Industry reacts to Productivity Commission report

27 October, 2017 by Andy Young

Earlier this week TheShout reported that the Productivity Commission’s five-year review had called on the Australian Government to reform the country’s alcohol taxation system.

The Report recommended that a single volumetric tax system be introduced in order to help make the tax system “simpler and less distortionary”.

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The alcohol tax reform debate is one that has been an on-going part of Australia’s alcohol industry for many years, in and particular since the Henry Review also recommended a volumetric tax in 2008. So, TheShout has spoken to the industry to get its view on the recommendations made by the Productivity Commission.

Alec Wagstaff, CEO of the Distilled Spirits Industry Council of Australia, told TheShout: “No-one can credibly deny that Australia’s alcohol tax system is broken and needs to be fixed. It distorts consumer demand and is holding back the emergence of a better drinking culture as well as an export focused local spirits industry.

“The PC report is yet another report to government outlining the need for change and follows the draft recommendation from the Senate Red Tape Committee.

“Our members recognise that those who benefit from the current system will fight hard to preserve their advantages but we are committed to pursuing change which will promote a better drinking culture. Every six months the system gets worse as indexation literally compounds the problem. A sensible first step would be to freeze the top level of excise and commission more work on the reform process.”

A PERIOD OF STABILITY

While the spirits producers and bodies have welcomed the report, Tony Battaglene, the CEO of the Winemakers Federation of Australia said the country’s wine industry needs a period of stability following recent changes to the Wine Equalisation Tax.

“We have had significant WET reforms and rebate changes that haven’t even come in yet and here we get a report recommending further changes. We need to bed these changes down, they are going to make a significant impact on the industry,” Battaglene said.

“To keep getting reports like this published, makes it very hard for the industry to plan, we really just want to bed down what we have got. We are adamant that we do not want an excise tax, that would be disastrous for us.

“The changes that we currently have coming through are going to get rid of a lot of the problems that we have. We have certainty and going into an uncertain future is not something the wine industry needs, when we are recovering after a long hiatus. We are just seeing the upside, so I think uncertainty now would be a very bad thing. I’m hoping that the Government comes out and rejects this and we can get on with business.”

David Smith, the Managing Director of Diageo Australia has long campaigned for a volumetric tax and told TheShout that this report was an ideal opportunity for the Government to act on tax.

“Diageo has always strongly advocated for a single rate volumetric tax but as a first step we’d like to see a commitment from the Government in the upcoming budget to put a freeze on the twice yearly CPI tax increase that only beer and spirits are currently subject to,” Smith said.

“This twice yearly excise stifles our burgeoning domestic distilling industry, an industry with a bright future if given the right support from government.”

A COMPLETE AND UTTER MESS

Stuart Gregor, co-founder of Four Pillars Gin and also President of the Australian Distillers Association (ADA) agreed with Smith that the Government should act to help Australia’s developing spirits industry.

“The ADA has gone on the record in the past and is happy to state again that the current regime is a complete and utter mess and the first steps towards a more equitable and sensible alcohol tax regime cannot come too soon,” Gregor told TheShout.

“The fact is that spirits, both domestically made and imported, are taxed at a level that is close to the world’s highest and it unfairly punishes a drinker who would rather have a cocktail than a glass of wine or a beer. It’s patently ludicrous.

“A move to volumetric tax is undoubtedly a good one for both health reasons and equity reasons. We have an exciting, young and potentially very successful distilling industry in this country and the single greatest impediment to its growth, and thus employment and export prospects, is the punitive tax regime. So bring it on.

“When a bottle of our Rare Dry Gin sells for $A75 at the distillery where it was made and sits on the shelf in a bottle shop in Los Angeles for $US35 (for a 750mL format no less) then there is something seriously wrong. The only difference in that price is Australian government taxes.”

DISASTROUS FOR THE INDUSTRY

Mitchell Taylor, Managing Director and third generation Winemaker at Taylors Wines has been very vocal in the past in speaking out about the damage volumetric taxation could do to Australia’s wine industry and he told TheShout, of his concerns should the Government follow the Productivity Commission’s recommendations.

“The volumetric tax would be disastrous for the industry, because we’re already the highest taxed wine producing country in the world, and we have now got a proposed system that would come in and would absolutely cripple the agricultural regions throughout the country.

“Plus the administration costs, particularly for the small wineries would be horrendous. This is something that we’ve said to the Productivity Commission and it’s a real irony, because it would make us a very unproductive industry. Every small winery would have to set up the excise system for every movement of alcohol and every time alcohol is produced and pay the tax that way. And most of them don’t have the infrastructure to handle that.

“They just look at it as one tax for the whole alcohol industry and think ‘that’s simple and that’s productive’ and it is not at all because we are a very complex industry.”

The Government is currently considering the recommendations made by the Report, meanwhile this debate across the industry is one that is set to continue.

What are your views on the volumetric tax, or the state of Australia’s alcohol tax laws? What options does the Government have? Email us at – ayoung@54.64.152.77.