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18/01/2016

WFA vexed by tax reform delay, influence of “vested interests”

THE wine industry’s peak lobby group is “at risk of losing its patience” with the Federal Government dragging its feet on wine tax reform, which it says appears to have been influenced by “vested interests”.

Cameron England The Advertiser

Winemakers’ Federation of Australia chief executive Paul Evans said there was broad consensus in the industry that the Wine Equalisation Tax Rebate needed to be reformed.

The WET Rebate allows wine producers to claim up to $500,000 as a tax rebate, and when it was introduced after the introduction of the GST, the intent was to spur investment in regional wine tourism and infrastructure.

In reality the system is open to exploitation by “virtual” winemakers and traders who can set up company structures designed to capture the rebate, costing the Federal Government hundreds of millions of dollars.

The WFA says the system also disproportionately benefits bulk winemakers and the supermarket duopoly to the detriment of the broader industry.

The WFA has put a proposal to the Federal Government to tighten up eligibility for the rebate, including phasing out the ability for bulk and unbranded wine producers to claim it, and abolishing the right of New Zealand winemakers to claim the rebate, which costs more than $25 million a year.

The WFA estimates these measures would save the Government $278 million over four years, as well as recurring savings beyond that, and has asked for $44 million of this to be returned to the industry for marketing, where it is seriously outgunned by overseas wine regions, which have marketing budgets sometimes 10 and 20 times as large as Australia’s.

But Mr Evans says the government is dragging its feet.

“The shift we’re trying to achieve for the industry is to reorientate it towards exports.

“You’ve got a tax regime that encourages domestic sales and that has been in place for some time.

“Now there’s a great opportunity to get some of that wine into the international marketplace but we need government help to do it.

“It really is time for them to act. This proposal has been in front of them for 18 months-plus.

“It’s hard to see why we’re not seeing progress when we’re offering significant savings (to the government).’’

“There is a risk that industry is losing its patience.’’

South Australian Liberal Senator Anne Ruston, who is Assistant Minister for Agriculture and Water Resources, has responsibility for the wine industry, and assistant treasurer Kelly O’Dwyer and naturally the Treasurer Scott Morrison are the key decision makers in this area.

Senator Ruston said the government understood the frustration with the slow pace of change and was hoping to make an announcement soon.

“This government remains wholeheartedly committed to assisting the Australian wine industry to flourish both domestically and overseas, and reforming the WET rebate is certainly a key part of that,’’ Senator Ruston said this week.

“There is no doubt that the process for WET reform has been slower than I would have liked, but I’m confident that we can soon deliver the solutions the industry is looking for.”

“The WFA and the WGGA (Wine Grape Growers Australia) have been extremely cooperative in sticking with the government on delivering WET reform, and we are very much continuing the conversation with them about the best method to deliver it.

“When it comes to industry reform, all individual operators and businesses are more than entitled their views, but ultimately it will be the voice of the broader industry through their representative bodies that will really shape the decision making process.”

The Government has held its own consultation process on the WET Rebate reform and that report has been given to the Government Mr Evans said.

“We believe that their report, although we haven’t seen it, is supportive of our proposals so it’s very unclear to us why government continues to not progress this.

“Of course the role of certain other stakeholders in this has been well-documented.’’

Mr Evans said while the industry was clearly not unanimous in support of removing a rebate which many benefited from, there was broad consensus that it was necessary.

The “other stakeholders” who oppose change include the supermarket duopoly, Coles and Woolworths, who produce large amounts of bulk wine and wine entrepreneur Warren Randall, who is the largest land holder in the Barossa and a large bulk wine producer in his own right.

Mr Randall told a recent senate committee hearing in Adelaide — a separate investigation into the wine industry broadly — that the Randall Wine Group was “the largest supplier of premium bulk wine in Australia” with “six wineries capable of crushing 43,000 tonnes and producing 34 million litres of premium South Australian wine every year’’.

Mr Randall argued that removing the WET Rebate would return the wine industry to a “cottage industry” and argued that the government should not only retain the rebate — with some modest reforms — but also kick in $250 million for overseas marketing of Australian wine.

“The government must fund export demand,’’ he said.

“I think that needs to be to the tune of around $250 million, not $43 million. We should not remove the WET rebate but we should carefully modify it.’’

Mr Randall said the WFA was not representative of the wine industry, representing just 20 per cent of the sector.

Mr Evans said Mr Randall’s point of view was not reflected by the broader industry, with representatives at the senate hearings in support of reform.

“It is surprising that some individuals who look to WFA to manage a number of national issues such as wine & health, FTAs and market access only question its mandate when it comes forward with a tax policy that doesn’t suit their narrow commercial self-interest,’’ he said.

“WFA’s key reform policies are backed by Wine Grape Growers Australia and all state wine associations.”

The hope is that the money diverted from the WET Rebate can be used to promote Australian wine overseas, particularly in the US.

“The industry is still predominantly small to medium sized and they need the category-level promotion of Australian wine to go ahead with some strength and resources behind it and that’s just not apparent,’’ Mr Evans said.

“Essentially what we’ve seen in the last half decade is a drift towards the commoditsation of the industry and a strong focus on the domestic market.

“Both of those things are at complete odds to what made the Australian wine industry successful in the late 1990s early 2000s.

“Of course, interests have prospered in that time. Not everyone has suffered. You’ve seen bulk wine processors, those who supply and sell home brands and clean skins prosper because there has been an oversupply of very cheap grapes and very cheap winemaking production.

“Of course those interests now are embedded and are resisting our changes.

“What we’re saying is that the brands and the brand owners who built this industry are not owed a living, but they are owed a fair crack at it, and when you’ve got a home brand market that has the ability to leverage multiple rebates, and that business model is not available to others, then that is simply not fair.

“Standing in the way are those who have prospered during the downturn, and those vested interests are seemingly impacting the government’s reluctance to progress our reforms.

“For the long term future of the industry if the government doesn’t do anything we have to imagine what the industry will be like in five to 10 years’ time when home brands and low equity brands from the industry are already about 20 per cent of the market, what will they be in five to 10 years?

“We don’t want wine sold into the future for three or four dollars a bottle.

“It’s leading to bulk, homogenous, low-margin, high-volume, low brand equity future for the industry. That’s not something we can take to the world and expect to be taken seriously.’’

The Senate inquiry committee’s report into the wine industry. which was tasked with looking into issues including the effect of the taxation regime and the power of the major retailers, was due to report to the Government by November 11.

Senator Ruston said the committee’s recommendations were “expected to be presented to the government in early February, and while I haven’t seen the report, and of course don’t want to speculate about the findings of this inquiry, I can say unequivocally that I remain open to any recommendations about improving the industry.”

 

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