That WET Debate, Rebate

Small Wineries and the WET Rebate

The Wine Tax issue is coming to a head at the moment.  It seems that everyone (Drinkster) is talking about it, including myself, but it seems to be that it is all just a lot of ranting.

Lets set the scene first.  When GST came into effect in on July 1, 2000, it abolished a lot of taxes, duties and levies and claimed it would simplify the tax system.  This would also abolish the current Wholesale Sales Tax on wine (41%) and potentially reduce it to the GST 10%.  "We can't have that" says the government, and it adds in a 29% Wine Equalisation Tax.  This plus the GST 10% on top resulted in an effective tax rate of 42%, thanx.

Well what happened from here is that some of the smaller guys started to hurt.  They asked the Winemakers Federation of Australia (WFA) to help and they came in guns blazing and lobbied for a rebate.  This is a refund of the WET (29%) on the first $1 Million of wholesale sales.  Ka-ching.

What has this resulted in?

1. An Ad-Valorem tax system, one that is based on value.  Cheap wine pays less tax than expensive wine
2. Cask wine is now the cheapest taxed product, per standard drink, with around $0.05 tax per standard drink, whereas mid-strength beer is around $0.32 per standard drink

Cask wine is now identified as one of the leading products used by alcoholics.  How do we protect against it?  What the government always does, increase tax.  But raising the WET would proportionally hurt the smaller guys more, as there wine costs more.  And also we are one of the most taxed wine countries in the world.

Well there is another method, one that has been used by the other categories of beer and spirits.  It is an excise based on alcohol content, the more alcohol, the more tax, independent of value.  The basis for a Volumetric Tax is that the cheaper cask wine would then be adequately taxed and reduce harm.

All very well and good, I am all for the reduction of the harm and evils of alcohol, but what about the small guys?  The fear is that if the WET goes, so does the WET rebate, which is helping prop up these little guys.  Well lets work out an example.  Lets take a 4L cask at $12, a bottle at $10 and a bottle at $30, all at 13% alcohol. Currently the 4L cask pays $0.06 in tax/StD, the $10 bottle pays $0.27 in tax/StD and the $30 bottle pays $0.80 tax/StD.  Assuming that the $30 guy is getting his full refund for being boutique, then for every direct sale he pockets $21.14 plus the WET to give $27.27.

Now Treasury Wine Estates have made calls for the volumetric tax to be set at $12.50 per litre of alcohol, which equates to a tax of $0.16 per standard drink.  This is a "revenue neutral" level, in that the overall revenue to the government would not change.  Now lets apply that to our three wines, but lets assume that they keep their shelf price for marketing reasons.  They all pay the same tax per standard drink, but the value to the owner changes a little.  The value of the $30 wine to the little guy has gone from $27.27 (including his WET rebate) to $26.05, the $10 has changed from $7.05 (without rebate) to $7.87 but the cask wine has changed from $8.46 to $4.41, almost half the return of previous.  

As you can see the change to the little guy is not going to massively affect them, and if the WFA could wheel out Brian Crosser and Ian Sutton (they originally secured the WET rebate) to negotiate an excise rebate on the first $500,000 worth of sales, then everyone could be happy? Right?

Wrong.  There is one guy who is going to hurt.  He is already bleeding from every orifice and does not need much more pushing to drive him over the edge.  He is the bulk wine grape grower with unsecured contracts. His prices will be driven down further, or worse, no one will want his grapes.  It will drive grape growing out of the hot irrigated areas.  And this would be devastating for many families and communities.

And does this fit in with what Wine Australia is promoting?  Quality wines with regional distinction as opposed to a wine lake of questionable cask quality? Hmmm.

I think a volumetric tax would be great for the future of the Australian wine industry but it will come with some pain, pain that may be needed. Like ripping a bandaid off quickly!

<End Rant>