In 1930, the wine tax was introduced as a wholesale tax at a rate of 2.5%. It was repealed over time and reintroduced again, increasing steadily to 41% in 1997.
In 2000, the GST was introduced, and the wine tax was reduced from 30% to 29%. (The tax is now called the Wine Equalisation Tax). This reduction was made to ensure that the tax burden remained the same. Australian and New Zealand producers can claim a rebate of A$500,000 off their wine tax.
The Australian wine industry has experienced explosive growth from the 1980s until 2007. This was due to a low Australian Dollar, exports, and innovation. The “old world” wine countries, such as France and Italy, were affected by this.
Since 2007, the growth has slowed down. Exports have declined by 38% from 2007-12.
The high tax on wine has hindered the ability of the industry to compete in the international market due to the oversupply of grapes and the low profitability. The tall wine tax is in contrast to the policies of emerging wine producers and old-world countries that impose low or no wine taxes.
This decline is accompanied by a rising exchange rate, new competitors emerging from New Zealand and Chile, as well as a more competitive wine industry in the old world. In traditional and contemporary wine-consuming nations, like the United Kingdom and the United States, consumers tend to prefer high-end wines. These wines enjoy a significant market share.
The Treasury’s 2015 Tax White Paper reform processes noted that the wine tax penalizes premium winemakers while favoring voluminous cheap wines. Australian wine tax impacts consumers and producers differently, creating different distortions.
The tax increases consumption and revenue, but it also encourages winemakers by lowering prices, reducing product quality, and reducing advertising and marketing expenses. Due to the costs associated with complying with the tax, winemakers are discouraged from investing in quality wine and encouraged to reduce the price of their wines.
The A$500,000 annual rebate that comes with the wine tax helps inefficient producers stay afloat and is also subject to widespread fraud. The Senate Committee found that this is detrimental to the industry’s profitability because it causes distortions and widespread rorting.
This also gives the New Zealand wine sector a competitive edge, as it is increasingly claiming the rebate. NZ wine producers do not have to comply with the same tax regulations as Australian businesses because they don’t file an Australian Income Tax Return or Business Activity Statements (BAS). However, they can still claim the rebate. The amount NZ producers claim has increased rapidly from A$5 million in 2006-07 to A$ 25 million in 2013-14.
The health sector often calls to raise taxes on alcohol due to the external costs of alcohol for hospitals and health services, alcohol abuse, and other government expenses such as police. The wine tax does not work to target those who abuse alcohol.
Most wine drinkers do so in moderation. The external costs of wine are lower than those associated with other alcohol.
Wine taxation only raises a small amount of revenue (0.2% of total tax revenue ).
The taxation of wine should be a broad-based tax, such as a GST, which is set at a uniform rate. This tax is fairer for the wine industry, and it aligns itself with tax policies in other countries. It is much simpler and less distorting while providing a steady source of revenue for the government.
