There’s a bit of a kerfuffle in the Australian wine industry about a tax rebate both Australian and New Zealand wineries receive.
Pernod Ricard-owned Premium Wine Brands and Treasury Wine Estates have called for the Australian federal government to reform the Wine Equalisation Tax (WET) rebate, claiming it is sustaining the country’s glut.
In its submission to the Australian federal government, Premium Wine Brands said it “believes that existing wine tax arrangements are distorting market forces by sustaining the 20 per cent of vineyards, which the industry…found to be surplus to market requirements and incentivising the production and sale of cheaper wines, contrary to the industry endorsed strategy of value building through premium, branded products. We believe that tax reform would end these distortions and allow normal market forces to address the structural oversupply issues.”
What is the WET rebate?
It’s a bit technical but WET is a value-based tax paid on both New Zealand and Australian wines consumed in Australia. An agreement between the two countries, allows both domestic and Kiwi producers to claim an annual tax rebate of 29% up to a maximum of AU $500,000 and was originally intended for the purpose of smaller producers. Interestingly, Australian wines sold in New Zealand get no tax relief.
It is estimated that AU $900 million is collected as WET each year, and more than $200m is returned to producers as a rebate, of which $30m goes to New Zealand producers.
Is reform necessary?
The Winemakers’ Federation of Australia has been working with the government for two years on reforming the wine rebate, admitting it needs some adjustment. It seems some industry members have been abusing the system. The Federation agrees the rebate is unintentionally helping growers to stay in the industry, when their business is unsustainable.
Stephen Strachan, head of the Winemakers’ Federation of Australia told rebeccagibb.com, “The WET rebate is not intended for bulk wine but growers have been producing surplus grapes and converting it to wine to sell through certain retail outlets at discounted prices. In these cases, the WET rebate is keeping the producers in the market and hitting the pace of reform.”
The likes of Treasury and Premium Wine Brands have submitted documents to the federal government in advance of its tax summit next week but Strachan added, “The Australian treasurer has indicated he is not having alcohol discussed at this summit”. Thus, is this all a storm in a teacup?
A New Zealand perspective
And what does this mean for Kiwi producers? Should they be worried? Well, the Closer Economic Relations (CER) trade agreement between Australia and New Zealand would have to be torn up if they were going to abolish the WET rebate for Kiwi wines sold in Australia. Which is unlikely.
Strachan admitted that while it was frustrating New Zealanders benefitted from this, he added “The only way we can cut out New Zealand would be to cut out a lot of the legitimate Australian wineries. The Australian government can’t distinguish against New Zealand because of the CER.”
I asked Philip Gregan, head of New Zealand Winegrowers, what the impact would be if the WET rebate was abolished. He answered, “There is around $20-$30 million coming back to the New Zealand wine industry each year from the WET rebate so it obviously has an impact. Wineries can do many things with that money”.
But, I’d like to hear from producers – what does the rebate mean for you? Do you care? Do you think it’s unfair?
