The announced 10 % tax rise on cider will without doubt do more damage than good. Although it is somehow designed to safeguard our health, it will almost certainly have the opposite effect, as consumers switch to cheaper brands.
Magners have announced that they will absorb the tax hike. This will have a negative impact on their capital formation, ability to invest and expand. The resources that Magners might have spent on improving their product and therefore making it more healthy will now go to the treasury.
Due to the fall in profits as a result of the tax hike, Magners and other cider firms will pay less corporation tax.VAT revenues will also be affected as not all cider producers will absorb the tax. So it is very probable that the net revenue the treasury will generate through the 10% tax hike will not be substantial when we account for lost corporation and value added tax.
Magner’s lower profits and contraction as a result of lower profits and depletion of capital may also have an adverse impact on income tax revenues as Magners sheds jobs or puts a freeze on recruitment.
Businesses survive by providing products which consumers want to buy. It is not the government’s business to tell consumers what is not good for them through taxation. The tax burden simply produces stagnation by depleting capital formation and therefore hindering investment. It is investment on the back of unfettered consumer demand which improves the quality of products, including cider. The level of consumer demand tells a producer whether it is doing something right or wrong. Excessive taxation only serves to distort those signals.
Freedom Economics 