What the Winegrape and Wine Industry draft report means for Aussie wine drinkers

A draft report on the Winegrape and Wine Industry released in March fills 365 pages. But the bottom line for most industry leaders, and even more so for consumers, are the tax recommendations on page 19.

The recommendations, if implemented by the Federal Government, will bring wine under a similarly destructive tax regime to that currently imposed on beer and spirits — alcoholic beverages whose production constraints and consumption patterns appear quite dissimilar to wine’s.

The inquiry that generated the draft report followed intense wine-industry lobbying after the August 1993 Federal Budget. Then, apparently bowing to beer and spirit industry pressure, the Government threw in a surprise 55 per cent wholesale tax increase on wine, lifting the rate from 20 per cent to 31 per cent.

For Canberra wine drinkers that meant a double whammy because the Territory’s licence fee is levied at 13 per cent of the cost of wine after the addition of sales tax. The effect was to raise the landed cost to a wine outlet of, say, a pre-tax $50 a dozen wine, from $67.80 to $74.02 — a nett increase of about 9 per cent.

The Federal Government’s take on that case of wine leapt from $10 to $15.50 and the Territory’s from $7.80 to $8.52.

But an angry voice of protest from hundreds of wine makers and thousands of grape growers across Australia saw a compromise reached between the Government and Industry. A committee of inquiry was established to ‘examine the development potential of the wine grape and wine industry with particular regard to exports and the impact of taxation and cash grants on the industry.’

While the committee held its hearings and deliberated, wine sales tax was dropped back to 22 per cent, rising to 24 per cent in July 1994, and 26 per cent in July 1995, with the ultimate tax regime to be determined after the final report.

The draft report, then, is not a blue print for Government action but the end of stage one. Public hearings on the draft are to be held during April and May, followed by a final report by the end of June, a Government decision (not just on taxation issues but on many other issues canvassed in the inquiry) and, finally, implementation of the decision.

A committee of three came up with two proposed wine-tax regimes. Brian Croser and Professor Fairbairn put forward a view that would see the retail price of fortified wine and cheap bottled and cask table wine increase, while better quality wine from about $5 a bottle and above would actually come down in price.

What they propose (phased in between 1996 and 1998) is a reduction of the sales tax rate to 10 per cent and addition of a volumetric tax of $4 per litre of alcohol.

Their colleague, Mr Scales adopts a more ‘take no prisoners, show no mercy’ approach, along the lines of what the brewers and distillers might take in the same position.

He proposes a jump to a 32 per cent sales tax from July 1996, plus a volumetric tax rising from $1 per litre of alcohol in July 1997 to $4 in July 2000. His proposal would deliver financial pain to all wine drinkers, unlike the Croser-Fairbairn one, which strikes those who can least afford it.

The very large numbers of wine drinkers enjoying $5 and above bottled wine might see the Croser-Fairbairn tax as attractive. And so it is on day one. But we would be foolish to believe that a special sales tax category of 10 per cent could endure long or that future Governments will resist the temptation to notch up the excise rate above the proposed $4 a litre of alcohol.

In principal, the two proposals are the same. Both split wine tax into two components, similar to the way in which Federal taxes on beer and spirits are currently levied. And the double tax, in lumping wine with beer and spirits, almost certainly spells an ever-growing Government tax grab over time.

The wine industry is sure to be at the public hearings fighting for its interests. And for once the industry’s interests coincide with those of the wine drinker. Australian wine is already very heavily taxed in comparison with the rates in other winemaking countries. Why should we be forced to pay even more tax on a simple, healthy, civilising pleasure?

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