Rivers of gold and blood

Rivers of gold and blood

For 350 years, rivers of revenue flowed from taxing whisky

Thoughts from... | 24 Apr 2020 | Issue 167 | By Chris Middleton

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In Britain, the development of commercial breweries in the 17th century took ale production out of the home, making it easier for Government to monitor and collect tax at consolidated brewing locations. On the heels of breweries, distilleries became an even more valuable revenue stream. The enactment of the first alcohol tax on the domestic production of ale was in England during May 1643, spirits followed in 1663 with a tax on aqua vitae, gin and compounded English brandy made from malt spirit. Taxes on spirits were the largest revenue source for English-speaking Governments until the 20th century. The manufacture of high-proof spirits at large scale premises made the reporting or gauging through every step from production, bond store withdrawals to retail sales accountable to the half-gallon. Even today, spirits pay disproportionately higher tax rates than beer, wine or cider in most countries.

Two hundred years after distilling entered Europe, Frankfurt-on-Maine introduced the first spirit regulations in 1360 to control unruly drunkenness induced by the local schnapsteufel, the spirit fiend. Amsterdam in 1492 enacted the first customs excise on shipments of brandwijn from France and Germany. The word excise comes from the Dutch excijs to tax. The English Parliament introduced the first direct tax on local ‘aqua vitae and strong waters’ from December 1663 to fund military expenditure and to pay down the accruing debt left from the English Civil War (1643 – 1651). Preceding the liquor excise, the Government began taxing malted barley, the raw material for making ale and malt spirits from April 1644. The Scottish Parliament duplicated the English 4d per gallon duty on aqua vitae in January 1664. Once Governments discovered this lucrative revenue stream, they regularly tapped into it by increasing rates of excise and customs duties and added fees for distillery licences from 1688. These rivers of gold helped underwrite nearly 200 years of wars. Between wars, to feed the ambitions of empire and improve living standards, Parliaments continued to tax liquor. They also enacted extra duties on the raw materials targeting malted grains, molasses imports and corn taxes further enriching the Exchequer’s chest. When the American colonies won their War of Independence against Britain, the first US Treasurer Alexander Hamilton enacted a tax in June 1791 on whisky, rum and fruit brandy to pay down the mounting $52.8 million debt to France and Holland. The debt paid, Congress abolished spirit duties until the War of 1812 against Britain when duties recommenced from December 1814. The War won, taxes were removed in December 1817 until the Civil War forced Congress to legislate the Revenue Act to equip the Union Army from July 1862. The Confederate States legislated liquor taxes in April 1863. After the Civil War, the US Government, similar to Britain had become fiscally addicted to spirit taxes.

The Western world’s focus in the late 19th century shifted from national defence into a euphemistic war against intemperance by prosecuting social policies to limit access and consumption of alcohol, leading to countries introducing draconian prohibitions and limits on the manufacture and sale of liquor. The enemy was public consumption. Ironically, it was the massive costs of the First World War that relieved the public’s tax burden on liquor as Western Governments legislated a new suite of taxable domains. Governments introduced personal income and new company taxes, plus a raft of protective tariffs, levies, duties and ad valorem taxes to fill Treasury coffers. These new taxes reduced the ‘stimulant’s or ‘sin taxes’ (liquor and tobacco) share of the revenue from 60 per cent in the 19th century, to around 25 per cent before the First World War, to now where it’s less than half a per cent of most national revenues. Alcohol taxes and tariffs are still small monetary levers that Governments use to raise small quanta of revenue, engineer social programs and now punish foreign Governments in trade disputes. In the 21st-century whisky tariffs are ‘weaponised’ as pawns to fight modern trade wars in Europe and China.
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