Taxing times for the Australian wine industry

Taxing times

 

It’s been a taxing time for the Australian wine industry since the Federal Government announced its intention to reduce the wine equalisation tax (WET) rebate and tighten controls on who can claim it.

According to the 2016 May budget, to qualify for WET, wine, at the time of dealing, must be fit for retail sale, packaged in a container not exceeding five litres, and labelled with a brand on the primary packaging that is wholly owned by, or licensed exclusively to, the producer of the wine.

The issue this threw up was what defined an eligible producer. Apparently, one had to own a winery or have a long-term lease over a winery. The producer also had to sell packaged, branded wine domestically.

This line of reasoning fell apart when many honest wine producers pointed out that they didn’t own a winery or lease one; they made a contract with one or more wineries each vintage to make their wine. There are some that don’t own vineyards either, but buy grapes and have them processed under contract. Some buy wine already made and use it in their own brand. As for the rebate:

  • The cap would remain at $500,000 for 1 July 2016 to 30 June 2017.
  • From 1 July 2017 the cap would drop to $350,000.
  • From 1 July 2018 the cap would drop to $290,000.

Australian indignation abounded regarding the eligibility of New Zealand producers to claim WET.

The Winemakers’ Federation of Australia (WFA) went into negotiation with the Government and found an understanding comrade in Assistant Agriculture Minister Anne Ruston. The result being: the first reduction, to $350,000, will be delayed by one year to 1 July 2018. The second reduction, to $290,000, has been scrapped.

Eligible producers who exceed the cap will have access to a new wine tourism and cellar door grant of up to $100,000, for those who are working to contribute to tourism in their region.

The rebate is still limited to packaged, branded wine in a container not exceeding five litres, which ends WET rebate claims on bulk and unbranded wine.

Eligible producers must own 85 per cent of the grapes at the crusher used to make the wine, and maintain ownership throughout the winemaking process. This will affect those that buy ready-made wine in bulk for a brand.

Not surprisingly, the New Zealand eligibility to WET rebate remains unaffected, apart from the tourism and cellar door grant, which New Zealanders cannot access.  Nor is it surprising that indignation is still high, especially among small Australian producers and uninformed local politicians.

The new proposal has been welcomed by many in the industry.

Mike Stone, executive officer of Murray Valley Winegrowers (MVW), said:

“With these changes, coupled with an improvement in export sales and tightening of grape supply in Australia, winegrape growers look forward to significant increases in grape prices.

“Growers often have been told by wineries that grape prices would be higher but for the abuse of the WET rebate system. Steps have now been taken to stamp out the abuses, so logically growers can expect higher prices as a consequence.”

Logic being more esoteric than fact, TKR has doubts that growers will get higher prices due to changes in WET.

Andrew Weeks, CEO of Australian Vignerons, does not mention increased prices in his release praising the Government. He does say:

“Tax reform was inevitable, and this outcome is an improvement for the industry but is also responsible in the national perspective. Reinvestment of part of the savings from these reforms into boosting demand will increase confidence, and help to rebuild industry profitability. Ultimately a profitable wine industry not only sees better returns for growers and makers of wine, but it also employs more people, and pays more tax”.

The reinvestment aspect refers to the $50 million granted to Wine Australia to promote Australian wine around the planet. Which in turn raises the point: if Wine Australia is focusing on premium wines, how will that help the majority of growers in the inland regions?

There is the argument that I have heard Brian Croser support: that the top end wines pull the lesser wines along in their wake. It’s not a view I fully subscribe to. It worked in the past, mainly with French wine hanging onto the coat-tails of top Bordeaux. In recent times it worked in China. But I feel this effect is now diminishing. If it’s not, how come Australian wine is doing so well?

Let not life diminish this coming week.

Tony

P.S. Before the Christmas spirit, wine and beer circulates or you swan off on holiday, please check accounts outstanding. If there is one for TKR you may note it’s quite old, please dust it off and pay it. There is an imbalance in my finances a lot owing and bugger all in the bank.

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