Freeze the Spirits Super Tax
Wide-ranging reform of Australia’s alcohol taxation regime is long overdue. Continued inactivity entrenches distorted consumption patterns, threatens existing manufacturing jobs, serves as a barrier for the development of an export oriented local spirits industry and places unnecessary administrative burdens on industry and Government alike, all of which is ultimately borne by the consumer.
On 24 October 2017 the Productivity Commission (PC) released its report
Shifting the Dial - A 5-year Productivity Review. In the health section the PC
recommended: “The Australian Government should move towards an alcohol tax
system that removes the current concessional treatment of high-alcohol,
low-value products, primarily cheap cask and fortified wines” Rec 2.6. The PC stated “ideally, this would be achieved through a uniform volumetric tax rate for alcoholic beverages, calibrated to reflect the health impacts of alcohol consumption.”
In March 2017 the Senate Red Tape Committee recommended that the Australian Government progress the reform of alcohol taxation, including the introduction of a single volumetric tax rate across all alcohol products, to be phased in to allow reasonable adjustment.
Previously the final report of the Australia’s Future Tax System Review (the Henry Tax Review, 2010) proposed a particular convergence model to achieve a single rate volumetric tax with the freezing of some rates and the acceleration of others.
Spirits & Cocktails Australia believes the ideal system for alcohol tax is a single volumetric tax rate for all alcohol beverages. Such a tax supports consumers’ choices and recognises that all alcohol is the same, regardless of the type of beverage. A single rate volumetric tax would be simpler and more efficient, ending the discrimination between industries and drinkers. Spirits & Cocktails Australia recognises such wholesale reform will require a managed transition over a period of time with rates ultimately converging.
As a first step for broader reform Spirits & Cocktails Australia advocates for a freeze on the indexation of excise on spirits and flavoured cider.
Non-GST (alcohol) taxes per standard drink
A standard drink is any drink containing 10 gms of pure alcohol. One standard drink always contains the same amount of alcohol regardless of container size or alcohol type, that is, beer, wine, RTDs or spirits. Using the concept of a standard drink allows for a uniform comparison of the incidence of taxation on products of differing alcohol strength and retail price, shown below. The graph highlights some of the
issues and complexities inherent in the current tax system.
The inconsistency in the tax treatment of different beverages becomes
particularly clear when one considers that:
- cask wine (typically with an alcohol by volume [abv] of 11 to 13 per cent) pays only 5 cents per standard drink));
- full-strength RTDs (which are less than half the abv of most cask wines) pay 107 cents per standard drink (16 times that paid by cask wine);
- full-strength packaged beer (at about the same abv as full-strength RTDs) only pays 48 cents per standard drink, less than half that paid by RTDs of equivalent alcohol content; and
- ‘traditional cider’ only pays 20 cents per standard drink, less than a fifth of that paid by ‘flavoured cider’.
Tax is distorting the market
The chart below highlights the distorting effect the current tax system
is having on the marketplace.
Impact of existing manufacturing and the potential of the local distilling industry
Currently the vast majority of premixed drinks sold in Australia are locally
manufactured. These manufacturing operations based in NSW, Victoria and Queensland suffered significant employment losses following the increase in the excise rate for premixed drinks in 2007. Their products compete against much lower taxed products – beer and traditional cider.
Whilst the sector continues to innovate to meet changing consumer tastes the effective price gap driven by tax grows with each six-monthly indexation. In relation to traditional cider the problem is compounded by the fact the Wine Equalisation Tax is not indexed.
Local distillers are impeded in their development by the high level of excise as well
as the cashflow impacts of excise payment timing. These new players need to develop a strong base in their local market both to show the credibility of their brands but also to generate the funds for overseas market development.
Although Australia’s tax on spirits is exceedingly high by international comparison,
spirits exports are growing steadily from a small base.
The potential for an export oriented local industry has been recognised by the NZ Government in its report of agricultural opportunities view the report here (PDF). The SA Government has also identified spirits as a growth opportunity view the report here (PDF).
The emerging local distilling industry can be likened to the Australian wine industry in the 1980s. With sensible tax reform and targeted export assistance there is no reason Australia’s spirits export potential could not be realised over the next
Freeze the Spirits Super Tax
The first step in the path for reform of the alcohol tax system should be to prevent the continued deterioration of the existing arrangements. The twice yearly indexation of excise rates compounds the differences in rates. The charts below show that the $ gap between the excise on beer and spirits has grown 23% over the last decade and this will continue unless action is taken.