Call to ‘fix’ spirits tax system in Australia

Two trade groups have called on the Australian government to reduce excise duty on spirits, said to be the third highest in the world.

Australia’s spirits excise tax compared to other countries Australian Distillers Association

The Australian Distillers Association, along with trade body Spirits & Cocktails Australia, submitted a joint Pre-Budget submission ahead of the government’s 2023-2024 federal budget. The budget is expected to be held on Tuesday 9 May.

In August 2022, Australian distillers were hit with the biggest tax increase in nearly 50 years. Tax has risen to AU$94.41 per liter of pure alcohol, based on consumer price inflation (CPI) figures.

From 1 February 2023, liquor duty will rise by 3.7% to AU$97.70 per liter of pure alcohol. Tax increases are implemented every six months in Australia.

The submission calls on the government to make ‘modest changes’ to the country’s spirits tax regime.

These include lowering the excise duty rate for the category to bring it in line with brandy, and freezing CPI on spirits and brandy tax rates for three years.

Spirits are taxed at one level if fermented from grapes (specifically brandy), and at a higher rate if fermented from grain (such as whiskey).

The document called the spirits tax ‘unsustainable’ and noted that it is more than double the duty imposed on beer and wine.

The trade bodies said the latest CPI hike meant distillers were ‘staring down the barrel’ of paying AU$100 tax per liter of alcohol, compared to beer hovering around the AU$50 mark.

The document states: “This means Australian distillers cannot invest sufficiently to expand our businesses and explore new opportunities, such as export or distillery tourism. This particularly affects regional communities because two-thirds of distilleries are located in regional areas. It is also at odds with the government’s ambition to build local manufacturing capacity.”

According to the submission, the Australian spirits industry contributes more than AU$11.6 billion in value to the country’s economy each year, and more than 52,900 direct jobs, with 5,000 of these jobs in spirits manufacturing.

The trade bodies cited analysis from PwC which estimated that a cut in spirits excise and a CPI freeze would deliver a full-year net increase of AU$143 million in government revenue, and a small 0.22% drop in alcohol consumption in Australia.

‘Comparative disadvantage’

From 31 July 2021, brewers and distillers could receive a full exemption from any excise duty, up to AU$350,000. The submission noted that while this benefited distillers, it limited their plans to ‘grow beyond craft-sized operations’.

Furthermore, it discourages smaller distillers from producing more than about 12,500 bottles of a 40% ABV product annually, equivalent to 250 bottles per week.

Small wine and beer producers can produce higher volumes of products because of their lower tax rates, meaning it takes them longer to reach the duty-free threshold, the trade body noted. As such, distillers face a ‘comparative disadvantage’.

The document said countries with more favorable tax systems benefit from investments that can be made in Australia.

The trade groups are calling on the public to write to their local MPs to ask them to ‘fix’ the spirits tax system.

Australia recently restricted alcohol sales in the Northern Territory to improve community safety.

Spirits are taxed at more than double that of beer and wine (credit: Australian Distillers Association)