In defense of the taxman

By Eric Crampton 13/01/2013

I’m not sure that NZ excise should take all the blame here.

The popular New Zealand wine Oyster Bay is being sold at home for nearly double the price seen in the United States – but the winemaker says Kiwis should blame the taxman for the difference.
Two pictures of the 2012 sauvignon blanc were taken within 24 hours of each other by the NZ Herald.
One of the bottles was on sale in Mt Eden Countdown in Auckland for $25.99, while the other was on sale for US$11.99 – the equivalent of NZ$14.30 – at Eastport Liquors from Annapolis in the state of Maryland.
Eastport Liquors wine manager Glenn Norris said the wine was popular and he’d sold 40 cases in the past year. “I’ve got five bottles on the shelf left … I can tell you for a little store like ours that’s pretty darn good.”
He was astonished by the New Zealand price. “Wow. I don’t know why it would be any cheaper here than there, it doesn’t make any sense to me.”
He said his purchase price tended to float, although the worst-case retail scenario – including taxes – would be US$16, or $19.08.

Recall that excise in New Zealand for wine is $2.7609 per litre for wine up to 14% alcohol. So excise tax is $2.07 of a 750 mL bottle. GST is 15% of the total retail price including excise.

So a $26 bottle of wine is $22.61 ex-GST, and $20.54 ex-excise. That still has the NZ price more than 40% over the US price.

I’m not sure I’d “blame” the taxman on the GST component: New Zealand, rightly in my view, collects more of its revenues from a very broad-based GST, and consequently less from property and income tax. Stripping out the GST component has alcohol excise responsible for $2.07 of an $8.31 price difference: a quarter of it. I’m definitely not one of the folks that thinks excise on alcohol is too low. But it doesn’t explain much of the noted price difference.

Where to lay the blame for the rest?

  1. NZ supermarkets tend to run large temporary discounts on popular brands like Oyster Bay, and I’d bet that they shift most of their volumes of those products when they’re on special – the everyday price then serves more to make the sale price look better and is only paid by suckers. And I’m pretty sure I’ve seen Oyster Bay on special around the $18 mark: $15.65 ex-GST, or $13.58 after also taking out excise. 
  2. Oyster Bay potentially having contracted with a US wholesaler in $US terms when the Kiwi dollar was much lower than it now is: at a $0.74 exchange rate, that $12 US bottle would have been $16 NZD, not $14. 
  3. Potential price discrimination across markets by the producer.
  4. Generalised “Everything is more expensive in New Zealand” problems. 
I put the most weight on potential explanations 1 & 2.