E-Malt.com News article: Israel: Boutique brewers unhappy about government’s new beer tax

Israel’s new austerity drive has given the country’s boutique brewers a hangover, The Wall Street Journal reported on May, 14.

The beer-makers have joined the legions of Israelis who are unhappy about the cuts imposed by the Israeli government to close its budget deficit, just months after the inauguration of a government elected on promises from rookie politicians like Finance Minister Yair Lapid to protect middle income earners.

Purchase taxes on beer nearly doubled last year as tax authorities sought to limit so called “negative’’ social fallout from alcohol consumption. Despite appeals from the brewers who claimed the tax could risk the closure of start-up enterprises that employ hundreds, the parliament’s finance committee last month voted to make the hike permanent.

Though Mr. Lapid said in a late April speech that the vision behind his fiscal plan was to put “the working man at the center”, Israeli brewers claim the new beer tax hits precisely the small time entrepreneurs the new finance minister pledged to champion.

“We thought that promoting small businesses in rural areas fits his vision,” said Ori Saguy, the chief executive of the Alexander Beer Brewery and the chairman of the association of small brewers.

“The message has not spread,” Mr. Saguy wrote in a letter to Mr. Lapid “The upshot of the doubling the tax is to boost the size of the production necessary for brewers to reach break-even; as a result 20 breweries established in the last two to three years will collapse as they get underway.”

The brewers’ frustration is a microcosm of broad based malaise from a fiscal plan, approved by the Israeli cabinet last week, which features hikes in income, value-added and business taxes. More than 10,000 people in Tel Aviv demonstrated against the budget over the weekend – the largest protest of this kind in two years.

The austerity atmosphere is also fuelling outrage toward Prime Minister Benjamin Netanyahu over allegedly indulgent spending: last week it was reported that the state paid $130,000 for an in-flight bed for the prime minister.

In the bid to trim a budget deficit that was 4.2% of gross domestic product and prompted a ratings downgrade from Standard & Poor’s, the government considered (but relented) forcing tourists to pay value added taxes.

By comparison, Israel’s micro-brewing industry is still microscopic – employing about 300. The small time brewers are producing European inspired wheat beers and U.S. style pale ales and are a novelty. Their product is more expensive because raw goods are imported and they lack economies of scale.

They also happen to be operating in country not known for high beer consumption and where retail shelf space is dominated by two large manufacturers.

The upstarts operate out of small non-descript warehouses and label bottles by hand. While demand is growing, they claim the higher tax on beer imperils their survival because it will take longer for them to reach profitability. They complain that the government has unfairly singled out beer as a vice, noting that there’s no purchase tax on wine, which is consumed as part of Jewish ritual observance of the Sabbath.

“From historical reasons, they deal with wine differently. Wine is a drink that is consumed with the family. People don’t get drunk from wine,” said a tax authority official, who spoke on condition of anonymity. “There was a need to levy taxes, and we said we prefer to levy taxes on things that have negative outcomes. It’s a done deal.”

The tax authority says that to make an exemption for small time brewers would prompt similar requests in other industries, so the government is preparing to offer brewers a one-time stipend to offset the damage. Brewers complain that they don’t want subsidies, just a chance to build their business into self-sufficient operations.

“Instead of giving us a competitive advantage, they are just killing us,” said Ofer Ronen, the owner of Srigim Brewery, over a cold glass of dark bitter ale inspired by an American microbrew. “Nobody was ever found lying in the street with a bottle of boutique beer in his hand.”

15 May, 2013