The weird world of wine

The current taxation on wine in Australia is done on the basis of value of wine not on the amount of ethanol it contains. The rest of the ethanol industry – beer, spirits, etc is taxed volumetrically. The effect of the current tax policy is to make low priced wine, particularly cask wine; the cheapest way to get drunk in Australia.

Ethanol is dangerous and addictive. Those with the least money and the biggest thirst for ethanol logically buy cask wine. These folks need help; not cheap booze. The outcome of current policy can be seen most visibly  scattered across the Outback in the form of empty casks, ruined lives and decimated communities, particularly Aboriginal ones. But the cost is spread across the entire population: in the form of healthcare costs, broken families, crime, drink-driving deaths and homelessness, to the tune of many billions of dollars per year.

While the wine industry doesn’t have a monopoly on this problem, it insists on maintaining its tax advantage status as Australia’s low cost provider of ethanol. On the other hand, it asserts that wine is an hedonic product; that we drink it for its flavour and its alcoholic properties and that, overwhelmingly, we do so responsibly. Which is fair enough. But if this is truly the case, and wine actually tastes better than other forms of ethanol, what’s the wine industry worried about? Competition?

The second aspect of the current tax is the 31% WET rebate. The intent of this policy is to refund taxes paid by small wine producers who generally produce higher value wines, to compensate them for the excessive tax that they pay on the volumetric rate tax. As growers have found winery buyers of grapes vanishing they’re increasingly lending the grapes to middlemen who offer the grower the proceeds from making the grapes into bulk wine, less the cost of production, a few months later. What could go wrong?

Crucially, the middleman then pockets the 31% WET rebate on the sale price. This money is earned with almost no capital invested and no risk while people who’ve invested their lives in the vineyard just get even lower prices the next year because the surplus just got bigger. The net result of this is that the taxpayers are funding middlemen who have no capital risk and grape-growers with unviable businesses to make our very worst grapes to be sold around the world with ‘Made in Australia’ stamped on every bottle, for as little as 50c per litre!

Which winner has Government picked here? Do they even know?

In 2011, it’s believed that only about 900,000 tonnes of ‘wine-worthy’ ( disease-free) grapes were harvestable for table wine. Despite this, Australia processed over 1.6 million tonnes of grapes. This means as many as 45 million cases of truly awful wine was made and added to the oversupply. The only demand for bad fruit in 2011 was from rent-seeking middlemen who made common cause with desperate farmers to take taxpayers money legally.

Unintended consequences are called unintended for a reason. They’re unintended. Is this the outcome that taxpayers intended?

LINK

This post is taken from a longer presentation Dudley gave at TEDxDubbo. To view Dudley’s entire TEDxTalk, go to: http://www.youtube.com/watch?v=UdVLXmJe5XE