Wine tax ripe for reform

14 Jun, 2015 02:00 AM
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The proposal backs removing the WET rebate from bulk, unpackaged, unbranded and private label wine

FEDERAL MPs from the nation's major grape growing and wine producing regions say the Wine Equalisation Tax (WET) is ripe for the picking, to prevent unintended policy outcomes like subsidising growers to sell below production costs.

Last month Assistant Treasurer Josh Frydenberg announced Federal Treasury would prepare a discussion paper on the WET rebate's operation to be released in July.

The discussion paper will help to inform considerations on the WET as part of the government's bigger picture Tax White Paper process.

The WET rebate was introduced on October 1, 2004 to replace the cellar door rebate scheme and provides small and medium sized wine producers with a rebate of up to a maximum of $500,000 a year.

The WET rebate is intended to support tourism and industry development in regional Australia - but grape growers and wine producers have raised concerns along with MPs the scheme is failing to meet its original policy intent.

In 2005 the WET rebate was also applied to NZ producers as part of Free Trade Agreements, which WA Liberal Senator Dean Smith said saw more than 200 NZ wine producers claiming about $25 million under the broader scheme.

SA Liberal MP Tony Pasin said he was effectively the "member for wine" given his Barker electorate contained more grape growers by value and volume than any other federal MP.

"The price of fruit and basic economic fundamentals of the wine industry are first principles for me and critically important, particularly for producers in the Barossa, Riverland and Padthaway," he said.

Mr Pasin said the WET rebate was being administered in a way that was "depreciating" and putting "downward pressure" on wine grape prices - for considerable time - forcing product to be traded below the cost of production.

"That's simply not sustainable and the reality is we either deal with this issue or face significant structural changes in the industry which will see great swathes of producers pushed to the wall," he said.

"Producers are struggling to make ends meet and one of the factors causing them that financial stress is the maladministration or maloperation, currently, of the WET rebate.

"If we were to return the WET rebate to its original policy intent it would achieve those intended outcomes like supporting niche producers, providing a tourist offering.

"But what we've allowed the rebate to become is effectively a subsidy to large producers, for bulk and unbranded product, which is now having a deleterious effect on the price of wine and forcing producers to sell their produce below the cost of production which is just not sustainable."

Mr Pasin said the Winemakers' Federation of Australia (WFA) had submitted a budget proposal detailing reforms to the WET that offered savings of $278 million.

He said the WFA's proposal was also backed by Wine Grape Growers Australia (WGGA) which was a rare display of unity by the two lobby groups who were traditionally divided on key industry issues.

The WFA's proposal backs removing the WET rebate from bulk, unpackaged, unbranded and private label wine across four years and abolishing a separate WET rebate scheme for NZ producers.

"Legal advice provided to government confirms the separate NZ producers WET rebate scheme provides an unfair and unlawful advantage to NZ producers," the WFA proposal letter to Prime Minister Tony Abbott said.

"The advice also confirms the scheme can be abolished, consistent with our bilateral trading arrangements and would result in future NZ WET rebate claimants applying under the same conditions as Australian and other foreign claimants."

NSW Labor MP and opposition spokesman for agriculture Joel Fitzgibbon said Labor would wait until the government put forward its recommendations on the WET and offer due consideration "but clearly, some reforms are necessary".

Mr Fitzgibbon said the NZ rebate was one of the key issues needing attention in the WET.

"I've not yet met a vigneron or winemaker in Australia who supports the idea of giving the WET rebate to NZ producers and certainly that was not its original intention," he said.

"If the government can find a way of fixing that I'm very confident it would have the support of the opposition."

Mr Fitzgibbon said once the government's proposal was released, he would consult with wine producers and grape growers in his Hunter electorate which is home to significant wine tourism and production in the Hunter Valley.

"My preliminary discussions indicate there's widespread support for some reform of the WET rebate and very deep concern about the amount of money being sucked up by the bulk and unbranded part of the sector," he said.

Mr Fitzgibbon said when the WET was introduced, nobody would have considered NZ producers would have benefit.

"That was an unintended consequence of the legislation and if the government is serious about addressing it, I think it would find co-operation among opposition members," he said.

NSW Nationals MP Michael McCormack said in his Riverina electorate at Griffith - where one in four Australian glasses of wine are produced - wine producers hold firm views about changing the WET rebate.

"They don't want it and believe it's crippling the industry and they're on a unity ticket with the WGGA which is very unusual," he said.

But Mr McCormack said at the other end of his large electorate, cool climate wine makers wanted a scheme in place which supported their businesses.

He said when the WET rebate was introduced in 2004, after the GST's introduction, it was designed to help regional wineries with marketing activities.

Mr McCormack said he supported the WFA's proposal for the government to spend $25 million to improve marketing and market access, out of the $278m savings offered in the industry group's budget submission.

"We are in a budget constrained environment but it doesn't seem as though they're asking too much, so I'd be in favour of that," he said.

"I'm of the view that the joint submission is a good one - we can't keep sending money off shore to NZ, to prop up NZ wineries."

WA Liberal MP Nola Marino recently held a meeting of grape growers in her south-west electorate of Forrest to discuss the WET reforms and said the majority of those who attended supported the WFA’s proposal, to the federal government.

Forrest is home to WA’s biggest wine producing and tourism region in and around the Margaret River.

“We want to go through this process very carefully,” Ms Marino said.

“I understand what the issues are and hear the industry’s concerns clearly around NZ and with the major supermarkets and what’s gone on in that space; we really can’t afford these unintended consequences.

“This is not just lip service; we’re having a serious, genuine look at this issue.”

FarmOnline
Colin Bettles

Colin Bettles

is the national political writer for Fairfax Agricultural Media
Date: Newest first | Oldest first

READER COMMENTS

RCG
14/06/2015 6:13:15 AM

There should be immediate reform limiting the rebate to Cellar door sales only to a limit of $50K per annum effective immediately. There should be no rebate for bulk & unlabelled wine. NZ & any other imported wine of any form should not be able to access the rebate. The rebate should only be claimable at the last point of sale (cellar door only) where the tax is paid first & the rebate can be claimed later. Legislation to this effect comes into force prior to the end of the calender year.

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