Australia's big wine brands call for tax changes

Two of Australia’s largest wine companies, Treasury Wine Estates (TWE) and Premium Wine Brands, have made submissions to the government’s October Tax Summit, calling for the end of Wine Equalization Tax (WET), which they believe is causing damage to the industry.

WET was first introduced on October 1, 2004, and entitles small- and medium-sized wine producers to a tax rebate of 29%. However the larger companies say that it is leading to a grape glut.

TWE says in its submission that the extent of restructuring underway in the wine industry is well short of what is required and will likely remain so unless and until key wine tax arrangements are reformed to “facilitate meaningful change”.

The company believes that a "simple three-tiered tax structure, based on alcohol content bands by volume, would be most appropriate for wine". This, it says, would create a direct relationship between applicable tax and alcohol content without introducing undue complexity into tax arrangements.

Should a tiered wine tax structure not be supported, the application of a flat, revenue neutral tax on wine per litre of alcohol would be the best alternative, the company states in its submission.

TWE says that there should be a direct link between wine tax and alcohol content, incentivizing the production of lower alcohol wines and increasing tax on unsustainably cheap wines. This would be without imposing a catastrophic increase in the total tax burden borne by the wine industry, nor subjecting it to unnecessary administrative complexity and cost, it says.

"The Wine Equalization tax rebate is a damaging subsidy that has negatively impacted the profitability and productivity of the industry," the company states. "It is preventing consolidation and sustaining uneconomic production, at a time when the industry urgently needs to retire excess supply and rebuild value in the Australian wine category."

“The current tax arrangements, particularly the WET rebate and the ad valorem tax system, combine to artificially hold down the price of cheaper wine, disproportionately tax premium product and undermine the structural fundamentals of the industry," the submission continues.

Launching his company’s submission, Premium Wine Brands Chairman and CEO, Jean-Christophe Coutures, agreed that the industry in Australia is "seriously threatened by oversupply".

"Industry efforts to restructure have not succeeded and there is an urgent need for intervention to remove impediments to the restructure process – we believe that this includes the current wine tax arrangements and we would like to work with industry and government to address this,” he said.

Earlier this month the Alcohol Education & Rehabilitation Foundation (AER Foundation) also called for urgent reform of WET, saying that it made “no sense” for the economy, the Australian wine industry or the health of Australians.

AER Foundation Chief Executive, Michael Thorn, said: “The Treasurer is using the wine glut as an excuse to avoid reforming the tax system, when this is precisely what is needed to resolve the glut. The upcoming Tax Forum provides the government with an opportunity to address both the bad tax and industry problems associated with the oversupply of cheap, poor-quality wines.”