Tax cuts on premium booze won’t do much for HK’s liquor trade

The tax cuts on “premium liquor” have some claim to be the most inconsequential part of the recent policy speech by Hong Kong’s leader.

Liquor in this context means the hard stuff: whisky, gin, etc. Premium means the most expensive versions of the hard stuff. Even the government announcement admitted that this would only be 15 per cent of the total market for strong plonk.

The way this works is that the current tax rate is 100 percent, which means that half of what you pay for a bottle goes to the government. Under the new regime, the tax rate will be cut to 10 per cent, but only on the part of the price over HK$200.

If I have understood this correctly, it means that if the bottle costs HK$250 without duty, the government will take HK$205 instead of HK$250. This saving is unlikely to be noticed by drinkers because bars get between 16 and 30 shots out of a bottle, depending obviously on its exact size and the generosity of the measure.

Technically this converts the liquor tax into a “regressive” one, in that it now falls more heavily on the poor than on the rich. The tax on the people’s plonk remains 100 per cent. The aristocratic bottle that costs HK$1,000 without duty, on the other hand, gets a HK$720 tax cut. You have to be a serious optimist to believe that much of this windfall will find its way to consumers.

A quick unscientific survey of my local supermarket suggests that most liquor, even of the more pretentious kind, comes in at under HK$300 retail. There will be no big cut in the prices of gin, rum or vodka. The people who might notice the difference, if they bother to look, come in two categories: fine diners and the fans of the more obscure and interesting variations on Scotch.

Brandy as the conclusion of an expensive meal has a long history. There is a distressingly elitist passage in Brideshead Revisited in which an otherwise harmless character is dismissed as a parvenu peasant by the narrator because of a poor choice of Cognac.

But people who go in for brandy at the end of a meal are not going to be bothered one way or another by the price of a glass or two. Firstly, if they are indulging in fine dining they are rich. Secondly, they have probably already coughed up for an aperitif, white wine with the fish, red with the meat, something sweet with the dessert. Brandy, because it is commonly served by the glass, will be comparatively cheap.

As one of the fanciers of unusual and expensive variations on whisky I am really looking forward to a dramatic fall in the price of aged single malts. But this is very much a minority pursuit. Most bars will have a bottle or two somewhere.

But the only Hong Kong bar I have visited where this drink was taken seriously was an aggressively Scottish place in a Wan Chai basement, where the regulars could leave their personal bottles in glass cabinets to await the next visit.

I do not expect to see cohorts of mainland Chinese whisky fanciers being escorted through the streets to their next tasting of 12-year-old GlenMcMillionaire.

This does not hold out much hope for the purpose of the tax cut: “promoting the liquor trade and boosting the development of high value-added industries, including logistics and storage, tourism and high-end food and beverage consumption.”

I am an agnostic (or, less politely, ignorant) on the finer points of the logistics and storage industries, but as a former bar manager I note some lack of basic information among our leaders about the way this business works.

When I started in the booze business I read the bar management bible. There are lots of books about this topic nowadays but in those days there was only one, and that only existed because its production was sponsored by the pub landlords’ trade association.

Little of it has stayed in my memory but I do recall one injunction: don’t waste the good stuff on mixed drinks. What this means is that if you order a liquor on its own, or just with an ice cube or a splash of water, you will get the best bottle the bar staff can lay their hands on.

But this will not happen if you prefer it as a “cocktail” mixed in a tall glass with some or all of pop, syrup, fruit juice or a mediaeval monastic medicine chosen for its interesting colour. You will get the cheap stuff.

In any case, the cost of the inputs which are actually eaten or drunk by the customers is a very small part of the cost of running a high-end establishment. Cheaper plonk does not guarantee lower prices. And actually, lower prices do not guarantee more business. The more thoughtful economists are well aware that there are some goods to which the usual laws of supply and demand do not apply.

High prices of these goods are not a deterrent; they are an attraction. The Michelin starstruck are lambs who want to be fleeced.

Still, at least this is all harmless enough, and lovers of the more exotic variations on whisky can look forward to a good time.

The other brainwave in circulation as a tourism boost is a major disaster in the making. The idea is to allow kids into racecourses, whence they are at present banned because of a sensible tradition that blowing money on slow horses should be confined to adult audiences.

When I was a kid, my parents took me to a horse racing meeting, which was allowed in the UK. It was terminally boring. Nothing happened for 40 minutes and then a herd of horses thundered briefly by, evoking great excitement among the adults because they had money riding on some of them. This was repeated throughout the afternoon. Do not inflict this on your children.

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