Tax hike on alcohol would add $2.9 billion to government coffers but consumption would drop: Research

A 10% tax increase on alcoholic beverages across the board, coupled with a shift to tax wine on a volumetric basis, could bring in $2.9 billion in government revenue annually but drop consumption rates by 9.4%.

If introduced, this tax model would likely cause prices of draught beer, bulk wine and traditional (unflavored) cider to rise.

This is according to a report from market research company IBISWorld, which draws on statistics from the Foundation for Alcohol Research and Education 2016-17 pre-budget submission.

The current taxation of beer and spirits is based on an excise system, with taxation rates based on the strength and type of the product.

However, wine and traditional ciders are not taxed this way. Instead these products are taxed on their wholesale value, with wine production covered by the Wine Equalization Tax (WET).

The WET taxes winemakers 29% of the wholesale value of the wine, although some winemakers qualify for a $500,000 dollar rebate on tax paid each financial year.

This can mean producers of the cheaper wine, such as cask wine, benefit from a lower taxation amount despite their product containing the same alcohol levels as fancier, more expensive bottles.

Other alcohol industry sectors do not benefit from rebates similar to WET.

IBISWorld predicts bulk wine products would lose out if a flat, volumetric tax was introduced as their profit margins would decline. A volumetric tax could also affect cider producers, which currently receive the WET rebate, by increasing their tax burden.

“We all benefit from a fairer tax system”

Chair for the Australian Distillers Association, Stuart Gregor, told SmartCompany the association supports a volumetric tax system that taxes based on standard drink.

This would tax each industry on the amount of standard drinks in their products, be it 100ml of red wine or 30ml of whiskey.

“We all benefit from a fairer tax system,” said Gregor.

However, Gregor also believes the spirits industry is in need of a government rebate to encourage small distillery startups.

“The spirits industry needs some form of encouragement similar to WET,” he says.

“We can’t tolerate a system where spirit taxes have increased twice over two years, while wine taxes have not increased in 13 years.”

According to IBISWorld demand for boutique Australian spirits is on the rise, with senior analyst Andrew Ledovskikh saying in a statement “there are some positive signs for spirit manufacturing”.

“There has been strong demand for boutique beverages, such as Tasmanian whiskey, and industry revenue has grown strongly over the period,” he said.

Options to reform the taxation of alcohol will likely be a point of discussion over the next few months as the federal budget is released on May 3.

Discussions will also be pioneered by a recent senate inquiry into the grape growing and winemaking industry.