Breaking News – Federal Budget pleases 90 of Australia’s Wineries

The Australian wine industry has welcomed the proposed changes to the WET legislation outlined by the Federal Treasurer, Peter Costello, in last night’s Federal Budget. In doing so, it recognises that there remains a considerable body of work before the achievement of a final tax outcome that offers a better level of fairness and certainty to the wine industry at large.

Led by its chief executive Stephen Strachan, the Winemakers Federation of Australia WFA has wisely chosen to support the government’s new tax measures. This outcome shows that after a protracted period of catastrophic liaison with Treasury, the wine industry has finally been able to re-engage with the department it funds to the tune of around A$1.1 billion each year. Furthermore, it needs to retain this newfound access and ability to engage, which would certainly be compromised if the industry chose immediately to adopt a more aggressive stance to the budget outcome.

Instead of adopting the industry’s preferred option of exempting the 29 Wine Equalisation Tax WET from the first 600,000 litres of domestic sales, the Budget proposes a WET exemption on the first $1 million of domestic wholesale sales. Once activated on October 1 provided it is able to clear the Senate in that time this outcome will instantly mean that all bar around 70-odd of Australia’s 1,798 wineries will immediately become entirely WET exempt.

The savings incurred by these wineries, many of which are operating on an ROI of around one percent or less, could mean the difference between survival and bankruptcy for a very large number. Any winery business that decides to pass on this benefit to the trade in the form of reduced prices clearly does not have a strategy to remain in business for anything other than the short term. Incredibly, the proportion of all domestic sales of Australian wine represented by these 1,730-odd wineries is a mere 5.

The savings to the wine industry in the first year of implementation actually only three quarters of a fiscal year are estimated by Treasury at A$58 million. This will increase to around A$90 million over the next two years, and to around A$100 million the year after. According to wine industry estimates, this shortfall in government revenue will quickly be made up through the wine industry’s increased overall value of domestic sales, so the Treasury’s revenue loss is a minor one and a short term one at that.

Where the Treasury and the industry have differed is in their approach towards the 50-odd wineries whose production falls between 300,000 to 600,000 litres. It would cost tens of millions of dollars to make these businesses WET exempt, and for the time being, Treasury has clearly decided not to.

The immediate challenge faced by the wine industry is to ensure that that various state governments make no unexpected alteration to the 15 WET rebates in place on cellar door sales. Any change to this rebate would, in the words of Stephen Strachan, be a ‘make or break’ outcome for the large and medium-sized wineries that have invested heavily in their cellar door businesses.

Strachan observes that until now, every time since 1984 that a Federal Government of either side has linked the wine industry with taxation in a Budget, the outcome has been an increase in wine taxes. ‘We’re very positive that we can work with all governments to ensure that the implementation of this policy delivers against our objectives of reducing both the tax and compliance burden across the entire wine industry’, he said. ‘There is a lot of detail to work through, but the government has delivered for 90 of the industry. That’s a very significant commitment, and that’s why we’re positive’. Please login to post comment