Monday, September 26, 2011

Really good news on alcohol tax. Winemakers are leading the charge

Here's Drinkster's Philip White:

Australia’s Wine Equalisation Tax is doomed.

Both Treasury Wine Estates (owners of Penfolds and Wolf Blass), and Pernod Ricard (owners of Jacob’s Creek), have called for an overhaul in the way in which Australian wine is taxed.

In very similar statements, these huge wineries have called for the current system to be replaced by an excise, as is currently imposed on other alcohol. This involves the drinker paying tax on the amount of pure ethanol in his/her drink, instead of paying tax on the retail value of the item.

This must come as a huge embarrassment to the Winemakers Federation of Australia (WFA), as it indicates that some of the biggest wine companies in Australia have lost patience with the botch such industry councils have made in their attempts to “rationalize” the punch drunk wine business.

To add the most severe insult, in their impatience with the WFA's hopeless efforts to correct the mess the business is in, they appear to have joined the wowser lobby's crusade to remove the WET.

Either that, or they've been reading DRINKSTER.

Between them, Treasury and Pernod Ricard annually vinify around 350,000 tonnes of grapes.

Chairman and CEO of Pernod Ricard’s Premium Wine Brands, Jean-Christophe Coutures said:

“The sustainability of the industry is seriously threatened by oversupply and the real damage to the strong brand that Australian wine has built for itself over years that this is causing [sic]. Industry efforts to restructure have not succeeded and there is an urgent need for intervention to remove impediments to the restructure process – we believe that this includes the current wine tax arrangements and we would like to work with industry and Government to address this.”

Treasury Wine Estates CEO, David Dearie said:

“Tax has a fundamental influence on both the structure and sustainability of the Australian wine industry. In the context of our industry’s current challenges, ambitious reforms are urgently required if we are to achieve our vision of an Australian wine industry that is economically, socially and environmentally sustainable.

“In particular, the WET rebate must be abolished or fundamentally reformed. It is untenable to have a tax mechanism that inhibits restructuring and works against the long term best interests of our industry, whilst also costing Australian taxpayers more than $200m a year.”

The troubled brainchild of Brian Croser and Ian Sutton, then heads of the WFA (known disparagingly as The Woofer), the WET was introduced with the Goods and Services Tax...

...It was sold as a triumph for the little guys, the big nasty government assisting small producers by offering a rebate on tax paid when their income was low.

Sceptics like this writer called it, from the start, an unfair system which saw makers of bladder pack plonk pay much less tax per litre than makers of premium bottled wine, and that this tax system had a whole lot to do with keeping bladder pack prices low to alleviate the forthcoming surplus.

Put simply, the WET encouraged the enormously wasteful irrigated plonk business of the Murray Darling by keeping bladder prices down. This wreaks social, economic and environmental havoc.

Echoing a call I made here a fortnight ago “Wet, Dry, Whatever – Oz Wine Hits Wall” the Treasury statement wisely “supports investing a percentage of the savings from WET reform to assist industry restructuring”.

All this has happened since the September 6th launch, in Parliament House, Canberra, of the report, Alcohol Taxation Reform – Starting With The Wine Equalisation Tax .

This was compiled by The Allen Consulting Group for The Alcohol Education & Rehabilitation Foundation (EARF), an alliance of health bodies established as “an independent, charitable organisation working to prevent the harmful use of alcohol in Australia”.

At that forum, I said “many communities in the irrigated inland will need counselling, rebuilding, cash and perhaps even relocating” when this totally unequal tax system is replaced by a fair and logical volumetric excise, where tax is paid on the amount of alcohol in your drink, and not on its retail value.

The excise recommended by former Australian Treasury boss Ken Henry – not to be confused with Treasury Wine Estates – would see wine of bladder pack quality increase to the equivalent of about $6 a bottle. There’d be little change to the price of a $20 bottle; expensive wine would fall in price.

This report was ridiculed by industry councils like the WFA, but it seems to have rung out some raw truth in the ears of these very significant wine companies.

The rorting of the WET has reached a perverse pitch. Pernod Ricard believes $30 million of WET rebate goes straight to New Zealand; the WFA itself told AERF they believed another $50 million is being rorted by retailers, who are taking money which was supposed to go to the same winemakers they discount to doom.

Speculators have been buying fruit from growers who couldn’t afford to pick their crops, getting somebody to make wine from it, pocketing the WET rebate, giving the grower a pittance, and adding to the swilling wine lake which has not diminished in size, in spite of 2011 being the worst vintage in most people’s memory.

It was in fact the second-wettest vintage in the history of Australian wine, and enormous amounts of mouldy and rotten fruit has been vinified, both by shady opportunists and panicking, desperate wineries.

While refusing to accept that an enormous amount of the current wine lake is of dreadful quality, WFA CEO Stephen Strachan (left) admitted to the ABC that “the reality is that the WET rebate is contributing to some of the problems in the marketplace.

“It comes down to the tax office looking at the intent of the law and applying it,” he said, “and there are a whole range of audits that are being undertaken at the moment, and those audits potentially will find that there are some who are abusing loopholes ... it probably requires a rewrite of the legislation so that the original intent of the WET rebate is delivered, not the outcome that we’re seeing now.

“Let’s not forget that we’ve got a significant over-supply of grapes and wine in Australia. That oversupply was not caused by the tax position. A number of people argue that that’s the case, but it’s just not true. It was caused by a whole lot of plantings that happened in the industry in the late 1990s.”

Yes, Mr Strachan, indeed. “That happened.” Gee whizz. An oversupply that your organization should accept credit for. I'll tell you how that happened. It was the WFA’s 30-year-plan, instituted in 1995 to manage the growth of the Australian business until 2025 that encouraged such ridiculous levels of plantings that the whole thirty years’ worth went in before 2000.

Croser and Sutton knew full well those plantings were in before they went off to Canberra to contrive the WET. They anticipated the fruits of their labour even before they'd produced a berry.

So, as two of the biggest wineries seem to understand, the oversupply and the WET have been very firmly entwined ever since.

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