Wine Equalisation Tax rorting set to end

Wine Equalisation Tax rorting set to end with new legislation


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LEGISLATION to reshape the Wine Equalisation Tax (WET) rebate, seeking to rid the system of rorting while enhancing integrity, has passed federal parliament.

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LEGISLATION to reshape the Wine Equalisation Tax (WET) rebate, seeking to rid the system of rorting while enhancing integrity, to deliver on its original purpose, has passed federal parliament.

From July 1 next year, the WET rebate cap will be reduced from $500,000 to $350,000 and its eligibility criteria will also be changed.

A wine producer will now be required to own at least 85 per cent of the grapes used to make the wine throughout the winemaking process.

The altered eligibility standard is designed to address “virtual” winemaking schemes where the WET rebate is being claimed multiple times, but on the same parcel of wine.

Under the new changes, wine producers will now be required to sell wine packaged in a container not exceeding five litres and branded with a registered trademark.

Containers for traditional cider and pear cider, which can also access the rebate, must not exceed 51 litres.

As part of industry support, the federal government is also providing $50 million over four years to the Australian Grape and Wine Authority to promote local wine.

In addition, a wine tourism and cellar door grant program is coming into play in 2018-19, to allow producers who exceed their cap to access a grant of up to $100,000 for their cellar door sales.

Assistant Agriculture and Water Resources Minister Anne Ruston said all of the changes and initiatives were aimed at refocusing the Australian wine industry on exports “where it’s most lucrative and profitable opportunities are”.

“They’re also aimed at eliminating distortions in the domestic market and transforming how we market Australia’s wine overseas,” she said.

Agriculture and Water Resources Minister Barnaby Joyce said the Australian wine industry was a “vital economic powerhouse” for the regions, attracting thousands of international visitors each year.

Mr Joyce said Australian wine exports were expected to exceed $2.5 billion in 2017-18, with benefits flowing to wine producers as well as regional wine producing communities.

“The Australian wine industry contributes $40.2 billion to the Australia economy and creates over 172,000 full and part-time jobs throughout Australia,” he said.

Revenue and Financial Services Minister Kelly O’Dwyer said the Australian government’s move to tighten eligibility for the WET rebate followed extensive consultation with the industry.

“Through organisations such as the Winemakers’ Federation of Australia, the industry has made a tremendous contribution in designing and delivering the reforms,” she said.

During a speech on the bill last week, Labor Bendigo MP Lisa Chesters said Labor had acknowledged the need for change “for quite some time” with the WET rebate first introduced in 2004, which provided tax relief of up to $500,000 to wine producers.

Ms Chesters said the policy’s intent was to benefit small wine producers in rural and regional Australia but currently that wasn’t being met.

She said it was the “consensus” of the government, opposition and industry that there was a need for change.

“The rebate did lead to overproduction and damaged Australia's reputation for high-quality wine,” she said.

“It was plagued by rorting by virtual winemakers due to the complexity of the arrangements that had been set up.

“People got really smart.

“They worked out the loopholes and the ways in which they could game the system.

“We all need to acknowledge that and be responsible for and proactive about tightening those loopholes.”

Ms Chesters said the reform was necessary because it saved the federal budget hundreds of millions of dollars a year – but Labor questioned the timing and the way in which the WET bill had been brought forward originally.

She said the day after the 2015 budget where changes were revealed, she received a phone call from a local winemaker in her electorate - from Bress Winery – raising immediate concerns.

“Adam said to me, 'Lisa, the problem with the reform that has been put forward and the date it starts is that that wine is already in the barrel. It's unfair to bring these reforms in so quickly, reducing the cap so quickly, without any notice to winemakers and wine manufacturers’,” she said.

“He was right.

“That triggered a conversation that I had as a local MP with people in the Labor opposition team but also, like a number of wine growers, I engaged the government and government ministers to say: 'You can't bring this on in this format and in this way. There needs to be broader consultation with the sector’.

“There were concerns that the original proposal that was announced on budget night focused first on reducing the cap and second on addressing the issue with bulk and unbranded wine.

“For a long time it's been acknowledged in the wine industry that the real rorting that has gone on with the wine equalisation tax has been in the space of bulk and unbranded wine.

“There was also concern on budget night around eligibility.

“So what constitutes a winemaker?

“What constitutes a cellar door?

“Who would actually be eligible for this particular rebate?

“People in my electorate were so concerned because they believed it would stifle innovation and it would stifle their investment.

“They were concerned that the original proposal to deal with the fact that there was rorting going on in this space and that it was costing the budget necessary revenue, whilst well intentioned, wouldn't achieve that.”

But Ms Chesters said she wanted to acknowledge that, after those first “alarm bells from the industry” and from MPs, the government ministers involved in this space did listen.

She said they took on board concerns and started genuine face-to-face grassroots consultation, engaging with not just the wine associations nationally - the Winemakers' Federation - but also with the wine industry.

“Because we have had the consultation, our winemakers in our region are now able to change,” she said.

“They are now able to know going forward exactly where they stand.

“What we have before us is a compromise.”

Winemakers Federation of Australia Chief Executive Tony Battaglene said the reforms were needed to restore the WET system’s integrity.

“I was delighted to see all sides of politics coming together to support passage of these very important reforms through Parliament,” he said.

“The reforms will help ensure the WET rebate can continue to deliver on its original policy intent of supporting winemakers who have a genuine investment in regional areas, growth and innovation.

“To operate successfully in a highly competitive global market, it is critical that the domestic policy and regulatory framework is robust and without distortions.”

Changes to prevent “double-dipping and overproduction”

WA rural Liberal MP Nola Marino said the changes were important to wine producers from the Margaret River region of her electorate of Forrest.

“There are over 150 wineries producing outstanding wines, including top-quality chardonnay and cabernet sauvignon,” she said.

“Margaret River's wine exports were valued at $27.8 million in 2016 - an increase of 18 per cent - and it's being exported to countries such as China, the UK, the US, Singapore and Canada.

“Importantly, given the measures in this WET rebate bill, there are over 100 actual cellar doors in the Margaret River region that will benefit as a result of the decisions made in this bill.

“The industry itself, though, along with government, acknowledged that there needed to be tightening of the eligibility rules to prevent the rebate being claimed multiple times on the same wine and to stop double-dipping and overproduction just for that purpose.

“This bill introduces changes to address those industry integrity concerns about the WET rebate and to better target - again, bring it back to what it was originally intended to do - which is to support those small-to-medium Australian craft wine producers as originally intended, not the bulk and unbranded.

“I particularly wish to thank Assistant Minister Senator Anne Ruston, who led the discussions for the government on this matter.”

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