Historic spirits alliance calls for tax reform

03 February, 2021 by Andy Young

The Australian Distillers Association and Spirits & Cocktails Australia has formed an historic alliance this week and is calling on the Government to urgently fix Australia’s spirits tax system.

Australia currently has the third highest spirits tax in the world and automatic six-monthly indexation further increases the tax burden on spirits, compared to all other alcohol categories.

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The alliance has prepared a pre-Budget submission which recommends reducing the spirits tax by $6 to match the level Brandy is taxed at, and also to help distillers recover from bushfires and COVID-19 lockdowns by freezing the CPI increases for three year.s

ADA President and Four Pillars co-founder Stuart Gregor said: “About two-thirds of Australian distillers are based in rural and regional communities and after a horror year, they urgently need this unfair tax fixed.

“Once they bounce back, we know the benefits will flow from the farm to the glass. They’ll create more jobs, buy more produce from rural suppliers and help attract tourism to their communities, but they are being held back by this punitive tax burden.”

Last year, independent conducted by PwC for Spirits & Cocktails Australia showed that cutting Australian spirits tax could help spirits producers recover quicker from the impact of COVID-19, while also boosting Government revenue by $1.4bn over forward estimates.

Spirits & Cocktails Australia Chief Executive Greg Holland also cited evidence from the United Kingdom, where a decision in 2017 to freeze the spirits tax actually boosted government revenue and prompted a wave of investment, particularly in rural areas.

“In comparison, Australia’s out-of-control tax is now so high, it is actually suppressing demand, meaning less revenue than if the tax rate was lower,” Mr Holland said.

“This simple change would mean more money in government coffers to spend on social services and other investment as the economy recovers from COVID, as well as a much-needed stimulus for our distillers and the tourism and hospitality sectors.

“What’s more, we know Australian spirits can compete on the world stage and they have the potential to become a lucrative export earner. But right now you can buy a bottle of Australian whisky or gin in the USA and pay less than you pay here. That’s just crazy.”

PwC modelled three alternative scenarios: cutting the spirits tax rate to the brandy rate; freezing both the spirits and brandy CPI indexation for three years; or a combination of matching the spirits rate to brandy and freezing CPI increases.

That third option delivered the greatest revenue boost to the Budget bottom line, with a less than one per cent increase on overall alcohol consumption and no need to lift alcohol taxes on other producers to compensate.