Independent craft brewers say alcohol excise tax hikes are squeezing the already struggling industry.
Independent craft breweries are slamming the Government’s recent alcohol excise tax hikes and calling for a rebate scheme similar to what Australia is doing to support small breweries.
Excise tax on beer is calculated by how much pure alcohol per litre of beer is in a drink.
On July 1, the tax increased 6.65 per cent, from 49.855 cents per litre of beverage to 53.170 cents per litre.
In Auckland, Behemoth co-owner Andrew Childs said the tax made up about a quarter of company expenses.
“The excise is just a slap in the face,” Childs said.
The tax went up by 2.63 per cent in 2020 and 1.52 per cent in 2021, with a rise of 6.92 per cent last year, according to Customs NZ.
That volatility is partly due to inflation, because an annual adjustment is based on movements in the Consumers Price Index (CPI).
Last month, the tax rose again to 6.65 per cent, but brewers said the tax makes up most of their expenses.
“We are not particularly impressed with the Government,” Childs added. “There was no real thought of what the consequences of that would be for our industry.”
“We do think the Government is failing the craft brewing industry right now, across its discretionary significant excise increases, and failures around the country’s supply of a critical resource like CO2,” Garage Project co-owner Jos Ruffell told the Herald.
CO2 shortages impacted food processing and production nationwide after Todd Energy’s Kapuni gas plant shut down temporarily in the summer over safety concerns.
Ruffell said craft brewers in Australia benefited from an excise tax rebate scheme where A$100,000 to A$350,000 (NZ$107,000 to $376,000) in excise tax was refunded to independent craft breweries.
“For NZ craft breweries selling in Australia, we should have access to those refunds,” Ruffell said.
He said there was pressure on smaller players to continue increasing beer prices.
“We had our prices increased in April in anticipation of the excise increase coming through,” he said.
Childs agreed the Australian rebate system would benefit smaller NZ companies.
“New Zealand has nothing like that, nothing to support smaller independent players in the market.
“There’s no reason why exactly the same thing wouldn’t work here,” Childs said.
“It would even the playing field, because obviously, the bigger breweries have massive economies of scale through the tens, if not hundreds, of millions of dollars worth of foreign investment into becoming efficient, while small players just don’t have that kind of resource.”
And he said CO2 prices had surged from $1642 a tonne in June 2021 to $6224 in June this year.
“It’s probably costing us an extra $50,000 a year.”
The Herald reported Auckland craft brewery Epic Brewing was sold to an international company after it couldn’t recoup costs following the pandemic and current recession.
The tax has increased at the rate of inflation, but Ruffell said with the CPI “out of control”, policymakers should use discretion when deciding on tax rates.
“CPI will come back down, but this has just really ratcheted up [the] cost of operations for breweries across the country.”
Customs Minister Jo Luxton said the tax existed to raise revenue for the Crown and moderate harmful alcohol consumption.
When asked if a tax rebate model like that in Australia could work here, Luxton said: “Such a change to tax policy would not be competitively neutral and would explicitly favour some businesses over other competing businesses in the same industry.”
Successive governments aimed to keep alcohol excise constant in real terms by indexing excise rates to inflation, Luxton added.
She said raising excise tax at the rate of inflation ensured there were no tax cuts to the alcohol industry over time, which would lead to reduced Crown revenue.
Luxton said Customs recently implemented measures to support alcohol producers impacted by the pandemic and severe weather.
“It would also be expected to lead to increased alcohol consumption through a decline in the real price of alcohol,” Luxton said.
“Excise now can make up to 25 per cent to 30 per cent of the total cost of producing a beer. By the time it passes through a wholesaler, and retailer margins, the resulting price for the consumer is significant,” Ruffell said.
“It represents anywhere from 15 to 50 per cent of the price of beer.”
“There is only so much you can do to put prices up in a cost of living crisis before people just stop buying,” Childs said.
“In no serious manner are we able to pass on those costs to customers, because at the moment it would seriously affect sales, just because people have less disposable income these days.”
Alcohol Health Watch acting executive director Rebecca Williams said the tax was a source of funding for the Crown, rather than a way to reduce alcohol-related harm.
“The cost of alcohol-related harm far exceeds the income from excise tax.”
Williams said the excise increase alongside other harm prevention policies, such as marketing restrictions, would be the gold standard.
“Reducing affordability of alcohol through increasing excise tax is the most effective of available harm prevention policies. It works to reduce alcohol consumption and associated alcohol-related harm, and is cost-effective to implement,” Williams said.
She said increasing alcohol prices targeted heavier drinkers and had less impact on moderate drinkers.
“We see higher rates of heavier alcohol use in younger adults, particularly young men. For example, nearly 40 per cent of 18 to 24-year-old males are hazardous drinkers,” Williams said.
“Increasing alcohol excise tax would result in less harm… and less social cost. It would significantly reduce the burden on our health, social and justice services,” she said.
Williams said small breweries should not be refunded any excise as excise costs were based on the volume of alcohol content.
“They are in the business of selling and producing New Zealand’s most harmful drug. Society as a whole is picking up the tab, some communities more than others,” she said.
“The billion-dollar Dutch and Japanese-owned companies can absorb these costs, while we struggle to,” Childs said.
He said some big multinational brewers had automated packaging lines, but Behemoth had people manually packing boxes and a much more manual brewing and packaging process.
Childs said companies like Behemoth improved the economy by creating work, but rising costs meant job cuts might be on the horizon.
“Per case of beer, we hire more employees than they do. Everyone’s expecting to be paid more because everyone’s cost of living has gone up.”
Childs said the company had to work harder to stay afloat and it hoped the Government would provide support.
“We can’t work this hard forever because we’ll get burned out. But we’re just trying to do what we can to keep moving forward,” he said.
Alka Prasad is an Auckland-based business reporter covering small business and retail.
Expectations tempered around return to surplus in 2027/28.