SPIRITS PRODUCERS have claimed the Federal Government is “giving with one hand and taking with the other” as the hospitality sector braces for the fourth alcohol tax rise in two years spent battling COVID.

Spirits and Cocktails Australia chief executive Greg Holland described the excise hike of 2.1%, announced by the Australian Tax Office yesterday, as “brutal” at a time when many hospitality operators were struggling to remain afloat.

“Spirits producers in Australia are part of a hospitality ecosystem that is on its knees across the country, with many of our businesses battling the perfect storm of staff shortages, supply chain problems and depressed consumer confidence,” Mr Holland said.

“The Australian way is to give a hand in a time of crisis, but instead this government has given us a hike – the fourth brutal tax hike since COVID arrived on our shores.”

Australia infamously has the third highest spirits tax in the world, after Norway and Iceland, with the impost worsening every six months due to automatic CPI-linked increases. The punishing regime has created a situation where up to 60% of the retail price of an average 700ml bottle of spirits in Australia is tax.

While small distillers won some relief in last year’s Budget, Mr Holland said it now looked like the Federal Government was “playing a game of smoke and mirrors.”

“We were gratified the Budget last May delivered about $20 million in much-needed relief to our industry by increasing the craft distiller remission scheme limit from $100,000 to $350,000 per year,” Mr Holland said.

“But now this latest tax increase, combined with another rise in August 2021, will effectively rake back more than five times that amount, about $100 million in revenue, this financial year. It looks like the government is giving with one hand while taking with the other.”

A joint campaign by Spirits and Cocktails Australia and the Australian Distillers Association has called on the Federal Government to freeze the excise increases for at least three years and align the spirits tax rate with the brandy rate to give the industry a chance to consolidate and recover from the devastating impact of the pandemic.

With the cost of doing business its highest in recent memory, Mr Holland said the tax changes would ease the inflationary pressure on spirits producers and hospitality, and provide the conditions to drive investment and job creation to fuel the industry’s recovery.

Australian Distillers Association chief executive Paul McLeay said Australia’s unfair spirits tax was a handbrake on an industry that could otherwise be booming as Australian wine did in the 1980s and 90s.

“We know the growth of distilling in Australia will deliver benefits from farm to glass,” Mr McLeay said.

“Most of our distillers are based in rural and regional areas and many of them could be employing more staff, buying more local produce, exporting more quality Australian products and attracting more tourists to their regions.

“On top of all of the challenges COVID has thrown at the hospitality industry, a fourth tax hike in two years feels like a kick in the guts.”

A TAX hike imposed today on the distilling industry is a “kick in the guts” to businesses already struggling with the impact of COVID lockdowns.

The excise hike of 1.4% announced by the Australian Tax Office is the 19th in a decade for distillers in Australia, who already pay the third highest spirits tax in the world.

The tax blows out further every six months, because of indexation to the CPI. The automatic increases mean the Federal Government’s average tax take from the distilling industry, which includes the manufacturing of premixed spirits, increases by $100 million – $120 million every year.

“This is a never-ending tax with an ever-increasing appetite,” Spirits and Cocktails chief executive Greg Holland said.

“It has always been a handbrake on the growth of businesses that could otherwise be employing more staff, buying more local produce, exporting quality Australian products, and attracting more tourists to local communities.

“But with COVID, this latest tax hike feels particularly savage. It’s a kick in the guts to the many distillers and manufacturers, pubs, bars and restaurants who are struggling in the face of repeated lockdowns and a decline in tourism.”

A joint campaign by Spirits and Cocktails Australia and the Australian Distillers Association has called on the Federal Government to freeze the excise increases for at least three years to give the industry a chance to consolidate and recover from the devastating impact of rolling COVID lockdowns.

“But after some very welcome relief in the Federal Budget, where the government increased the excise cap for small distillers from $100,000 to $350,000, the return to automatic excise hikes looks like Canberra giving with one hand and taking with the other,” Mr Holland said.

“The Budget’s increase in the excise cap was worth about $20 million for the industry. But today’s hike could drag up to five times that amount back in tax.”

Having the third highest spirits tax in the world, exacerbated by automatic increases twice a year, has created a situation in Australia where up to 60% of the retail price of an average 700ml bottle of spirits is now tax.

“That is an outrageous burden, imposed by the Federal Government, on a sector that could otherwise be replicating the growth of the Australian wine sector.”

The Australian spirits industry welcomes the Morrison Government’s announcement overnight of a $2.6 million grant to explore the potential of Blockchain technology to enhance the productivity and competitiveness of the food and beverage sector.

The grant is funded under the Australian Government’s Digital Business package, which was announced in the Federal Budget 2020-21, and aligns with the Government’s National Blockchain Roadmap, which was released in February 2020.

The Minister for Industry, Science and Technology Christian Porter MP confirmed the ‘Convergence’ consortium would receive $2.6 million to pilot a program to leverage blockchain technology to automate key reporting processes under the excise system to reduce compliance costs associated with the creation, storage and transportation of Australian spirits. The Convergence consortium comprises leading tax specialists from KPMG Australia, and digital transformation and blockchain experts Converge.tech.

Spirits and Cocktails Australia Chief Executive Greg Holland said:

“This grant provides a great opportunity for the spirits industry to be at the forefront of testing the viability of Blockchain to solve the challenges associated with excise payment processes and compliance. The project offers the potential form the foundations of new regulations and policies which can transform the food and beverage industry.”

Australian Distillers Association Industry & Government Engagement lead Paul McLeay said:

“The ADA looks forward to collaborating with Convergence to contribute subject matter expertise to the project and support the research and adoption of the product through our members. We are proud to partner with Convergence.Tech and KPMG who have the technical blockchain skills and excise taxation expertise to successfully deliver this pilot.”

Alcohol Beverages Australia Chief Executive Andrew Wilsmore also welcomed the announcement:

“This project offers a unique opportunity to deliver on the goals outlined in Alcohol Beverage Australia’s Vision for Industry 2030 to gauge the effectiveness of Blockchain technology to meet the demands of modern manufacturing in the digital age. We look forward to seeing the results of the pilot to understand the potential benefits for the broader alcohol industry.”

The Australian Distillers Association and Spirits and Cocktails Australia applaud the Morrison Government’s decision to increase the excise refund cap for small distillers and brewers from $100,000 to $350,000 per year as part of the 2021-22 Federal Budget.

This initiative will deliver much needed assistance to more than 300 craft distillers, most of whom are based in rural and regional areas, and also represents a promising first step towards unleashing the potential of the Australian spirits industry.

Australian Distillers Association president Stu Gregor said: 

“This decision provides much needed relief for hundreds of craft distillers around the country that were severely impacted by COVID-19. It means craft distillers will have more capital available to help their businesses grow and to employ more locals – bringing important economic benefits through job creation, expanding farm production, regional tourism and hospitality for our communities.

“We have great ambitions to grow Australia’s world-class distilling industry and this is a great first step that will help the industry to grow.”

Spirits and Cocktails Australia chief executive Greg Holland said:

“The best alcohol tax system is a fair one, so we thank the Government for bringing the tax incentives offered to small distillers and brewers into line with those offered to small wine makers.

“However, we note that Australia’s alcohol tax regime remains fundamentally flawed and unfair, imposing a spirits tax that is already ten times higher than the US rate, and 68% higher than New Zealand’s, with further increases every six months.

“We look forward to continuing to work with the Government toward a fairer and more sustainable spirits tax regime – one that aligns spirits tax rates with brandy, and freezes CPI increases – to create jobs, investment and export opportunities in a burgeoning Australian industry.”

Australia’s distillers have welcomed cross-party support in federal parliament for urgent action on this country’s spirits tax regime, now the third highest in the world.

A motion calling for spirits tax reform was moved in the House of Representatives on Monday night by Tasmanian Independent Andrew Wilkie (the member for Clark), and seconded by South Australian Independent Rebekha Sharkie (Mayo).

Coalition MPs Bridget Archer (Bass) and Tim Wilson (Goldstein) and Labor MPs Brian Mitchell (Lyons) and Patrick Gorman (Perth) also spoke passionately in support of the motion.

The Australian Distillers Association and Spirits and Cocktails Australia applauded the members for their support of their industry, which now employs more than 5,000 Australians and supports another 15,000 jobs indirectly.

The organisations welcomed the growing recognition among federal MPs of how the unfair spirits tax is holding back a promising Australian industry, as captured in the members’ speeches on Monday night:

“Tasmania's boutique distillers in particular desperately need this tax reform and some may sink without it… It is clear that current spirit taxation is a huge barrier to locally-made craft spirits, achieving success nationally and in overseas markets.” – Andrew Wilkie, Member for Clark “We are taxing the lifeblood out of this industry, and this industry will not flourish. The government says it's a government for low taxes and believes that, by lowering taxes, we stimulate the economy.

Well, this is a prime example.” – Rebekha Sharkie, Member for Mayo

“I believe an opportunity exists to look at reducing the current rate of the spirits excise, even by a moderate amount, which would provide our distillers with the confidence to reinvest in their businesses and create further jobs in the hospitality and regional tourism industries, two industries that were hardest hit by the pandemic.” – Bridget Archer, Member for Bass

“It's a space where we as a country do it so differently to everybody else, which gives us an incredible product position. But there's one thing that's holding us, like the entire country, back: we desperately need tax reform, tax reform, tax reform.” – Tim Wilson, Member for Goldstein

“When wine taxation was reformed, it led to an explosion in the industry. It just blossomed. That's what we want to see happen with spirits.” – Brian Mitchell, Member for Lyons

“We talk about bringing back manufacturing to Australia. The distilling industry is manufacturing, and we should do what we can to support it. It's exactly what Australians want: quality jobs, value added, export-ready.” – Patrick Gorman, Member for Perth

The Australian Distillers Association welcomes the Andrews Government’s announcement yesterday to invest $10 million in distillery door grants over the next two years.

This investment will directly benefit the 104 distilleries located throughout Victoria, who buy produce from local farmers, attract tourists to the regions, and create jobs, both within their own operations and in the services and supply chains.

Chris Pratt, Australian Distillers Association Victorian spokesperson and owner of Kilderkin Distillery in Ballarat, said:

“This is wonderful news for Victorian craft distillers. We will be able to invest more in our distillery doors to encourage more people to sample Victorian spirits and enjoy a unique and innovative distillery experience leading to further employment opportunities in Victoria.

“We are very pleased the government has recognised the contribution of the craft spirits industry to the Victorian economy, especially in regional areas where many distilleries are based. We thank the Andrews Government for their ongoing support.”

Dave Irwin, President of Spirits Victoria Association and owner of Patient Wolf in Southbank Melbourne, said:

“This is a great result for Victorian producers and consumers. This significant grant program will help to grow a burgeoning spirits industry. Spirit producers will be able to employ more people and positively impact the farmers and businesses that support them. More distillery doors will mean more consumers get to experience innovative products created by passionate people, and will enrich local tourism offerings.”

Holly Klintworth from Bass & Flinders in Dromana, who has been operating a cellar door since 2014, said:

“We get 20,000 visitors to our distillery door every year and with this grant we hope to use the funds to reinvest into additional resources to improve our visitor experience. This announcement will drive more people to the Mornington Peninsula.”

Russ Watson, founder of Bellarine Distillery on the Bellarine Peninsula said:

“We have a vibrant cellar door. Everything is made on the premises. This is going to help us develop what we have on our property. We have plans to build a new distillery and this will go a long way to making this happen sooner. This announcement will create jobs.”

Stu Gregor, President of Australian Distillers Association and co-founder of Four Pillars in Healesville, said:

“The announcement from the Andrews Government will mean more jobs for Victorians – especially in the regions and importantly, jobs that people will love. Craft distillers are passionate about the innovative and world class products they make.

“The ADA looks forward to working with the Andrews Government to ensure the program meets its stated objectives of supporting local jobs and investment in a financially responsible and sustainable way.”