Drinks industry’s call for excise cut won’t get Ministers buying a round

As predictably as summer rain, the drinks industry in Ireland has kicked off its now-annual campaign for a budget cut in excise duty on alcohol products. It seems unlikely to have any more success this year than in previous years.

Excise on Irish alcohol products is extremely high compared to most other European countries. Ireland's excise rates are the second-highest in the European Union after Finland. Britain's rate is also marginally higher than here, at €22.83 on a hectolitre of beer, compared to Ireland's €22.55.

It works out at about 55 cent on the average price of a pint. The French excise burden is barely a third of Ireland's while in Italy it is only a little over 10 per cent of what is charged here.

Drinks manufacturers were hit hard by the pandemic and the ensuing closure of the on-trade, which typically made up about 60 per cent of beer sales. But the problem with an excise cut is that it would fly in the face of a Government approach towards the taxation of alcohol that has been honed over many years, and is clearly motivated more by public health concerns than economics.

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Other demands

There are other demands from the wider hospitality sector that would take precedence over a tax cut. Comments this week from Paschal Donohoe in a reply to a parliamentary question suggest the Government is weighing up the potential cost of extending the tourism sector's 9 per cent VAT rate beyond this September, when it is due to revert to 13.5 per cent.

Donohoe said extending the VAT cut until the end of 2023 would cost the exchequer €500 million. The Government could never afford to do this and to also bring in an excise cut, the benefits of which would primarily flow to major producers such as Diageo and Heineken, and less so to downstream SMEs.

Expect the State to resist calls for an excise cut. The preferential VAT rate doesn’t apply to alcohol products. But if, as expected, it is extended, it will stimulate more activity in the wider hospitality sector, which will bring greater demand for the drinks industry anyway. That may be the best it can hope for.