Gartelmann, Cassegrain & Robson, common concerns

Tipple J

What do Jorg Gartelmann, James Robson and John Cassegrain have in common (apart from J)? They have all been in the news this past week.

Gartelmann (of Gartelmann Wines Hunter Valley) appeared in The Maitland Mercury on May 16 voicing his concerns on changes to the wine equalisation tax (WET).

The Government’s plans for WET, apart from reducing it from $500,000 to $350,000 on July 1, 2017, and to $290,000 on July 1, 2018, are that wine producers must own an interest in a winery and sell packaged, branded wine domestically to claim the rebate.

Gartelmann doesn’t own a winery. He has his wine made by contract, as do many other producers around the country. Some of Gartelmann’s quotes from the article:

“We make some wine for a wine society, where the profit margin is very low.”

“If we cannot claim the rebate, at current prices we would be making a loss.”

“If we increase our price, and the next door winery does not because it can claim the rebate, we lose all that business too.”

Robson had his say via the Central Western Daily on May 16. He is proprietor of Ross Hill Wines in Orange. He has a winery but says the new WET proposals will mean he has to raise prices and cut costs. Quotes:

“We’ve got until July 1 to get them to change their minds, we also want to let the Australian wine drinkers know that it’s going to put their favourite tipple under pressure.”

“We will effectively be paying $210,000 more tax [in 2018].”

“We are the ones in the firing line.”

The story also contained quotes from David Crawley, president of the Orange Region Vignerons Association:

“It’s going to affect tourism because they are not going to be able to support their cellar doors.”

“It will have an impact over the whole region.”

“Last year there were 884,000 visitors to Orange giving $218 million worth of revenue for Orange, and 25 to 40 per cent of that is generated by the wine industry.”

“The flow-on effect of money not coming into Orange is huge.”

“As an industry we asked the Government to clean up the tax system.” 

“People who aren’t real wine businesses, they shouldn’t be getting the rebate.”

Cassegrain (of Cassegrain Wines, Port Macquarie, NSW) went one better than his fellow winemakers, making ABC Rural on May 11. He opened with support for the WET reductions:

“The good point is that they really have tightened up the ability of what we call ‘virtual wineries’ taking advantage of the WET rebate that really was designed for producers of wine, whether it be grape growers or winemakers.”

“It’s going to do two things: it’s going to save quite a few million dollars to the government [in] giving rebates that were not justified.”

“Also, it’s going to take out of the market a lot of wine that is undermining the price structure of the wine industry.”

Having uttered the politically correct phrases, Cassegrain went on to what bothers him, which is that his and other medium-sized wineries (50,000 cases or more) will feel the impact:

“For most boutique small wineries that are typically operated by the owners and employ very few people, it has no effect on those whatsoever, because they’ve never maximised the WET rebate. But for medium-sized companies that employ 15 or 20 people, it’s going to have a serious impact on the profitability of those businesses and the ability of those businesses to continue employing people.”

“I guess our alternative is to more focus our growth on exports and maybe walk away from the domestic market or we reduce employees and downscale the winery.”

“If a tax is such that a government has then got to give a rebate to a certain part of the industry, then the whole tax in the first instance is wrong.”

Cassegrain supports a volumetric tax, as do Pernod Ricard and Treasury Wine Estates.

On May 13 the Winemakers’ Federation of Australia (WFA) and Wine Grape Growers Australia (WGGA) put out a joint statement saying they welcomed the Turnbull Government’s agreement to consult on how best to implement a package of WET rebate reforms designed to create a stronger and more successful wine industry.

They didn’t say anything about whether a Shorten government would be willing to hold “meetings in the nation’s wine regions to canvass industry’s views on eligible producer/winery and tightened eligibility criteria”.

Andrew Weeks, executive director of WGGA, told TKR:

“I fully agree with the issue regarding concern about contract winemaking. More recent language from the department suggests that they are also aware, and that this is an issue. There were always likely to be sticking points in regard to where the savings would come from – reduction of the rebate cap, or eligibility criteria, or both.

“Your example is also common in areas like Margaret River and McLaren Vale, where there is significant tourism traffic and it is a real commercial option for a small cellar door, or cafe/restaurant to sell a label and carry out a business without ownership of a winery.  

“There are more promising signs in the recent dialogue, and we will see how it unfolds. I am aware of [TKR’s example’s] situation, and I understand it is a double whammy for them (and now others in SA) who may be losing the state government cellar door subsidy and then WET rebate in quick succession. It would be a poor outcome if those businesses that were operating efficiently by utilising asset value through contracting were worse off.  

“I am hopeful that there will be a way forward, and that valuable regional wine businesses will come through the other side stronger than they once were.”

We also hope so, but wonder if all can make it through to the other side. If all did, it would leave wriggle room for those that took advantage of the previous laws. But to tighten the loophole would also trap others. There are always losers, justified or not.

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