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The Still Whine

As a first port of call on the subject of the taxation of the wine industry I felt obligated to touch on the issue that, more than any other issue, makes winemakers whine: excise.

Until 1 July this year, and bearing in mind that the retail price of most wines remains under extreme pressure owing to discounting, approximately $2.15 of the price of each 750ml bottle of wine purchased in a wine shop, supermarket, bar, restaurant, cellar door or online retailer will be attributable to excise.

Gripe number 1: Of that $2.15 approx. 24 cents will be GST – the proverbial tax on a tax.

Gripe number 2: From 1 July this year (if the annual rate of inflation to 31 March remains at the 2.0% rate to 31 December 2009) the excise component, including GST, will rise to over $2.19 per bottle.

As wine producers have nothing close to the market clout of brewers, who routinely recover the excise impost through pricing, the result will be a direct financial hit of about $3.4 million – taking the total domestic (not including imports) wine excise (based on current consumption of NZ wine) to over $150 million.

We are not alone. Our excise system shares much with that of the United Kingdom, for example, where the excise on alcoholic beverages is also indexed and subject to VAT.  The introduction of the Wine Equalisation Tax in Australia to accompany that country’s adoption of GST has attracted much attention because it allowed the creation of a rebate system for the explicit benefit of smaller producers.  The WET itself is a value-based tax, levied at the wholesale level and separate from, rather than subject to, GST.

In recent years New Zealand has experienced the explicit adjustment of an excise (that applying to higher alcohol content but non-table wine beverages such as RTDs and fortified wines) for social ends: to rein in alcohol abuse by young persons.  It had consequences far beyond the intended targets, who history shows moved onto other unaffected beverages.

Whether excise is a blunt tool, is efficient or is even desirable social engineering or revenue gathering, is open to debate.  In the context of the current review of how the tax base is comprised, and in the interests of transparency and GST neutrality, is it time to consider whether an Australian-style WET model would be preferable and more equitable than the current excise model?

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