Winos Beware

Australia’s Wine Equalisation Tax Comes Under Attack

Fear not, tax policy enthusiasts, the run up to next month’s tax summit in Canberra isn’t all about the GST. There’s also a minor brouhaha fermenting over wine taxes. The Wine Equalisation Tax (WET), which entitles Australia wine producers to an annual rebate of 29% up to AUS$500,000 and is largely seen as beneficial to small and medium enterprises, his under attack from two very different sides.

On the one hand stand Australia’s major wine companies, specifically Treasury Wine Estates and Premium Wine Brands which have submitted official complaints to the October tax summit over the Wine Equalisation Tax. They complain the tax is subsidizing unsustainable enterprises and leading to a supply glut that harms the whole industry. They argue that vintners need to consolidate, tamp down on excess supply, and rebuild value into Australian wines.Their solution? A flat, revenue-neutral tax on wine per volume of alcohol. They argue is would incentivize the production of wine with a low alcohol content and force unsustainably cheap wines off the market.

In its quest to abolish the Wine Equalisation Tax and replace it with a tax on alcohol volume, Big Wine has an unlikely ally: public health organizations and officials out to save the world from alcoholism. These think tanks and policy organizations are pushing a tax on alcohol content in the hopes of curbing abuse.

Pushing back against this coalition of stange bedfellows is the rest of the wine industry, which benefits extensively from the Wine Equalisation Tax – to the tune of $1.5 billion a year by some estimates – and would no doubt suffer from the passage of a flat tax on alcohol volume. Just how many wine industry jobs would be lost, and how much such a tax would actually curb alcoholism have become central to the debate.

The majority of the wine industry and the public health gurus have clashed in recent weeks over the costs and benefits the proposed tax initiative would have for the wine sector and Australia’s imbibers. The Alcohol Education and Rehabilitation Foundation (AERF) claims that fewer than 600 wine industry jobs would be lost to the new tax, whereas the Winemakers Federation of Australia puts the figure somewhere in the rather large range of 5,300-12,000.

They’ve taken shots at each other in the press too. Australia Institute director and economist Dr. Richard Denniss said to a National Alliance for Action on Alcohol forum in Canberra, “Any rational person who sets out to irrationally get as drunk as they can knows that cheap wine is the cheapest way to get there.” (If you can set aside, for a moment, the absurdity of a rational person setting out to do something as irrationally as possible.). A spokesman for the Winemakers Federation fired back, saying that the tax debate is “a complex area of policy debate that goes beyond the AERF’s simplistic mantra that the only way to deal with issues of alcohol abuse is to make alcohol more expensive.” (There’s a theoretical tug-of-war going on here, with the Winemakers Federation essentially questioning Denniss’s implication that alcohol abusers engage in rational cost-benefit analysis immediately prior to getting rotten – an interesting debate for another time.)

All of this debate about the Wine Equalisation Tax raises some interesting questions about taxation itself. Of course it’s primary function is to raise revenue for the government, but the who, how, and why you tax can have a big impact as well. I’m sure there is many a free marketer out there who would be quick to denounce the WET as an unfair subsidy that distorts market forces and allows for an economically inefficient bloating of supply. Others could argue that such a tax actually bolsters competition and in so doing fosters an environment advantageous to consumers and in line with the principles of the free market. I suppose it depends on how great a share of the market those major companies would be left with. It also raises questions about taxing so-called vices. Is it the role of taxes, or government itself, to regulate what or how much an individual consumes? These are all interesting questions about the theories and assumptions underpinning such a tax.

For now, however, the debate over the Wine Equalisation Tax – much like the one surrounding the GST – seems destined to die the death of a moot point. The government has already pledged not to alter the way alcohol is taxed while the industry is undergoing restructuring, which begs another question: what exactly is the point of a summit to discuss reforming the tax code when so many taxes are off the table?

Photo via dmytrok on Flickr.