Supplementary Report: Senator Andrew Murray

As is probably appropriate for a tax bill, the focus of all the submissions on the proposed Wine Equalisation Tax (WET) has been that of price. Price had two motivations in the submissions – those arguments as to how industry prospects are affected, and those affecting the abuse of alcohol.

1. Industry Effects.

The WET is often described as a value added tax, but like the Wholesales Sales Tax (WST) it is only value added at a single intermediate level in the production process, unlike the GST which is a value added tax at the final consumption level. The WET has been proposed by the government to replace the WST on wine.

Industry opposition to the WET had three main thrusts. The Winemakers Federation of Australia (WFA), the Victorian Winegrape Growers Council, and the Winegrape Growers Council of Australia support the WET but believe the rate is set too high at 29%. They have argued that the rate should be 24.5%. On the other hand, the Vineyards Association of Tasmania and Helm Wines believed there should be a GST tax on wine, but not a WET.

The Independent Wineries Association (IWA) and Tasmanian Wine Producers supported a flat rate volumetric tax on alcohol through the excise system.

Most submissions argued that the total wine tax take from the new tax system should not exceed, or be roughly equivalent, to what it is under the WST.

2 – Taxation Policies

The principle motivation for customs and excise taxes is without doubt the generation of revenue for government. Taxation on alcohol is additionally influenced by three further policies. The first policy is to constrain or influence the consumption of alcohol by the influencing of its end price (eg; low alcohol over high alcohol beer). The second policy is where government indicates a preference for one sector of the industry over another, or one product category over another through preferential rates (eg; the brandy concession). The third policy is to use excise as an economic tool to encourage particular business types (eg; small wineries through cellar door sales).

3 – Alcohol Abuse

On May 1st 1998 representatives from the Australian Medical Association (AMA), the National Centre for Research into the Prevention of Drug Abuse (NCRPDA), the National Aboriginal Controlled Community Health Organisation, the IWA, United Distilleries, and Lion Nathan argued that introducing a volumetric tax based on alcohol content would contribute to the reduction of alcohol related harm. A number of these same organisations (NCRPDA, AMA, and the IWA) made similar submissions to this inquiry.

They argued that when giving consideration to reforming the taxation of alcohol, two key facts should be kept in mind:

1. Alcohol consumption is negatively affected by price, with only 3 of 53 studies spanning 17 countries and 120 years of price and consumption data failing to find that for all beverage types, an increase in price reduces consumption levels [1]
2. The consumption of certain alcoholic beverages in Australia, (standard beer and cask wine) is more closely associated with higher levels of violence, injury and illness than others (light beer and bottled wine) [2].

The major regulatory influence on price is through excise and sales taxes. However price is only one of a number of measures that affect alcohol consumption behaviour. Alcohol abuse is not only influenced by price, but by other control mechanisms. Controls in our society also focus on;

• The age of consumers and staff
• Types, numbers and density of outlets.
• Hours of sale.
• Alcoholic content of beverages
• Types of beverage
• Encouragement of responsible drinking patterns
• Research, information and education on alcohol abuse
• Police controls on public drunkenness and drink driving

4 – Conclusions

I am personally persuaded that the volumetric method of alcohol taxation (through excise) is the most efficient and practical way of taxing alcohol. However the table attached indicates that in 25 OECD countries, only 13 countries chose to tax still wine in this way.

It is not necessary to use the volumetric method to address wine prices from an alcohol abuse point of view. The key submission on alcohol abuse has been that cask wine is sold too cheaply and that its price contributes to alcohol abuse. If the government were to accept such a proposition they could address the price of cask wine by applying a WET value at a different rate for casks to that for bottles.

I believe that the government should investigate ways of taxing cask wine at a level which contributes to a reduction in alcohol abuse. Further research is needed on the linkages between alcohol consumption and alcohol prices, and whether better means can be found for affecting abusive behaviours through price signals. A proportion of the high taxes on alcohol should be directly hypothecated to fighting alcohol and other drug abuse.

The Democrats recommendations are however confined to addressing the WET model proposed by the government.

5 – Recommendations

1 – That the WET tax should be supported. The case is not made for a reduction in the rate.

2 – That the government introduce an incentive for the production and sale of low alcohol wine. The table attached shows that of the 25 OECD countries, 11 provide concessional treatment on low alcohol wine. Broadly speaking, the OECD low alcohol wine excise rate is half the rate of the full excise, so with respect to this bill, a 14-15% WET could be used.

3 – The WFA has argued for a $500,000 exemption for cellar door and mail order sales. A limited exemption is arguably justified, but not at this level.

Table 3.2 Taxation of Wine

(Source: Consumption Tax Trend Second Edition 1997 OECD page 34)

Source: National Delegates: position as at 1 January 1996

Notes to table:

1. Australia. Sales tax at Commonwealth level 26%. For wine with an alcohol content equal to or below 1.15% vol. The rate is 12%. A variety of State imposts typically apply.
2. Canada. For still or sparkling wine with 1.2% vol. or less the rate is CAN$2.025/US$1.46.
3. Denmark. Excise rate for low alcoholic sparkling wine is DKR 7.50/US$123.29.
4. Finland. Excise rates for low alcohol wine as follows:
   1. > 5.5% PS 8.0% vol. FMK 1,300/US$274.09.
   2. > 2.8% PS 5.5% vol. FMK 800/US$168.67
   3. > 1.2% PS 2.8% vol. FMK 27/US$5.69
5. Iceland. Excise rate shown in the Table is the rate for wine with 12% vol. The rate is IKR 5,870/US$89.99 per % alcohol by volume exceeding 2.25%.
6. Ireland. The rate for low alcohol wine applies to wine with an alcoholic content of less than 5.5% vol.
7. Mexico. Wines are classified according to Guy Lussac grades to determine excise duty. Still wine is > 13.5: sparkling wine 13.5o – 20o. Low alcohol wine is classified as still wine.
8. Netherlands. Excise rate for low alcohol sparkling wine is HFL 69,50/US$40.06. For low alcohol wine < 1.2% the VAT rate is 6%.
9. New Zealand. Excise rates for grape wine are as follows:
   1. 0-14% vol. $NZ 184
   2. greater than 14% vol. $NZ 331.36/$US 222.01 per hectolitre of product.
10. Norway. The rate shown in the Table is the rate for wine with an alcoholic content of 12% vol. Excise rates are as follows:
    1. Alcoholic content of 7%-15% vol. NOK319/US$47.17 per vol. Pct. Alcohol and per hectolitre
    2. Alcoholic content of 15%-22% vol. NOK 607/US$89.76 per vol. Pct. Alcohol and per hectolitre. Wine with a content of alcohol below 7% vol. is taxed as beer.
11. Sweden. Excise rates for low alcohol wine are as follows:
    1. 7%-8.5% vol. SKR 1,830/US$ 251.00
    2. 4.5%-7% vol. SKR 1,361/US$182.39.
    3. 2.25%-4.5% vol. SKR 921/US$ 123.42. No special rate for sparkling wine.

12. Turkey. No specific tax element. The ad valorem tax is a “supplementary VAT”.

Alcohol taxation systems

(Source: Adapted from Distilled Spirits Industry Council of Australia tables)

Index

1A Present system – tax rates Page 1

1B Present system – products covered Page 2

2A Government proposed system (ANTS based) - rates Page 3

2B Government proposed system (ANTS based) – products covered Page 4

3A Senator Murray's Preferred System - rates Page 5

3B Senator Murray's Preferred System – Products Covered Page 6

1A. Present system – tax rates

1B. Present system - products covered

1. 2A Government proposed system (ANTS based) - rates

1. 2B Government proposed system (ANTS based) - products covered
2. Wine
3. 10% GST +
4. 29% value based WET

1. 3A Senator Murray's Preferred System - rates

1. * Calculate an excise rate and wine equalisation tax to maintain revenue neutrality as proposed in the government's ANTS package.
2. 3B Senator Murray's Preferred System - products covered
3. Wine over 10%
4. 10% GST +
5. (WET OR $wine rate 1)

Footnotes

[1] NCRPDA Submission 791, p.4

[2] The Tasmanian Duty of Care Alliance, Submission 1397, Section 1

[3] Rate as at 1 March 1999 (subject to bi-annual indexation increase on 1 Feb and 1 Aug)

[4] Litre of alcohol

[5] Rate as at 1 March 1999 (subject to bi-annual indexation increase on 1 Feb and 1 Aug)

[6] Rate as at 1 March 1999 (subject to bi-annual indexation increase on 1 Feb and 1 Aug)

[7] Wine products comprise more than 70% grape wine (in accordance with requirements of Food Standard P6)

[8] Not presently included in the WET bill, but understood to be a drafting oversight and is intended as part of their policy

[9] Grape wine is 100% grape derived (in accordance with requirements of Food Standard P4)

[10] Fruit wine and vegetable wine is 100% derived from the relevant fruit or vegetable (in accordance with requirements of Food Standard P2)

[11] Wine products comprise more than 70% grape wine (in accordance with requirements of Food Standard P6)

[12] Grape wine is 100% grape derived (in accordance with requirements of Food Standard P4)

[13] Fruit wine and vegetable wine is 100% derived from the relevant fruit or vegetable (in accordance with requirements of Food Standard P2)