How beer prices define ‘real’ cost of living

A new report has looked at the cost of living in the world’s major cities and re-examined which are the most expensive to live in (and buy a beer) when tax is taken into account.

With tax taken into account, Copenhagen is the most expensive major city in the world to buy beer

Compiled by Sovereign Group, the index is designed to give companies a benchmark with which to formulate compensation packages for overseas staff. It looked at the comparative prices of goods and services around the world and what an individual needed to earn to afford them after paying local tax.

As was explained in the report, the bi-annual survey of the cost of living by the Economist Intelligence Unit (most recently published this March) placed Singapore as the most expensive city in which to live; followed by Hong Kong, Zurich, Tokyo, Osaka and Seoul.

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The report goes on that in the EIU survey: “Prices gathered are then converted into a central currency (US dollars) using the prevailing exchange rate and weighted in order to achieve comparative indices. However as those actually living in, as opposed to visiting, a particular city will most likely be earning and spending in the local currency, such a conversion may not be of relevance.”

Sovereign Group however felt that a “more relevant measure” would be to calculate how much someone working in a city would need to earn to afford goods and services after paying local taxes.

It therefore took the example of buying a pint of beer in Los Angeles as opposed to the capital of the Cayman Islands, George Town.

A pint may cost US$10 in LA but if the local income tax is 50% then one would have to be earning $20 in order to afford it in the first place.

By contrast, in the Cayman Islands, a pint might cost $15 which is, on paper, more expensive than LA but as there is no personal income tax in the islands then $15 is all you have to earn in order to buy it making it ‘cheaper’ in net terms.

Having applied this to the list of global cities Sovereign noted a rather drastic change in the list. Singapore and Hong Kong dropped sharply down the table due to their low income tax levels while Copenhagen went up to number one followed by New York. Also shooting up the charts were London, Paris, Reykjavik and Brisbane.

Anyone who has ever had to buy beer in any of those cities will no doubt be unsurprised by these findings.