Drink Tank

Taxing wine fairly

Momentum is gathering for change to Australia’s flawed alcohol tax regime. Last week the Foundation for Alcohol Research and Education (FARE) released new research that cast light on how Australia’s excise system was shaped over the last century, together with a new economic analysis proposing alcohol tax reform options that would promise a fairer and more coherent way forward.

In May of this year the Assistant Treasurer tasked the Treasury with preparing a discussion paper to examine the Wine Equalisation Tax (WET) rebate. That discussion paper was made public on 21 August 2015.

With submissions in response to the paper due this Friday 11 September, FARE Chief Executive Michael Thorn argues that scrapping the rebate is not enough and says the WET must be abolished.


The current review of the Wine Equalisation Tax (WET) rebate runs the risk of losing sight of the most important original policy objective: which should be to fix Australia’s incoherent alcohol tax system.

Last month, Assistant Treasurer Josh Frydenburg, released a Treasury discussion paper on the WET rebate. It is a short history of a poorly conceived policy, rorting and massive and unjustified wine industry welfare.

Well done to Freydenburg for outing the rorters and for having the courage and decency to tackle this well-known problem. In doing so, he has already achieved more than many of his recent predecessors.

The rebate should indeed be scrapped.

It is bad for Australia’s public health.

It has manifestly failed to meet its original policy objective of supporting small wine producers.

It incentivises the production of cheap, bulk, mass-produced cask wines over high quality drops.

It is a poorly designed instrument that has facilitated rorting on a massive scale.

It subsidises cheap New Zealand wine at the expense of local Australian producers.

I could go on.

It is hard to find an equivalent scheme based on a tax rebate, which has so manifestly missed its mark.

Thanks to the rebate, the net alcohol tax paid by the wine industry is only $826 million.

In comparison the Australian spirits industry pays about $1.9 billion annually and the beer industry, which sells only slightly more alcohol (about 1 per cent) pays nearly $2.3 billion.

However the WET rebate is just one part of a deeply flawed alcohol taxation system.

For decades, the wine industry has successfully promoted wine as a ‘lifestyle product’ to be enjoyed with food and to the accompaniment of socialising with friends.

But clever marketing aside, wine is essentially just ethanol, with most of it sold for less than $10 a litre.

Think about why we tax alcohol products in the first place: to raise revenue and to reflect the harms caused by this dangerous product. The WET fails miserably at both.

Unlike beer and spirits which are taxed based on their alcohol content, wine sold in Australia is taxed on its wholesale value. As a result, wine is by far the cheapest booze.

Alcohol causes harm and adds significant spillover costs to society.

These harms include chronic disease, injury and harm to others including women and children who suffer significantly as a consequence of another’s alcohol consumption.

Alcohol places burdens on our health system, police, justice, community services and child protection systems.

Some say that responsible drinkers should not have to suffer the additional costs. Why should I pay more for my bottle of cheap red? I say that you are already paying. Wouldn’t it be better if there was a direct connection to the costs of managing the harmful consequences and the drinking?

That would be achieved by the introduction of a more equitable, volumetric tax arrangement that would see wine taxed in the same manner as all other alcohol products.

For the record, if the policy objective is to provide assistance to small winemakers, this could be provided in the form of targeted direct support that is transparent and fully costed.

Not through a scheme which contributes to significant distortions and creates incentives that undermine public welfare. A scheme which has the potential to be corrupted and now has been shown to be so.

We cannot lose sight that the main game here is to fix a broken and incoherent alcohol tax system.

To be sure, industry rorting must end, and the WET rebate must be scrapped. But if we are serious about saving lives and introducing a more equitable and robust tax regime, then the WET must be abolished completely.

Michael Thorn

Michael was was Chief Executive of the Foundation for Alcohol Research and Education (FARE) from January 2011 until November 2019

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