will be essential for Ireland to be able to achieve that aim and rival the 35,000 jobs that are associated with Whiskey Tourism in Scotland. A brief summary of the industry s economic impact as it relates to Tourism is given below. The extensive and geographically spread network of 8,305 public houses and hotel and other bars in An additional 1,752 restaurants with wine licences and 411 with full licences. Financial and other support for festivals and cultural tourism. Direct provision of major tourism attractions such as the Guinness Storehouse (most popular fee paying attraction for tourists and for international tourists) with 1,087,209 visitors in 2012, the Old Jameson Distillery with 246,617 visitors in and other visitor 13

14 attractions around the country such as Midleton Old Jameson Experience, (106,600 visitors); Kilbeggan 37,100 visitors and Tullamore Dew Visitor Centre 16,100 visitors. New whiskey tourism offering in Abbeyleix, Dublin Whiskey museum show the reality behind the Irish Whiskey Association s stated ambition to match the number of jobs in Scotland (35,000) The important role of the pub in the Irish tourism experience as shown in recent Failte Ireland research of overseas visitors The development of a visitor experience at the Smithwicks Brewery in Kilkenny. Heineken looking to develop the old Beamish brewery The generation of a positive international awareness of Ireland through global and international brands such as Guinness, Baileys, Jameson, Tullamore Dew and Magners. The industry is, and has been, a very substantial sponsor of sports which contributes to sports tourism. 14

15 EXCISE IS A TAX ON CONSUMERS Taxes on Irish consumers Hard-pressed Irish consumers have been struggling with reduced disposable income over the last number of years. This has had a major impact on consumer sentiment and on the drinks industry as a whole. There is also a perception amongst Irish consumers and tourists that visit Ireland that alcohol prices are too high, both by comparison to our European neighbours and due to price increases over recent years. Increase in excise causing increase in cost of a pint Between September 2012 and March 2014 the average price of a pub pint increased by 30 cent. The excise increase over this period (October 2012 and November 2013) was 17 cent. Including VAT the increase related to excise was 21 cent. The non tax element of the price increased by 8 cent and the remaining 1 cent (due to rounding it is 1 cent instead of 2)) was the non excise related VAT). Excise and its associated VAT accounted for 70% of the price increase. The total tax element accounted for 73% of the increase. The industry element accounted for 27% of the increase. In addition, the serving of drinks suffers the burden of the standard 23% rate instead of the lower 9% tourism rate. In Spain the relevant VAT rate is 10%. VAT is charged on the excise component of the beverage price which results in paying tax on a tax. Ireland s high alcohol excise taxes by EU standards Ireland s alcohol excise rates are very high by EU standards. The high Irish alcohol excise position has many negative economic effects. High alcohol taxes: Increase the tendency to source outside the state both legally and illegally. Reduce employment. DIGI estimates that the Budget 2014 excise increases caused a loss of about 700 direct and indirect jobs. Unfairly penalises moderate consumers of alcohol. Are regressive, are unrelated to ability to pay and do not contribute to equity in the tax system. Generate a range of adverse economic reactions from consumers including an additional impetus to home consumption with consequent loss of VAT revenues and employment opportunities. DIGI estimates that the Government would generate between 90 million and 125 million in additional VAT receipts each year through a shift of 20% of current off-licence alcohol volumes to public houses. There would be an excise reduction of about 30 million due to reduced consumption caused by the higher prices. The net annual gain of 60 million to 95 million would arise on a continuing basis. Constrain the development of the industry, and its export potential. Increase the domestic price level. Reduce tourism competitiveness compared to several of the mainland EU tourism markets. A summary of the internationally very high Irish excise rates is presented below. 15

16 Ireland s High Alcohol Taxation in the EU 2013 Category Wine Cider Spirits Beer Position Highest in EU Second highest in EU Third highest in EU Third highest in EU Source. European Spirits Association data based on EU Excise Tables for beer, spirits and wine. Excise on cider relates to earlier year and is based on a smaller sample of countries. Rates as of Oct 2013 and based on October 2013 exchange rates as per EU methodology except for UK which includes the 2014 Budget changes. Ireland has: the highest wine excise in Europe the second highest cider excise the third highest spirits excise after Finland and Sweden the third highest beer excise after Finland and the UK Fifteen of the EU members have no excise tax on wine. The absolute gap between Ireland s alcohol excise and many other EU countries is substantial. Some illustrative examples are shown below. The Irish beer excise in 2013 is: 11.4 times the German level 11.3 times the Spanish level 4.8 times the Dutch level The Irish cider excise (based on 2014 excise data) is: 1.9 times the UK level The Irish spirits excise is: 4.7 times the level in Spain 4.3 times the Austrian level 2.5 times the French level The Irish wine excise is: 7.5 times the Belgian level 5.1 times the Dutch level 2.9 times the Danish level There is a substantial difference between the high alcohol excise countries of Ireland, UK, Sweden and Finland and the rest of the EU countries, which have low alcohol excise. In 2014, the exchequer received: 1.42 from every pint costing 4.64, or 30.6% of the price, consumed in bars or 68.4% of the price of a 24 off-licence bottle of whiskey 4.50 or 64% of the price of a 7 off-licence bottle of wine The impact of the high excise tax in Ireland is illustrated by the following. If Ireland operated the same beer excise as Germany the price of the Irish pint could be reduced from 4.64 to 4.02 a 16

17 decline of 50 cent in excise and 12 cent in reduced VAT in the excise. This is a decline of 13.4% in the price. Incentives to legal and illegal out of s tate sourcing Current taxation policy in relation to alcohol is incentivising behaviour that removes alcohol taxes from the exchequer. This is particularly concerning in the areas of counterfeit activity and cross-border shopping. The Government lost substantial revenues because of cross border shopping for alcohol and other products in Alcohol tax differentials were one of the determinants of this activity. The excise reduction in 2009 offset much of the tax disadvantage and greatly reduced the level of cross border shopping. There is a substantial risk that the recent very large excise increases allied with the VAT and other competitive disadvantages will give a renewed impetus to cross border shopping. The most recent Revenue Commissioner survey of alcohol prices and tax differences between Northern Ireland and the Republic of Ireland clearly show the significance of the tax differential. The survey refers to April It shows a significant difference between the two areas in terms of tax on alcohol (VAT and excise) for certain alcohol products. Industry sources suggest a larger price differential than indicated by the Revenue data but, of course, the tax differential stays the same. Comparative prices and tax component in off-licence alcohol products, NI and RoI. Product Price in NI Price in RoI Tax in NI Tax in RoI Tax differential, ROI higher Stout 500ml can Lager 500 ml can Lager 330 ml bottle Bottle of vodka Bottle of whiskey Bottle of wine (Chardonnay) Bottle of wine (Saug. Blanc) Sparkling wine Source. Revenue Commissioner April 2014 Cross Border Price Comparisons The tax difference in spirits is substantial, vodka 3.89 and whiskey 3.66 per bottle. The beer tax difference is lower. The sparkling wine tax difference is also large at This would be a particular issue with lower priced sparkling wine. The tax difference in wine varies between 0.88 to 1.24 per bottle. The differentials are sufficiently large to justify special event purchasing such as for parties, domestic celebrations and other large scale formal events. In addition ordinary domestic purchasing can be done on an occasional basis providing households have the financial resources to engage in such bulk purchases. As shown below bulk buying (based on infrequent trips to NI) generates substantial savings in tax in addition to non-tax price advantages. As can be seen from the table below there is a 17

18 significant financial incentive for cross-border activity particularly if one considers a basket of goods that would be deemed typical for a large party such as an engagement party. Quantity Product Tax saved Per unit Total tax saved 3 Bottle Vodka Bottle Whiskey unit crate Lager Bottle sparkling wine Crate of Sauvignon Blanc TOTAL There is some evidence of a recent increase in cross border shopping and there is the danger and concern that this could accelerate as it did in the past. The tax differential is substantial. Kantor market research shows that the cross-border shopping accounted for 3.4% of Northern Ireland off-licence alcohol sales in the 12 weeks ending Jan This is a large increase compared with the 2% share in the equivalent period of 2013 and reverses the decline in the share between 2013 and The issue of out of state sourcing is not confined to Northern Ireland. Irish holidaymakers go to low alcohol tax countries such as Spain and Portugal and the large tax differential is an incentive to bring home bottles of spirits even allowing for the weight and baggage restrictions. The large recent increases in alcohol excise have significantly increased the incentive to source outside the state with consequent losses of economic activity, jobs and exchequer revenue. In addition the higher excise gives an incentive to the smuggling of alcohol products. The number of Revenue seizures of alcohol products increased greatly in 2013 compared with previous years. In 2013 there were 507 seizures of alcohol products compared with 359 in 2012, 365 in 2011 and 287 in Government should act quickly to reduce this excise generated financial incentive for legal and illegal out of state sourcing of alcohol. Penalising hard-pressed Irish consumers: Consumption of alcohol in Ireland has declined dramatically in the last 10 years. Despite this trend Irish consumers pay a much higher price for alcohol largely due to the tax take in respective countries. The average Irish drinker now pays 733 in alcohol tax per year which is twice what their German counterparts pay even though the WHO using 2010 figures has found that Ireland and German had very similar levels of consumption (11.9 LPA vs 11.8 LPA respectively). In fact Portuguese consumers pay even less alcohol tax per person again ( 297) despite the fact that they drink an average of 1 litre of pure alcohol per year more than Irish consumers. (12.9 LPA vs 11.9 LPA) 18

19 CONTEXT Excise increases of up to 62% in two years In Budget 2014, the Government increased alcohol excise by between 14.6% and 17.9% depending on beverage. This came on the heels of Budget 2013 which saw the Government introduce draconian excise increases of between 18% and 41% on the drinks sector. Over the last two consecutive budgets, excise has increased by up to 62% on some products. It is the view of the Drinks Industry Group of Ireland (DIGI) that the Budget 2014 excise increase should be reversed in the forthcoming budget to allow the Drinks Industry to protect and create jobs throughout Ireland in 2015 and beyond; to ensure Ireland s appeal as a tourist destination is not compromised; and to reduce indirect taxes on the hard-pressed consumer. One of Ireland s major employers The Drinks Industry continues to be one of Ireland s major employers with 92,000 jobs throughout the country dependent on the Industry. These jobs exist in every parish in the country, often in locations that struggle to attract heavy industry. The regional importance of these jobs can be seen below: Through policies focused on sustainability, drinks manufacturers provide huge boosts to farmers throughout Ireland with around 160,000 tonnes of malted barley, 300 million litres of milk and 46,000 tonnes of apples purchased every year. A major contributor to our domestic economy In economic terms, the industry raises over 2.1 billion in VAT and excise receipts and hundreds of millions in income tax, PRSI receipts and profits tax. It accounts for over 1.1 billion in exports. Excluding goods bought for resale without processing, drinks manufacturing has a total 19

20 of 1.6 billion in purchases. The drinks sector in Ireland supports a wage bill of over 2 billion per annum. In 2014, the exchequer received: 1.42 from every pint costing 4.64, or 30.6% of the price, consumed in bars or 68.4% of the price of a 24 off-licence bottle of whiskey or 64% of the price of a 7 off-licence bottle of wine. An industry that has suffered disproportionately during the recession The employment intensive on-licence sector has continued to experience substantial decline in 2013 which follows several previous years of decline. The only growth in the overall drinks industry has been in the multiple segment of the off-licence sector. There has also been continuing decline in the independent off-licence sector. The latest CSO data on retail sales are for April In the period January to April 2014 compared with the same period in 2013 there was a small increase of 0.5% in the volume of bar sales. Since the economic decline began there has been a very large decline in the volume of bar sales. % Change in Volume of Bar Sales: Jan-April 2013 and 2014 % Change Volume Jan- April 2013/2014 % Change Volume April 2007/ April 2014 Bar sales Source: CSO Retail Sales Index. Between April 2007 and April 2014, the volume of bar sales decreased by 34.9%. More than a third of this employment-intensive segment s market volume has disappeared over the past seven years. This volume decline has occurred despite substantial efforts by the on-licence sector to sustain business volumes through more extensive and improved food offerings, increased marketing and promotion, refurbishment, improved entertainment and other developments. The small increase in the first part of 2014 is welcome but this improvement needs support from Government through the reversal of the Budget 2014 excise increases. The overall alcohol market has improved in the first period of The most recent Revenue Commissioners clearances data show that total alcohol consumption volume increased by 3.7% in the first three months of 2014 compared with the same period in However, the total volume of alcohol clearances was 38.5 million LPA in 2013 which was substantially lower than the 2012 total of 41.7 million LPA and resulted in a large decrease in average consumption per adult. This is part of a long term trend in Ireland that has seen average consumption fall by 26% from its peak in

21 Alcohol Consumption MLPA % change: Jan March, 2013 to 2014 % change Total alcohol +3.7 volume Source: Revenue Commissioners The level and trend of average alcohol consumption per adult is an important economic and social indicator. In Ireland consumption is based on the Revenue clearances data and this is adjusted by population estimates to derive average adult consumption. The table below shows the decline in per adult consumption since the peak in The table allows for the population revisions arising from the most recent census. Average alcohol consumption in Ireland has been declining over the long term due to a range of economic, demographic and social factors. Per Adult Alcohol Consumption LPA 2001 (peak) Source. Based on Revenue and CSO data. The 2013 per adult consumption level was LPA which is 25.7% below the 2001 peak. The Revenue licences data show a substantial decline in the number of public house licences from 8,318 in 2007 to 7,315 in 2013, a decline of 1,003 or 12.1%. DIGI research from 2008 shows that 31% of non-dublin public house licence holders do not expect the licensed premises to continue in business after their retirement. These closures have had a disproportionate effect on rural areas as can be seen from the image below: 21

22 As identified in previous submissions, the on-licence sector is characterised by small enterprises. Most premises have low turnover levels and are family owned and operated. Revenue data for 2012 on public house licences support this point. Licence fees are based on pub turnover. The lowest licence turnover category is under 190,500 and this accounted for 54% of all pub seven day licences. The two highest turnover categories of 952,500 and above accounted for 6% of all pub licences. A further 25% of pubs were in the 190,500 to 380,999 category. Failte Ireland estimates that public house employment dropped by 3.3k persons or 6% between 2009 and 2011 as shown below: 2011, 50,700 persons including full and part-time jobs , ,000 Jobs continue to be lost Jobs continued to be lost in the on-licence sector in 2013 and this is likely to continue into 2014 and 2015 in the absence of support. High excise taxes reduce employment through higher prices, reduced demand, reduced profitability and pressure on commercial sustainability. The 2013 VFI survey of members reported that 39% of members had reduced staffing levels in the first quarter of % of respondents reduced the working hours of existing staff. The decline of the sector has wide social and touris t implications The implications of the decline of the pub sector are particularly significant for both the economy and society given its dominance in terms of overall drinks industry employment, its regional distribution, its contribution to the tourism infrastructure and its role in social and community life. The challenge facing independent off-licences While the overall off-licence market has grown, the increase is confined to the multiples segment. The multiples competition poses a substantial threat to the commercial viability of the several hundreds of independent owner-occupier off-licences and to their level of employment. 22

23 The independent off-licences suffer from the consequences of below cost selling by the multiple retailers. This practice also costs the exchequer VAT revenue because VAT is refunded on the higher bought-in value and paid on the lower below cost selling value. The independent off-licences are also disadvantaged by the licensing regime where the licence fee is unrelated to the volume of alcohol sales. The sector s market share is declining. 48% had a further turnover decline in 2013 while 21% expect yet another decline in Independent off-licences are closing and over the past few years many jobs have been lost. Unlike the large multiples, the public houses and off-licences are dependent on alcohol sales and do not have an extensive product range. They cannot avoid passing on excise increases by raising prices on other products in their extensive product range. They also cannot use lower alcohol prices as a footfall inducement paid for by other sales. Excise increases are a particular burden on pubs and independent off-licences unlike large multiples which can offset the increases. High VAT and excise increases damage the hospitality sector DIGI was dismayed by the very large excise increases in Budget 2014 following on the penal increases in Budget 2013 in view of the weak economic position of the sector, 2013 being the year of the Gathering and previous Government supportive measures for the hospitality industry. The excise increases and the higher VAT rate of 23% on the serving of alcohol are contrary to the economic thinking and rationale which introduced and retained the 9% VAT initiative. DIGI welcomed the Budget 2014 decision to retain the 9% VAT rate for aspects of the hospitality sector. A very weak economic position We strongly emphasise that the drinks industry, especially the on-licence sector and the independent off-licence sector, continues to be in a very weak economic position and faces a continuation of high levels of job losses partly because of high excise levels. These direct and indirect economic and employment contributions are under severe threat. Employment, in particular, has been declining as the domestic economy and the on-licence and independent off-licence sectors contracted. High alcohol excise is a tax on jobs, a tax on tourism and is a regressive tax on consumers. 23