What is wrong with the alcohol taxation system?

Crowdfunding, co-operatives research and co-operative in practice
February 11, 2016
If not a volumetric tax, then what?
February 24, 2016

What is wrong with the alcohol taxation system?

Public health concerns, market inefficiencies, a wine glut, a growing distilling industry in Australia, emerging wine markets and a confusing tax system on alcohol…

Previously, calls for a volumetric tax on alcohol were strongly resisted by the wine industry, who quite rightly pointed to the importance of the wine industry to Australian jobs and the production challenges that the industry faced that other alcohol producers did not. However, calls for changes grew after 21 August 2015, when Treasury released a discussion paper on the wine equalisation tax rebate, this was because the Treasury found that the Wine Equalization Tax (‘WET’) rebate may:

Lead to oversupply of wine and wine grapes;
Prevent necessary industry adjustment;
Prevent market consolidation; and
Trap businesses in the industry

On 12 February 2016, the Rural and Regional Affairs and Transport References Committee released its report on the Australian grape and wine industry. While the committee discussed the criticism of the wine equalization tax, there were no recommendations made to remove it; however, the dissenting report of the Australian Greens recommended a volumetric tax on wine.
For our purposes, the most important recommendation was the first one made by the Committee being that “[g]overnment phase out the current Wine Equalisation Tax (WET) rebate over five years, allocating the savings to a structural adjustment assistance program for the industry including an annual grant to genuine cellar door operators to support their continued operation.”
Ignoring the potential dangers to the wine industry of that recommendation of scrapping the WET rebate entirely, for the distilling industry a frustration with the report will be, inevitably, the preservation of a value tax on wine, meaning that spirits will still be taxed proportionally higher.

Why encourage the distilling industry?

Much like the craft beer sector, the boutique distilleries are seeing growth in popularity within Australia and growing international acclaim. A volumetric tax is invariably supported by distillers as they would be able to charge less for their product, making it more affordable for consumers and boosting market share. Yet, in addition to this, aside from being places of employment, distilleries often act as tourist destinations much like vineyards, providing additional benefit to the areas they are in; we believe that these entrepreneurial enterprises should be supported. We advocate for a volumetric system for alcohol taxation as it achieves so many outcomes for so many sectors. As it looks like a volumetric system for alcohol taxation is unlikely to occur anytime soon, next week we will discuss how else the distilling industry can benefit from reform and draw comparisons with the revival of the gin industry in the United Kingdom.


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