THE Abbott Government has released its Wine Equalisation Tax (WET) Rebate Discussion Paper aimed at pruning market distorting wine-industry subsidies.
Submissions to the discussion paper – originally flagged for release in July - are due to close on September 11.
A WET Rebate Consultative Group comprising senior wine industry members has also been established as part of the taxation reform process.
The Consultative Group will be chaired by a senior official from the Treasury and consider submissions and feedback on the discussion paper and provide advice to the government later this year on options for reforming the system.
The Discussion Paper provides an overview of the Australian wine industry and raises issues facing the industry including the WET rebate’s operation, Assistant Treasurer Josh Frydenberg said.
The WET rebate was introduced on October 1, 2004 to replace the cellar door rebate scheme and provides small and medium sized wine producers with a maximum rebate of $500,000 a year.
The rebate was designed to support tourism and industry development in regional Australia but grape growers and wine producers have raised concerns, along with leading MPs in wine producing regions, the scheme has failed its original policy intent.
In 2005 the WET rebate was also applied to NZ producers as part of Free Trade Agreements, which WA Liberal Senator Dean Smith said saw more than 200 NZ wine producers claiming about $25 million under the broader scheme.
South Australian Liberal MP Tony Pasin welcomed the WET Rebate discussion paper’s release last week saying the process now needed to conclude in four to six weeks and not four to six months.
He said the discussion paper highlighted what he and others had been saying about the need to reform WET for some time.
“I’m confident that we will move to end the NZ specific rebate, abolish the rebate on bulk and unbranded wines and I’m hopeful that from the savings we will have access to funds to do the necessary international marketing of brand Australia, or the Australian wine industry,” he said.
“Given the extent of the identified problem no action is not an option because to take no action would ultimately result in the WET rebate system imploding or becoming unsustainable and the last thing the industry needs is for the rebate system to fail.”
The discussion paper will help inform considerations on the WET as part of the Abbott government's bigger picture Tax White Paper review process.
Mr Pasin said the biggest obstacle to reforming the WET rebate was the tendency of some industry stakeholders to “conflate” the issue with a bigger discussion about alcohol taxation.
He said while that big picture discussion needed to occur, it ought to take place within the Tax White Paper process “when the nation is discussing taxation across a whole spectrum of industries”.
“This is a discreet issue about the integrity of the WET,” he said.
Mr Pasin says the WET rebate has been administered in a way that’s "depreciating" and putting "downward pressure" on wine grape prices forcing product to be traded below the cost of production.
“That's simply not sustainable and the reality is we either deal with this issue or face significant structural changes in the industry which will see great swathes of producers pushed to the wall," he said to Fairfax Media in June.
“Producers are struggling to make ends meet and one of the factors causing them that financial stress is the maladministration or maloperation, currently, of the WET rebate.
"If we were to return the WET rebate to its original policy intent it would achieve those intended outcomes like supporting niche producers, providing a tourist offering.
"But what we've allowed the rebate to become is effectively a subsidy to large producers, for bulk and unbranded product, which is now having a deleterious effect on the price of wine and forcing producers to sell their produce below the cost of production which is just not sustainable.”
Mr Pasin said the Winemakers' Federation of Australia (WFA) had submitted a budget proposal detailing reforms to the WET that offered savings of $278 million.
He said the WFA's proposal was also backed by Wine Grape Growers Australia (WGGA) which was a rare display of unity by the two lobby groups who were traditionally divided on key industry issues.
Independent SA Senator Nick Xenophon said the government must realise that reform of the WET rebate must happen before the next harvest, “otherwise there will be hundreds of growers and winemakers who could hit the wall”.
Senator Xenophon has endorsed the WFA’s “measured approach” which has been pushing for removing the WET rebate from bulk and unbranded wine and ploughing savings into an export marketing push to create new markets for Australian wines.
“We are running out of time,” he said.
“Thousands of wine grape growers and wine makers want to know when reform will get back on track.
“They are demanding answers from the government.”
Senator Xenophon has also rejected a push by some “high-end wineries” for a volumetric tax to replace the WET.
He said a volumetric tax would be devastating for the vast majority of the sector; especially many growers and wine makers in the SA Riverland region.
“A volumetric tax might knock down the price of a bottle of Grange by $100 but it would also knock hundreds of producers out of business and lead to further tumult and heartache in the sector,” he said.
Consultative Group members
• Mr Russell Campbell - The Treasury (Chair)
• Mr Tony D’Aloisio AM – Wine Makers Federation of Aust
• Mr Darren De Bortoli - De Bortoli Wines
• Ms Rebecca Duffy - Holm Oak Vineyards
• Mr Nigel Gallop – Fraser Gallop Estate
• Mr Tom Harvey – McLaren Vale Group Wine & Tourism
• Mr Robert Hill-Smith – Yalumba
• Mr Larry Jorgensen – Wines of Western Australia
• Mr Anthony Murphy – Trentham Estate Wines
• Mr Roger Sharp – Treasury Wine Estates