Friday, 17 January 2020
How to tackle tax increases
This aricle in the excellent Time Gents blog explains it.
It's all to do with price inelasticity and tax increases. And it forms an interesting contrast with what occurred in the UK.
In the 20th century, brewers struggled with small tax increases. Mostly beacuse of the limitations of the currency. The cheapest beer only cost 2d per pint and the smallest coin was a farthing (a quarter penny). What did you do if a tax increase raised the price by 12.5% (as happened in 1901)? If you raised the price of Mild from 2d to 2.25d, what price would you sell a half pint for?
The brewers found a simple solution: they just dropped the OG enough so the beer could still retail for the same price. Which also caused less unrest amongst drinkers, as the price of their pint remained the same. Quite inportant pre-WW I, when the price of beer had been constant for 40 or 50 years. And, initially, drinkers probably wouldn't notice the difference in strength.
Australian brewing struggled with the same challenges when the tax on beer was increased. Drinkers didn't want to pay more for their beer, and there were limits on the currency.
But a different approach was taken. Mostly because it was the publicans, rather than the brewers, who were calling the shots. Rather than increase the price, they reduced the glass size. As only Imperial Pints and half pints were controlled measures, new glasses, such as the schooner, were introduced.
When introduced in 1932, a New South Wales schooner was 18 fluid ounces, just a little smaller than an Imperial pint. By 1945 it was down to just 13 fluid ounces.
So while UK drinkers got the same quantity of weaker beer, Australians got less beer, but at the same price.