It’s interesting to consider how Federal tax policies over the last 25 years have shaped the landscape of Australian wine. I’ll bet that nobody involved in any of the decisions that have had such a dramatic impact on the shape of the oversupplied industry that we see today would have imagined their final outcomes. But if ever there was a case that industries should be consulted prior to the implementation of broad-sweeping taxation measures that profoundly affect them, this case is that case!It’s important to note that this article applies to both sides of Federal politics and this story has nothing whatever to do with party politics. Firstly, the Hawke Labour Government introduced the wine wholesale tax in the 1980s, after saying it would do no such thing. Later, with the chance to restore some profitability to the industry (which it could certainly use then and now), the Howard Liberal Government slapped the so-called 29% Wine Equalisation Tax (WET) on top of the GST, as a formalised tax on tax situation. Furthermore, the Liberal Government’s tax loopholes directly added to Australia’s wine grape surplus.One of the main reasons we have too many vineyards is that a large proportion of Australia’s managed investment schemes (MIS) for vineyards were developed simply to take advantage of the up-front tax deductibility for investors in non-forestry primary development, a situation that was extended until June 30, 2008. Back in 2007, the Wine Grape Growers Australia stated that: ‘Whenever the tax deduction becomes the most attractive part of the investment there is the real danger that the plantings will be made, whether or not there is a viable future market for the grapes it produces Ð skewing the supply-demand balance for wine grapes and wine.’ They could not have been more correct. Based on ABARE figures, Wine Grape Growers Australia estimates that MIS developments represent not less than 16,000 ha of vineyards, or at least 10% of all plantings within Australia. The main mistake was to allow unlimited deductions for vineyard developments that were simply not based on real life estimations of what vineyard establishment and management actually cost. The outcome was a free-for-all, which saw successful deductions in the 1990s for sums like $170,000 per hectare for development, so taxpayers were funding around $100,000 per hectare more than generous actual figures. The tax loophole was nothing less than a license for the owners of unscrupulous vineyard MIS projects to print money.Tax deductibility was also a major factor behind the deluge of small, privately owned vineyards established in this country over the last fifteen years. Hundreds of people with little to no knowledge or even passion for wine planted vineyards, a large percentage of which are on sites that probably never should have been planted to wine grapes at all. Others, bitten by the wine bug followed suit, planting vineyards to live the dream of the relaxed, gentrified winegrowing lifestyle in their retirement. A dream it sure was, requiring a backbreaking fifty-two weeks of the year rooted to the site just to grow grapes for sale at a break-even price at best. So many went further into debt, built a winery and created a wine brand. Trouble was, since hundreds of others were doing precisely the same thing, there was little chance to get a new brand to market without any real quality message or other story to tell. Then, with the introduction of the GST, came the WET. To help small makers deal with its impact, the Federal Government offered from October 1, 2004 a rebate for the first $1 million worth of direct sales, worth a potential $290,000 to the producer. In May 2006 this was adjusted to the first $1.7 million of sales at wholesale, worth up to $500,000 to the producer, and as such is the thin lifeline by which hangs the financial fate of hundreds of small wineries. But, in its initial form, a winery had to sell direct to claim the rebate. What’s the best way to ensure this? Set up a winery restaurant! Incidentally, the actual dollar impact on the WET on the price of a bottle of wine is hardly known at all. A Deloitte Touche Tohmasu model shows that if the GST, the WET and the company tax is applied to a bottle of wine that sells for $25 at retail, the Government’s take is $6.25, or 25% of the retail cost. The actual margin for the wine producer is 50 cents, or 2%. Ever wondered who really makes the dollars out of wine?Today, then, Australia has hundreds of vineyards that should never have been planted whose owners are making brands of wine that really have no reason to exist, which they are attempting to sell through third-rate restaurants set up with the sole purpose of claiming as much of a tax rebate as possible. It also has a surplus of vineyards about doubly equivalent to the now largely unwanted tax-induced plantings of the last decade and a half, while the people who make and sell wine with this fruit make twelve and a half times less than the Government does for doing nothing!
