Wine equalisation tax rebate
This chapter considers the impact and application of the wine
equalisation tax rebate on grape and wine industry supply chains.
Alcohol has attracted various customs and excise duties in Australia
since before federation. Colonial administrators raised revenue through
imposing 'sin taxes' on goods such as tobacco and most alcohol.
Since then, state and federal governments have applied different levels of tax
to alcohol according to product type, value and packaging, alcohol content and
size of producer.
In the 2014–15 financial year, the Australian Government collected $6
billion in alcohol taxation receipts, which was approximately 0.4 per cent of
GDP. Of that, wine contributed approximately $792 million or 13.2 per cent, at
0.05 per cent of GDP.
Wine has a history of being taxed differently to other alcohol.
The excise duty applied more broadly including to beer and spirits was only briefly
applied to wine between 1970 and 1972 and removed due to its
In 1974, wholesale sales tax at 10 per cent was specifically applied to wine
and increased by successive governments, reaching 41 per cent in 1997.
The wine equalisation tax (WET) came into effect in 1999 alongside the
GST, replacing wholesale sales tax.
Under the A New Tax System (Wine Equalisation Tax) Act 1999 (WET Act) as
introduced, wholesale and distributor sales of wine and grape products
attracted a sales tax of 29 per cent of their wholesale value.
The Australian National Audit Office notes the 'considerable complexity
in calculating the wine tax.'
In effect, the rate was intended to continue the wholesale sales tax:
The rate of WET of 29 per cent was designed so that it would,
with the addition of 10 per cent GST, be equivalent to the WST rate
of 41 per cent. This ensured that both the retail price of wine and the revenue
from wine tax remained relatively stable.
The Department of Industry and Science submitted that the WET 'generally
applies to the last wholesale sale (usually between the wholesaler and the
retailer) although it may apply in other circumstances.'
Cellar door rebate scheme
A 14 per cent rebate 'for cellar door and mail order sales up to a
wholesale value of $300 000 per annum' was introduced alongside
The cellar door rebate was established 'to provide assistance to small and
medium sized winemakers and to promote tourism in regional areas through
increased incentives to open cellar doors.'
The supplementary explanatory memorandum stated:
The Government’s policy objective is to assist winemakers who
make retail sales directly to unlicensed people from the cellar door or via
mail order and who use their product in application to own use.
In most Australian states, the cellar door rebate supplemented state
government cellar door subsidies of around 15 per cent,
although the committee has heard that the Western Australian subsidy has since been
and Tasmania never provided one.
WET rebate scheme
The WET rebate replaced the cellar door rebate from 1 October 2004,
allowing some producers to 'fully offset' the WET they paid on wine. The new
scheme enabled producers to claim:
- for wholesale
sales, 29 per cent of the price for which the wine is sold (excluding wine tax
- for retail sales and
AOUs [applications to own use], 29 per cent of the notional wholesale selling
price of the wine.
The rebate was initially limited to $290 000 per financial year,
allowing each eligible producer to sell wine valuing $1 million before paying
Rural and regional Australia was a particular focus of the new scheme,
as stated in the explanatory memorandum:
Around 90% of wine producers will be able to fully offset
their WET liability by accessing the new rebate. In particular, small wine
producers in rural and regional Australia will benefit significantly, receiving
around 85% of rebate benefits.
For the first time, producers of cider, perry and sake became eligible
for the rebate, recognising their contribution to regional economies.
The Department of Agriculture submitted that in addition to being registered
for GST in Australia:
Eligibility for the producer rebate requires a person to be a
producer of wine; that is, they must:
manufacture the wine from grapes, other fruit/vegetables or honey
produced or purchased; or
provide the grapes, other fruit, vegetables or honey to a
contract winemaker to be made into wine on their behalf.
The maximum WET rebate was increased to $500 000 from 1 July 2006, lifting the 'effective WET-free threshold' to $1.7
The increase reflected a 2006–07 Budget commitment to provide 'enhanced
assistance' to the wine industry.
The Treasurer's media release described the increase as 'additional support for
small and medium sized wine producers', stating that '[w]ine producers form an
important part of regional Australia and provide significant employment and
The WET rebate scheme was extended to include New Zealand producers from
1 July 2005.
Submitters considered that this was done 'in line with Australia's bilateral
The New Zealand producer rebate is discussed further below.
The 2004–05 Budget estimated the initial cost of the rebate at $90
million per year, increasing to $100 million in 2007–08.
At the time of the increase, additional revenue implications of the increased WET
rebate were expected to be $25 million in 2006–07 and up to $35 million in
The relevant Bills Digest commented 'it is unclear whether this projection
includes the expansion of the rebate to the New Zealand wine producers.'
The committee has heard evidence that WET rebates paid may have exceeded
Treasury estimates since as early as 2005–06. WFA provided calculations that
suggest that instead of the $90 million forecast,
the Government made $134 million in rebate payments in 2005–06. By
2006–07, instead of the forecasted $90 million plus $25 million,
there were closer to $200 million in payments.
The Department of Agriculture submitted that in 2013–14, approximately $300
million in rebate payments were made,
and WFA estimates $340 million for 2014–15.
WFA described an 'average annual increase of 12%' in WET rebates paid,
which contrasts with the downturn in revenue collected from wine tax.
For example, the Department of Industry and Science estimates that '[r]evenue
was down from a high of $7.65 billion in 2006-07 to a forecast $5.6 billion in
Treasury Tax White Paper
In May 2015, the Government announced it would ask the Treasury to
prepare a discussion paper on the operation of the WET rebate as part of the
Tax White Paper process. The Assistant Treasurer reported that:
Growers and producers have raised concerns whether the
current operation of the WET rebate is continuing to meet the original policy intent.
The WET Rebate Discussion Paper was released by the Treasury in August
2015, calling for submissions to the Government's appointed WET Rebate
Consultative Group which includes representatives of the Treasury, WFA, WGGA,
Wines of Western Australia and leading industry representatives.
The group will consider submissions and provide advice to the Government
on options for reform, and has indicated that a 'Green Paper' will be released
in the second half of 2015.
Wine Tasmania told the committee that there are 'many issues that are
not necessarily canvassed’ in the discussion paper.
Criticism of the wine equalisation tax
Some contributors to this inquiry expressed dissatisfaction with the current
taxation arrangements for wine.
National peak body Wine Grape Growers Australia told the committee that 'the
high domestic tax regime is an impediment to industry profitability.'
Representing growers and producers, Wine Tasmania urged the committee to
consider 'the overarching structure of wine tax.'
In a 2010 Audit Report, the Australian National Audit Office noted that there
is 'considerable complexity' in calculating the tax on wine,
and this complexity was remarked upon by some submitters.
The committee heard economic and health policy arguments that wine sales
should be taxed based on a volumetric basis whereby tax is calculated on the
alcohol content of products rather than their value. Treasury Wine Estates
argued that the current basis for calculating wine tax disadvantages producers
of premium wines who pay more tax than producers of cheaper wines. They argued
for 'a flat volumetric tax within the current WET regime.'
Director of Group Corporate Affairs Roger Sharp told the committee '[i]t is
just nonsensical to us that you have a tax system which effectively penalises
you as you produce a more premium product', stating that:
...ultimately the future success and profitability of
Australian wine will be achieved by producing higher quality, more premium
wines rather than more mass, commoditised grape juice.
Differently, the not-for-profit Foundation for Alcohol Research and
Education (FARE) argued for 'a new wine tax system... based on public policy
principles that acknowledge the harmful nature of alcohol'.
They submitted that replacing the WET with an excise would increase government
revenue and reduce the rate of alcohol consumption and alcohol-related harms.
As well as conducting 'benefit cost analysis' in 2012, FARE submitted that:
...nine separate government reviews have recommended overhauling
the wine taxation system, including the Henry Review which determined that
reforming the WET was a matter of urgency for the Australian Government.
Of the reports cited by FARE, only the Australia's Future Tax System
(Henry review) panel of 2009 found that the 'the wine equalisation tax, currently
designed as a value-based revenue-raising tax, is not well suited to reducing
The report recommended transition to a volumetric tax on
alcohol, converging over time to a single rate.
Different to the Henry review, the 1995 Committee of Inquiry into the
Winegrape and Wine Industry had recommended a 'composite tax' with value-based
and volume-based components,
and the 2011 Western Australian Education and Health Standing Committee report
recommended that state and federal governments negotiate on 'introducing a
tiered volumetric tax in addition to a minimum retail price per standard drink.'
Rather than recommending a volumetric tax, other reviews cited by FARE
recommend further consideration of the basis for wine taxation. For example,
the Australian National Preventative Health Agency's 2012 report found that
'the current operation of the Wine Equalisation Tax is of concern and requires
Likewise, the 2003 House of Representatives Standing Committee report
recommended the Commonwealth 'investigate the social benefits' of calculating
tax based on alcohol content.
In responding to the Henry review and the National Preventative Health
Taskforce's report of the same year,
the Government stated it would not 'change alcohol tax in the middle of a wine
glut and where there is an industry restructure underway'.
The industry restructure referred to is the Wine Restructuring Action Agenda
launched by national industry organisations in 2009, and activities and future
priorities released in December 2010.
The committee heard qualified support for a volumetric tax on wine from some submitters.
However, more submitters were opposed to a volumetric tax, arguing it would be
detrimental to producers or to the industry at large. Murray Valley Winegrowers
submitted that local growers are 'fearful of taxation changes that could place
them in an even more precarious financial position,' specifically referring to
the recommendations of the Australia's Future Tax System review.
Treasury Wine Estates submitted that 'a single volumetric tax for all forms of
alcohol is not appropriate because of the unique structure of the wine
Accolade Wines submitted that:
A change to a volumetric tax would penalise and directly
inhibit the sustainability of our $2 billion export industry that directly and
indirectly employs up to 60,000 people, mainly in regional Australia.
Arguing to the contrary, FARE submitted that 'claims about job losses
within the wine industry as a result of changes to a volumetric tax are greatly
A number of submitters and witnesses were opposed to a volumetric tax on
wine on the grounds that its likely impact was uncertain.
WFA argued that 'modelling on the impact on the industry has not been done.' The committee notes that WFA
expressed a proactive
approach to addressing health policy concerns, including a commitment to 'continue
critical analysis into the link between price and at-risk consumption and
incorporate the findings into its advocacy on alcohol tax issues.'
Criticism of the WET rebate
In this section, the committee critically evaluates the WET rebate,
considering evidence that the rebate:
inhibits much-needed wine industry restructure;
is subject to unlawful claims or rorting;
subsidises bulk wine and erodes the value of premium Australian wine;
is increasingly paid to major wine retailers;
discourages mergers in the industry; and
supports international producers at the expense of local
Distorting the market
Some witnesses argued that the WET rebate is holding the wine industry
back. Treasury Wine Estates told the committee that:
There is an agreement—I think reasonably broad
agreement—around sections of the industry that the status quo on things like
the rebate is simply not sustainable moving forward and not in the industry's
Their submission was that '[c]urrent wine tax arrangements actively
distort the market, preventing necessary restructuring and sustaining structural
Similarly, Pernod Ricard Winemakers told the committee that:
The current WET rebate is another major factor inhibiting
industry restructure, as it subsidises producers who would otherwise not be
able to compete in a free market, artificially alters business models to
maximise qualification of the rebate, and restricts consolidation of the
Further, the South Australian Wine Industry Association expressed
concern that the rebate has 'unintended consequences' and its application was 'likely
to be driving outcomes which are not providing the necessary support for the
Treasury Wine Estates recommended 'major reform, or removal of the
current WET Rebate, and a move to a category based volumetric model of taxation,'
which is discussed further below.
Even from those who support retaining the rebate, the committee heard
that the rebate as currently structured is distorting the market and having a
negative effect on the price of Australian wine, including overseas.
For example, the Riverina Wine Grape Marketing Board expressed a view that 'the
WET rebate is subsidising cheap wine in the market' and that 'once we get that
subsidy out of the way, wine should return to its correct value.'
The committee heard from a number of submitters and witnesses that WET rebates
are critical to the profitability of many businesses.
For example, Wines of Western Australia noted that in response to a 2011
survey, ninety five per cent of their members 'responded that the WET rebate was
critical to the profitability of their business and sustainability.'
Clare Region Winegrape Growers Association and Clare Valley Winemakers told
the committee that without the income from the WET rebate, 'the smaller
organisations... would suffer the most.'
Similarly, Wine Tasmania said that the total removal of the rebate would have a
significant impact on individual Tasmanian producers many of whom are 'under
the threshold' of the maximum rebate payable. Chief Executive Officer Sheralee
Davies explained that:
...should the rebate be removed in full our small wine
businesses would go from effectively paying no net tax to paying 29 per cent on
the high value of our wine. We know Tasmanian wine is amongst the highest value
in the country so the impact would be severe.
Arguing to the contrary, FARE described the WET rebate as 'a form of
corporate welfare that supports otherwise unprofitable business to continue
A large number of submitters and witnesses stated that the WET rebate is
subject to deliberate unlawful claims or 'rorting', which is
increasing the cost of the rebate without tangible benefits to its intended
While evidence received of rorting or 'double-dipping' is largely anecdotal,
the committee heard that the rebate is routinely paid to claimants who are not themselves
growers or producers, to the value of up to $61 million.
That Australian National Audit Office has stated:
A number of schemes have arisen in recent years where grape
growers are attempting to improperly access the producer rebate, while some
wholesalers and retailers have also been inventive in minimising the amount of
wine tax paid. Some of these schemes are within the provision of current
legislation but have the potential to erode revenue, contrary to the original
intent of the tax.
Key examples of 'contrived arrangements' are outlined in the Taxpayer
Alert series produced by the Australian Tax Office (ATO).
In particular, the ATO described situations where a wine producer who has
already claimed the maximum $500 000 establishes 'linked entities' to claim
additional WET rebates. The committee understands that linked entities are used
buy additional grapes from the grower and have the producer
manufacture the grapes into wine, then sell the wine back to the producer and claim
a WET rebate on that sale; or
buy bulk wine from that producer and 'blend' the wine (therefore qualifying
as producers themselves), then sell the wine on to further linked entities and claim
a rebate on the sales.
The ATO lists a number of features of concern about these arrangements including
whether the entities are in fact eligible producers under the WET Act, whether
WET liability or rebate entitlement should be adjusted to reflect 'non-arm's
length transactions' and whether the anti-avoidance provisions in the GST Act
apply which incur penalties such as repaying up to 75 per cent of the tax
WFA stated that they can work with the ATO to eliminate uncommercial
To minimise rorting, Wines of Western Australia submitted in favour of
removing the 'quoting system' which allows rebates to be paid to producers or
linked entities that have not themselves paid WET.
By 'quoting' the ABN of the entity that will pay WET on the final sale, producers
and entities are able to qualify for rebates on sales between them without
WFA told the committee that quoting is 'a widespread practice among grape
growers who produce contract-made bulk wine'. They submitted that they 'do not
know how widespread the practice is... to purchase wine for blending or to
supplement their own production.'
Wines of Western Australia proposed that as an alternative to quoting,
producer rebates should only be received for WET paid. This would require distributors
to notify producers of the exact amount of sales tax paid during a given
WFA stated that they would consider a proposal to remove the quoting system if
it was proven effective and workable:
In regards to the proposal to allow the rebate to be paid
only on wine where the WET (tax) has been paid, if the details of such a
proposal clearly demonstrated that it met the criteria of delivering the
original policy intent of the rebate and led to sustainable profitability and
was easier to administer, then WFA would consider it closely.
The committee notes that Treasury Wine Estates and Pernod Ricard
Winemakers have argued against tying the rebate to the amount of WET paid,
including because such an arrangement:
...links the rebate only to domestic sales and ignores export
performance, which is two thirds of Australian production and offers the
greatest growth opportunities.
The committee heard support for the audit, compliance and policing
activities of the ATO in relation to the WET rebate, which led to the recovery
of $47.8 million in fines and adjustments in 2013‑14.'
This includes publishing public rulings by the Taxation Commissioner on the intended
application of the rebate.
Bulk wine industry
The committee heard that the producer rebate has unintended consequences
in subsidising the production of bulk wines which then flood the market and
lead to an overall reduction in price. Bulk wine is defined as wine sold in
containers greater than 25 litres.
Accolade Wines argued that contrary to the intention of the WET rebate,
producers of bulk and unbranded wines have a competitive advantage:
The availability of the rebate on bulk and unbranded wine has
served to drive down wine prices as producers seek margin by claiming the [WET]
rebate on grapes processed and sold as bulk and unbranded wine, which then is
available as retailers' own brands in competition with branded wine producers
who have the additional costs of supporting their brands through marketing and
Ms Virginia Tropeano submitted that 'if the WET rebate is found to be
contributing to the low prices paid for bulk wine then it is restricting the
ability of the industry to clear the wine glut and restructure.'
Retailers receiving the WET rebate
While the power and influence of retailers is discussed further in
Chapter 3, the committee has heard that the WET rebate provides an unfair
commercial advantage to major retailers who purchase bulk wine from growers to produce
their 'house brand products'.
Wine Grape Growers Australia submitted that:
The ability of major retailers to capture the value of the
WET Rebate is a key part of the unintended consequences of WET rebates in the
current operating environment.
Mr Warrick Duthy of Clare Valley Winemakers described major retailers as
'one of the greatest beneficiaries of the rebate'.
Riverland Wine explained that this leads to the situation where:
...retailers and large wine buyers trade with the rebate
included. Winemakers in the Riverland region often field calls from companies
seeking wine, and quoting two prices; one with and one without the rebate.
Wines of Western Australia stated that reform of the WET rebate 'is not
the silver bullet, but what that will do is provide fairer industry dynamics'
by putting a stop to 'the ratcheting down of the price points through the major
The committee heard that the availability of the WET rebate could be
discouraging mergers among small businesses, contributing to the unprofitability
of the industry.
To assist small to medium businesses 'who believe that their future lies in
WFA submit that the Government could:
Introduce transitional rebate measures for merged claimants,
phasing out at 25% per year over four years to encourage industry consolidation
by enabling merged entities to continue to claim the rebates they accessed when
separate so that this loss of benefit does not impede consideration of mergers.
The committee notes that WFA submitted this proposal to the Government’s
WET Rebate Discussion Paper on 11 September 2015.
PwC modelling commissioned by WFA suggested that despite the initial outlay,
encouraging consolidation 'would save the Commonwealth $31 million to the end
New Zealand producers
The Henry review of 2009 found that the WET rebate is not contributing
effectively to regional economies, reporting that:
The assistance provided by the WET rebate is poorly targeted.
It benefits wine produced outside rural and regional Australia, including wine
produced overseas... Spending targeted at rural assistance is likely to deliver
significantly better value for money to the community.
In particular, a number of submitters and witnesses asked Government to
reconsider paying the WET rebate to New Zealand producers.
The extension of the rebate to New Zealand producers in 2006 was described to
the committee as 'unfair',
Treasury Wine Estates estimated that in 2015‑16, Australia paid $25
million in rebates to New Zealand producers,
and Seppeltsfield Wine estimated even higher at $30 to $35 million.
New Zealand wine performs strongly in the Australian market. Australia
imports more wine from New Zealand than from any other country, at a value of
almost $335 million per year.
The Department of Industry and Science submitted that 'of the 15 per cent of
wine imported' into Australia, New Zealand wines make up '53 per cent by value
and 64 per cent by volume.'
Since the extension of the rebate in 2006–07, wine imported into Australia has
increased by 7.1 per cent.
The committee heard evidence that the WET rebate has contributed to the
growth of the New Zealand wine industry at the expense of local industry. They
cite as an example 'New Zealand Sauvignon Blanc, which in 2013 accounted for
one in every ten bottles of wine sold in Australia'.
Clare Winegrape Growers Association and Clare Valley Winemakers suggested that
New Zealand producers are selling bulk wine to supermarkets:
There is a reasonable amount of evidence to suggest that our
Kiwi cousins have benefited from the rebate, particularly in sales of bulk wine
and other branded wine that has ended up really being sold directly to
supermarkets, which has made it incredibly difficult to compete from a small
WFA suggested there is 'potential in the future for other countries to
also argue for equal treatment' which would require further outlay from
Australia on WET rebates paid overseas.
After New Zealand, the top countries of origin for wine imports into Australia
are France, Italy, Spain and Chile.
Their recommendation, supported by a number of witnesses and submitters, was
Abolish the separate NZ scheme because it affords NZ producers
a commercial advantage over Australian and other foreign country claimants...
In considering this recommendation, the committee is mindful of
Australia's international obligations. At the time the rebate was extended to
New Zealand producers, the Minister for Revenue and Assistant Treasurer the
Hon. Mal Brough MP stated the 'measure demonstrates the close economic relationship
shared by Australia and New Zealand.'
Under the Australia and New Zealand Closer Economic Relations Trade
Agreement of 1983 (CER), neither country may impose levies, taxes and
charges to imported goods from the other country above those applying to
Removing the rebate from New Zealand producers could be considered
contrary to the objectives of the CER, including to:
... eliminate barriers to trade between Australia and New
Zealand in a gradual and progressive manner ... [and] to develop trade between
New Zealand and Australia under the conditions of fair competition.
It could also give rise to international backlash, particularly from New
Zealand and also from other WTO countries to whom Australia could be considered
to have obligations under the General Agreement on Tariffs and Trade 1994 (GATT).
Measures available to New Zealand to enforce Australia's obligations under the
CER are consultative in nature.
Nevertheless, the committee is mindful that:
If New Zealand decided to take action, the consultations
under the CER or the dispute resolution under the GATT may become an expensive
and embarrassing exercise for Australia.
Reforming the WET rebate
A large number of submitters stated that the WET rebate had strayed from
its original policy intent which was to support smaller and rural and regional
producers, and should be reformed.
Informed by the criticisms identified above, the committee in this section
considers proposals to place a cap on the maximum WET rebate payable or to
tighten eligibility requirements, as well as removing the rebate altogether.
Capping the rebate
The committee heard that reducing the maximum amount payable to
producers as WET rebates could have the dual impact of preventing rorting,
reducing the cost of the rebate and supporting smaller producers. Treasury Wine
Estates and Pernod Ricard Winemakers explained that the majority of producers claim
less than $100 000 per year and would arguably be equally supported by a lesser
maximum rebate of $150 000.
Indeed, the committee heard that in 2011–2012, only 501 producers of the
total 1 912 claimed more than $100 000, receiving over 20 per cent of
Treasury Wine Estates and Pernod Ricard Winemakers explained that without
affecting the bulk of the industry, it would:
...immediately impact those businesses which have structured
themselves to maximise their rebate entitlement and whose production may be
actively contributing to both surplus production and diminished profitability
within the commercial wine segment.
The WET Rebate Discussion Paper called for submissions on what a maximum
new rebate could be if the cap was reduced. Suggesting that 'behavioural
changes' may flow from a reduced cap, the paper acknowledges that a reduction
would not entirely address the problem of 'double-dipping' or rorting, as it:
...would not address the incentive that currently exists for
large producers to structure their winemaking businesses into multiple entities.
For example, for a producer who is currently claiming $300 000 per year, there
would be an incentive to split its business across two entities to
maintain its $300 000 yearly entitlement.
The paper also considered whether the rebate could be provided as a
proportion of WET paid, for example at 60 per cent, capped at a set maximum.
This would reduce the amount paid to all producers who receive less than the
maximum. The paper noted, however, that for a proportionate reduction of this
kind 'the impact would primarily be borne by smaller producers.'
Tightening eligibility for the
Professor Geoffrey Lewis of the Clare Region Winegrape Growers
Association told the committee that the WET rebate:
...was not to support bulk wine production or to support New
Zealand production; it was there to support rural communities and the wine
industry through tourism and cellar doors and to maintain the health of the
To level the playing field, a large number of submitters and witnesses
supported a recommendation by WFA to:
Remove eligibility for the WET rebate from bulk, unpackaged,
unbranded [wine] and wine for the private label of retailers and from wine that
is not a finished product fit for retail sale....
The committee heard that changing eligibility for bulk and unbranded
wine could lessen the impact of 'virtual wineries'
including 'those that have arranged to access multiple rebates'.
It would so by limiting their access to 'what is, in effect, subsidised fruit.'
To more closely align the WET rebate to this original purpose, WFA
recommended tighter conditions on eligibility.
WFA President Mr Tony D'Aloisio AM stated that '[c]laimants should have
regional investments such as business premises, local liquor licences and they
should employ people.'
Mr Jeremy Dineen of Josef Chromy Wines similarly argued that:
...the rebate itself should be tied to capital invested in the
wine industry, and specifically to capital invested in production assets—so
vineyards and/or wineries. I think that then removes a large percentage of the
rorting that can happen.
The committee heard from WFA that based on their proposal, 'reforms on
the WET rebate offer the government in excess of $200 million in savings over
the forward estimates.'
Removing the rebate
As well as changing the WET rebate in the short term, the committee
heard support for the rebate to be phased out altogether in the longer term.
For example, Treasury Wine Estates submitted 'that reforms could go further
including eventual outright abolition of the WET Rebate.'
Their submission to the Treasury Re:think discussion paper in June 2015
included a recommendation to 'abolish the WET rebate over the longer term, and as
an immediate step, implement the package of reforms to the WET Rebate proposed
by the WFA.'
Removing the WET rebate was also supported by Pernod Ricard Winemakers,
who submitted that they have several times:
...called for the abolition of the WET rebate. This remains our
preference, as it is simpler and does not encourage wine businesses to
artificially manipulate their business model to maximise their rebate.
Government support for regional development and cellar door wine tourism can be
provided directly to intended recipients, avoiding the present situation which
sees foreign winemakers qualifying for rebates.
For peak body Wine Grape Growers Australia, it was a 'democratic matter'
to support broad reform of the WET rebate, because the majority of represented
growers do not produce wine and are therefore not eligible for the rebate.
Instead, those growers are disadvantaged by the effect that the rebate has on
the price of their product:
Ninety-two per cent of our constituency will never have the
hope of being able to gear up to convert their grapes to wine—the grapes they
cannot sell to wine companies—in order to get the WET rebate. So, given the
degree to which the WET rebate is driving down benchmark prices, because people
are trading off the sales price for the WET rebate they receive, clearly they
Treasury Wine Estates and Pernod Ricard Winemakers stated that instead
of the WET rebate, in future 'a direct grant may also provide a way of better
targeting intended recipients.'
Impact of reform
The committee consistently heard that any savings from WET rebate reform
should be reinvested in local industry to offset the financial impact on small
businesses, including growers. Treasury Wine Estates recommended that:
...savings delivered through major reforms to the WET Rebate
could be delivered to help fund such transitional support. Additionally,
consideration should be given by Government to incremental reductions in the
WET Rebate in order to facilitate a smooth transition.
The committee heard that those who would need support include an
estimated '300 independent growers who have redesigned their businesses
based on the WET rebate', comprising only eight per cent of growers overall but half of those who are considered independent growers.
Wine Grape Growers Australia appealed 'for those grower businesses to be
incorporated into a transition process so that they are not burnt in the
The committee heard a variety of proposals for transitional measures to
support those affected by WET rebate reform. Treasury Wine Estates suggested
that grants for re‑training and 'exit schemes' work well if designed
correctly to help 'participants exit the industry with dignity.'
Mr Nick Waterman from Yalumba Wine Company expressed support for measures to
'assist regional growers to redeploy the use of their land where it is not
profitable for them to continue to grow grapes.'
WFA told the committee that they would encourage grape growers to 'redirect
their bulk to the export markets'.
The WFA proposal to reinvest WET rebate savings into marketing Australian
wine is discussed further in Chapter 4.
The committee has heard persuasive evidence that the WET rebate is
working against the profitability of the Australian wine industry, and agrees
with industry representative bodies that urgent reform is required. The bulk of
witnesses and submitters agreed that the original policy intent of the rebate
is no longer being realised as the rebate is paid to entities without ongoing
capital in the Australian wine industry.
The committee has heard that the rebate's distorting effect is an
ongoing threat to the sustainability of the grape and wine industry and to Australia's
international position as a premium producer. Accordingly, the committee is of
the view that widespread rorting and misapplication of the WET rebate are best
addressed by a phased removal of the rebate in its entirety, while providing targeted
industry assistance to those genuine recipients whose commercial viability depends
on the rebate.
Considerable savings would result from phased removal of the rebate, and
the committee highlights the importance of sensitive redeployment of that
funding to assist growers and producers in adjusting their business models or
making a transition out of the industry. At the same time, the committee urges
the Government to undertake comprehensive reform of wine taxation so that the Australian
industry remains competitive.
The committee recommends that the Government phase out the
current Wine Equalisation Tax (WET) rebate over five years, allocating the savings
to a structural adjustment assistance program for the industry including an annual grant to genuine cellar door operators to
support their continued operation.
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