The goon show

There’s no question that wine in Australia is incredibly cheap. It costs much less than other alcoholic products, and wine tax has lagged way behind the Consumer Price Index (particularly since the GST was introduced in 2000).

New research released last week exposes Australia’s wine tax system for what it really is: corporate welfare, with ordinary Australians paying a billion dollars a year to subsidise the wine industry.

The Australia Institute report, The goon show: How the tax system works to subsidise cheap wine and alcohol consumption, examines the Wine Equalisation Tax (WET) and its accompanying WET rebate.

It found that only 67 of the 3,765 wine producers and wholesalers in Australia pay the WET. That’s less than two per cent of the wine industry who pay tax.

The vast majority are actually profiting from the current tax arrangements. 90 per cent of producers receive a net payment from the Australian Government averaging $30,000 each year.

Director of Research at The Australia Institute, Rod Campbell says the WET is a complete failure, skewing the alcohol market without any clear positive outcome.

“Alcohol tax should serve two purposes, it should reduce the social cost of problem drinking and raise revenue for the state. Yet the Wine Equalisation Tax fails at both,” Mr Campbell said.

In Australia, beer and spirits are taxed based on their alcohol content (volumetric tax). Beer attracts an excise of approximately 44 cents per standard drink, and the spirits excise is around $1 per standard drink. Meanwhile, wine is taxed based on its wholesale value. The WET paid on a standard drink is about four cents.

This means that at its cheapest, wine costs just 30 cents per standard drink. By comparison, beer and spirits retail for at least $1 or $1.50 respectively per standard drink.

Determining tax amounts based on wholesale values is problematic. That’s bad news for wine aficionados and small vineyards, but more importantly, it subsidises the consumption of the cheapest wine.

Cheap industrialised wine, produced and sold in bulk quantities like casks, is almost untaxed. While the higher quality wines, like those sold by smaller producers, are taxed at almost twenty times this rate.

Mr Campbell says the preferential tax treatment for wine is effectively a subsidy to the wine industry of $1 billion a year.

“Our modelling illustrates just how much revenue is being lost and the high cost to the Australian taxpayer. If wine was taxed in the same way in which we tax all other alcoholic products, the government would raise in the order of $1 billion a year,” Mr Campbell said.

Foundation for Alcohol Research and Education (FARE) Chief Executive, Michael Thorn says the WET is corporate welfare at its worst.

“Most Australians pay more personal income tax than these wine producers and wholesalers. Ordinary Australians continue to foot the bill for the significant health and social costs of alcohol, while the majority of wine producers are profiting from favourable tax arrangements that encourage production of cheap alcohol that we know is targeted at, and consumed by problem drinkers,” Mr Thorn said.

The Australia Institute has modelled three possible alternatives to the WET to determine the impact of alcohol taxation reform. All these alternate schemes would see the cheapest wines increasing in price, while premium wines would actually be taxed less.

By abolishing the WET, and replacing it with a more equitable alcohol excise tax, the Australian Government could raise more than $1 billion of additional revenue each year.

And, importantly, Australian taxpayers would no longer need to subsidise a wine industry that profits off cheap, low quality goon.