Ever since the Hawke cabinet applied the first 10% wholesale sales tax to wine shortly after declaring in its 1983 election campaign that it would do nothing of the kind, the Federal Australian Government has effectively declared war on Australian wine. Pushed by the sheer lobbying power of the brewing and spirits industry, persuaded by the faceless minorities of the so-called ‘health lobby’, the Federal government is now about to deliver its coup de grace, the absurdly named ‘Wine Equalisation Tax’ or ‘WET’. There is nothing to do with equality in the WET. Neither is there anything to do with sensibility, sustainability or even this same government’s own policy of the ‘Clever Country’. It is a matter of the smartness of the Federal Government that by making the Australian wine industry the most heavily taxed on Planet Earth it threatens not only the wine industry’s ability to maintain its recent growth and momentum, but each of the associated benefits that a profitable quality wine industry is already bringing to regional areas within Australia. Such is the complexity surrounding the application of the WET that it’s almost impossible to discuss its effect on wine prices in simple terms. Fundamentally the Federal Government decided that it could do much better from the wine industry than to replace the present 41% wholesale sales tax with a 10% GST. Its revenue take would be greatly reduced and besides, the beer and spirits lobby simply wouldn’t tolerate any reduction which reduced their ability to compete with wine in the cheaper end of the alcoholic beverage market. Neither would the so-called ‘health facists’ accept any overall reduction in the prices of an alcoholic beverage. So the government, entirely consistent with its approach since 1984, wanted more. The next issue was how would an addition wine-specific tax be applied? A straight increase on the basis of the price of the wine, which effectively discriminated against smaller producers of more expensive wine? Or perhaps a volumetric-based tax which discriminated against the large companies which produce and sell most of the country’s bulk wine? This issue effectively divided the wine industry, precisely the best outcome the Federal Government could have hoped for. The wine industry’s peak body, the Winemakers Federation of Australia (WFA), is effectively controlled through its voting system by the attitudes of the larger players. No free guesses as to what it preferred. Feeling sold out, the smaller players, especially one of their representative bodies, the Independent Wineries Association, fought strongly for a volumetric tax. Other more idealistic winemakers and proprietors of wineries rather naively fought for no tax other than the GST. Meanwhile, behind the scenes, the WFA was fighting another rearguard battle against the beer-spirits lobby, which wanted the Federal Government to impose a much more stringent taxation system on the wine industry, including excise taxes. Simply put, it’s been chaos. So what’s happened? The WET, that’s what. A new tax, specific only to the wine industry, in addition to the 10% GST. But, instead of choosing a number which maintained the overall tax revenue from wine sales at present levels, widely believed to be around 24.5%, the number chosen by the government is substantially higher: 29%. Furthermore, the way it is to be applied is little short of cynical. Let me illustrate. Let’s use as an example a wine with a present-day wholesale price of $145 per dozen, which equates to an average retail price of around $23.85. Under the present system of a 41% wholesale sales tax the ATO receives $59.45 with the sale of this dozen. If, after July 1 the 29% WET was applied to the wholesale price, and a 10% GST was added but also applied only to the wholesale price, the ATO would receive $56.55 for the dozen and the consumer would benefit marginally with a retail price around $23.30. But that’s not this government’s style. Instead the GST is actually applied on top of the WET in a classic tax-on-tax situation. So our $145 case of wine at wholesale firstly attracts a 29% WET, before a 10% GST is applied to the total. The outcome is a staggering $60.75 paid to the ATO and an increase in the retail price to around $24.00. It really means that in addition to the 29% WET, the GST on wine is effectively 12.9%. In hard dollar terms, this is expected to increase the overall tax take from wine by around $147 million per year, equivalent to increasing the present 29% sales tax by about 5%. In your local pub or restaurant the situation only gets worse. The combined results of the GST and WET taxes on wine are likely increase its prices by well over 6-7 %, irrespective of additional taxes on things like corkage and tipping. While the wine industry is presently buoyant enough to be able to fund this money, that doesn’t negate the issue that the same capital could have better been used for the development of the infrastructure and to expand upon its crucially important domestic market base. Bad though it is, there are some concessions. Firstly, exports are not taxed. Not only does this discriminate against wineries which presently don’t export their wines, but the industry has long and ineffectively argued that it needs a strong and sustainable domestic market to be able to fuel its export endeavours. It is inevitable that the domestic base will be eroded to some extent. Secondly, a deal has been made and then re-made concerning the taxes applied to wine sold through the cellar door and/or winery mailing lists. In June last year a decision was made that the first $300,000 of such sales would be exempt from the WET. Reacting to a hostile and wide-ranging response from the wine industry that this was insufficient compensation for the WET, this was effectively doubled by declaring that the exempted value of $300,000 applied at wholesale level, not retail. The outcome is that up to sales of value $300,000 wholesale by these means a winery will be able to claim back all its WET, effectively making it entirely exempt. This will naturally affect hundreds of small wineries. Larger wineries with sales at cellar door with a wholesale value over $580,000 will only receive 15% back as a rebate. This amount is to be paid by the Liquor Licensing Commissions in the States, exactly mirroring the situation prior to the GST. Wineries with cellar door and mailing list sales between $300,000 and $580,000 wholesale will receive a maximum of $87,500 as a rebate, of which a maximum of $27,000 will be paid by the Federal Government, the rest by the States. Finding it hard to follow? Thank your lucky stars you’re not a winemaker. The amount of government-induced red tape they have to complete will have many thinking towards the formerly Soviet Russia with unbridled envy. Few industries will feel the impact of the GST paperwork worse than the makers of your favourite beverage. As a recent former Chairman of the WFA, Petaluma’s Brian Croser was heavily involved in the politics of the GST and WET. Despite the extent of their likely impact he feels relieved that relative to where the wine industry could have been, it is not excised in same way as beer, which is where he believes it was headed. ‘I hope we have differentiated wine from beer and spirits for the long term’, he says. As for the actual 29% level set by the government, it’s Croser’s view that it has ‘missed a major opportunity to help regional development and to help an industry that is capable of being one of our major exporters’. Croser is just one of hundreds of participants in the wine industry unable to follow the government’s logic, in the unlikely chance that some might be seen to exist in this case. For years Australian industry has been encouraged to add value, to invest in rural infrastructure, to employ skilled and unskilled members of rural populations, to encourage associations with the money-spinning industries of tourism and entertainment, to earn export dollars and in doing so promote the virtues of Australia to those in overseas markets. Over the last ten years what industry has done more that the wine industry with respect to each of these criteria? Yet since 1984 sales taxes and licence fees on wine have increased from around 12% to 41% and now upwards, courtesy of the GST and WET? ‘In pure economic terms what they have done is inefficient for the country’, says Croser. So, as of July 1 Australian wine companies will start paying about four times the amount of tax than their export competitors. ‘Ideally wine should be taxed at 10%, the same as its competitive products of books music, entertainment and holidays, each of which attract a 10% GST’ Croser suggests. ‘Wine should be the same. The problem is being put in the same bag with beer and spirits and being targeted by the health community.’ ‘We have to prove to government that it is more economically efficient for a lower tax on wine, and that will be a long, hard battle. It will only be with a changing of the landscape, as more brewers become winery owners and where there is a clear recognition of the differences in the use of alcoholic beverages in different circumstances in Australia, that wine will ever end up at 10%.’ And that, ladies and gentlemen, is the sad and very sorry story of the so-called WET.
