In amongst the details from last night’s 2016 federal budget, there was one ‘reform’ announced that has the potential to devastate small Australian wine producers…
According to this joint media release from Assistant Treasurer Kelly O’Dwyer and Assistant Agriculture Minister Anne Ruston, the WET (Wine Equalisation Tax) rebate will not only be scaled back, but eligibility terms will be tightened significantly.
These changes, by itself, are nothing new, having been first suggested in a comprehensive Treasury discussion paper last year. In fact, it was the wine industry itself (the big players at least) who were the one pushing for reform, spearheaded by the Winemakers Federation of Australia (WFA).
There is one element, however, that goes beyond the scope, and could have far-reaching impacts. It comes via this line in the press release:
‘Under the tightened eligibility criteria for the rebate, a wine producer must own a winery or have a long term lease over a winery and sell packaged, branded wine domestically’.
As mooted in the discussion paper, this tightened criteria would help to stop bulk wine producers gaming the WET rebate (as Box 6 in the Treasury paper shows). But by limiting the rebate to those entities that ‘own a winery or have long term lease over a winery’ you’re not only cutting off the bulk wine producers, but also hurting any small grapegrower who has their wine made at a contract facility (like half of Tasmania), or any boutique winemaker who uses someone else’s winery (a large list, I’ll include a few examples below).
The press release does note that final details of what is defined as a ‘winery’ and eligibility criteria details will be established through ‘further consultation’. But the wording of these initial ‘reforms’ does sound settled, and they potentially could serve to stifle innovative wine production.
To explain the potential impacts of such a change, let’s run through an example.
Imagine that I’ve got a small vineyard in Sydney’s outskirts. I’m not sure what sort of masochist would plant grapes in Sydney (someone who likes spraying), but I’m doing it anyway. Now when it comes to harvest my grapes, I take them down to a contract winery in the Southern Highlands, where they charge me to use their facilities. I use this winery because they’re close and have a modern crusher/destemmer, press and refrigerated tanks. I still run the whole process myself, purely because I want to make sure that when the wine tastes bad it it is all my fault, and the winery charges me plenty to use their plant.
Now previously, when I finally bottle my wine and sell it, I would receive a full rebate on the 29% WET tax paid. My vineyard isn’t massive, so even with the newly rounded down rebate limit of $290,000 I’d get all my WET back. Case closed.
With the new changes, however, I’d get none of the WET back because I don’t own a winery. I own the vineyard, have made the wine and even sold it myself, yet due to the tightened eligibilities I’m now 29% worse off than my dodgy neighbour – who has declared his back shed a ‘winery’ and is now pumping out some brown and volatile wines (that he can sell 29% cheaper than me!).
Immediately you can see the limitations of this mooted reform, which, in its current form, would do more harm than good. It would decimate contract winemaking (which is very very important) while potentially pushing up wine prices.
If you think my example is too abstract, then just have a look at this quick list of producers who I’ve crossed paths with recently who would instantly be 29% worse off because they don’t own or lease a winery (even though they may own vineyards and/or make the wine):
Ten Minutes By Tractor (wines made at Moorooduc Estate)
Ministry of Clouds
That’s hardly an exhaustive list, but just a few that came to mind quickly (and some may well have lease arrangements). In many cases, we’re talking about winemaking side projects, so it’s not like these producers fall into the ‘bulk producers gaming the system’ basket. Any sommelier trying his hand at winemaking and making a single barrel at a friends winery would be caught afoul of this law change, which simply makes more established.
Worst hit would be the Tasmanian wine industry, where – according to this 2013 submission from Wine Tasmania – there are over 160 licensed producers but only 30 processing facilities. That leaves 130 labels that would miss out on the 29% WET rebate. Indeed, that submission notes about how problematic this ‘tightening’ could be for Tasmanian producers (worth a read to highligh how problematic this eligibility tightening could be for Tassie wine).
You could argue that it might serve to encourage the establishment of a ‘winery’ to work around such restrictions. But there are endless complications around that measure too. In the Adelaide Hills, for example, there are very restrictive planning controls around waste water that mean that setting up a new winery is prohibitively expensive. Or if a grapegrower is not able to able to add any structures to a rural property (a common condition in rural NSW), which basically precludes them from setting up anything resembling a winery on their property.
Again, as the press release states, there is still much consultation to happen. But judged on what has been said already, this has the potential to unfairly favour existing producers with an actual winery over those without, hampering innovation and the growth of wine producers almost unintentionally.
Reform or a massive regression?