WET: BIG SQUIRTERS ROLL OUT RAZOR WIRE

New SAW Gang Sweats Over WET
Paranoid Fantasies Rule Rorters
Big Tribes Panic Over Tax Rebate
by PHILIP WHITE

What do Yalumba, McWilliams, Tyrrells, Tabilk, Angoves, Brown Brothers and Taylors have in common with Neil McGuigan, the Casella family and Yellowtail?

I might usually suggest, that when all is said and done, the vast bulk of their wines are generally of equal quality.

But in this instance, that is not my case; this obvious appellation, whilst helpful for their gang, is not news: it is a stale old headline.

The really new news this week is their formal announcement of their love of the Wine Equalisation Tax (WET), which was sold to the wine industry at the introduction of the Goods and Services Tax (GST - VAT) on the grounds that it would protect very small wineries by giving them a rebate on tax paid when their profits were low, or simply not there.

So why, at a time when they boast of the industry undergoing dramatic restructuring, would these rather large-to-huge wineries be so worried about protecting the army of their smallest, least efficient rivals, whether these littlies wanted such protection or not? Why would these big companies argue for the retention of the WET, when much bigger companies, like Foster’s Treasury group, including Penfolds and Wolf Blass, and Pernod Ricard, including Jacob’s Creek and Wyndham, are arguing that the WET is a mess which adds to the turbid Australian wine lake and is open to rorting on a vast scale?

Surely these grand old family wine houses aren’t claiming the WET rebate?

I can’t say for sure. There are so many loopholes in the WET that I’m surprised it didn’t dry right out years back. You can rifle it easily without breaking any law. The fact of its survival is reflection, more than anything else, of the overt lobbying power which rorting ethanol dealers exert over the Australian Labor Party, which seems to be run by the Shoppies, the trade union whose members work in the discount booze stores owned by the liquor retail duopoly, Coles and Woolworths.

I can’t quite believe that the Winemakers' Federation of Australia (WFA, or The Woofer) would have told the health lobbyist, the Alcohol Education & Rehabilitation Foundation (EARF), that $50 million of WET rebate goes to retailers, and if I did, I couldn’t accept that it could possibly be this humungous duopoly of mass discounters who get that fifty large. But something along these lines has been suggested by the EARF, and given the nature of the law, it could happen without any law being broken.

Then, when I digest this, and I include my feelings toward The Woofer's attitude to numbers, I should also consider the possibility that you could double that fifty without anybody, except, perhaps, the poor folks who drink the stuff, being crook. I mean, how would The Woofer know the exact figure?

These loopholes make space for such great suspicions and rumours amongst those who don’t exploit them. The most recent conspiracy theory I’ve heard concerns a very big exporting winery whose wines are, shall we say, not exceptionally beautiful drinks. The accusation suggests that since the Aussie dollar went up to where every intelligent human knew it should be, sales of this product in the USA have not been so swift. Not a lot of star winemakers, the rumour goes, actually want to work in that refinery. So, within the restrictions of the WET, its winemakers are encouraged to act as individual producers who make wine in the refinery and then sell it wholesale to the refinery which becomes the retailer, but pays them such a small fee that they can then individually claim the WET rebate, which is fortunately for them a lot more money than the refinery would ever pay them as salary.

In lieu of me having great understanding of accounting and law, and the gumshoe yearning and wherewithal to pursue such a yarn, I presume this to be nothing more than the paranoid fantasies of an embittered and disenfranchised rival, or a former employee.

I mention it merely to indicate the types of goss wild in the business, particularly after the mass rorting of the spirit of the WET which occurred this last horrible vintage.

WITHOUT BREAKING ANY LAW, THE REV HAROLD CAMPING CONVINCED MANY CHRISTIANS THAT THE RAPTURE WOULD OCCUR ON MAY 21st THIS YEAR

On these precepts alone, the WET deserves a forensic dissection, and a quick scraping into the slops bin. The taxpayer should not be subsidizing these ethanol mongers.

Most of this posh new gang last year displayed their disappointment in their very own wine industry councils, like The Woofer, and Wine Australia (formerly the Australian Wine and Brandy Corporation), by forming another exclusive marketing and lobbying group, Family First Winemakers. This exclusive silvertail gang had some prominent exceptions. The McGuigan family wasn’t there, or the Angoves, whilst the newcomer, Howard Park, strangely was.

But now we do have this new gang, which includes some of those enormous omissions, like the Casellas of Yellowtail, the McGuigans, and the Angoves: truly great families all.

So why, in order to distance themselves from their rivals in the international marketplace, why would they this year be suddenly forming yet another alliance, but this time with the prominent inclusion of some that were not invited last time, and the glaring exclusion of a few beauties, like Henschke, Jim Barry, and d’Arenberg? And why would they be doing this to fight against the makers of Grange, Wolf Blass, and Jacob’s Creek?

When The Woofer negotiated the WET, its major players knew that they had encouraged such ridiculous overplanting of vineyards that there was a very good chance of a dangerous oversupply, against which the honest-to-goodness producers of premium wine, most of which are very small, would struggle to compete.

If you own a wine refinery, you need a few tiny, friendly, ivy-covered, nuts-and-berries beauties around you, to give you credibility.

But the WET was also a convenient manoeuvre which would, by minimalising the tax paid by megaswill refineries, cover their scam in the case that the rest of the world would not drink all the plonk Australia suddenly thought it should make.

Anyway, this new gang calls itself Supporting Australian Wine (SAW). It also includes grapegrowers’ associations from all over the Murray-Darling Basin, and somebody I don’t believe I’ve heard of before, called First Creek Wines. I suppose you need your creeks to make a river.

Oh, and two more. The Woofer, which is squirming like a cut snake since it lost the love of its two star performers, Foster’s Treasury and Pernod Ricard’s Orlando-Wyndham-Jacob’s Creek.

And DRINKSTER’s lifetime pal, Constellation, or Galaxy, or Heavens Above or whatever the skeleton of the Hardy Wine Company is now dressed as. They're SAW too. In fact, it sounds like Troy Christensen, the CEO, is sorely pissed off.

CONSTELLATION'S LAST GREAT COUP BEFORE WITHDRAWING FROM AUSTRALIA WAS THE REMOVAL OF THIS VINEYARD FROM THE SOUTH AUSTRALIAN STATE HERITAGE LIST, ORIGINALLY PLANTED BY JOHN REYNELL 162 YEARS BEFORE, THEY REPLACED IT WITH INTENSIVE HOUSING. photo KATE ELMES

A Contrary View From Paul Lloyd, Business Manager Of Coriole Vineyards:

CORIOLE CELLAR DOOR IN McLAREN VALE


I think a few of your comments, and those of others, re the Wine Equalisation Tax need some modification.

For a start I find it difficult to understand how a $200 million tax rebate in a $5 billion industry creates an oversupply.

The history of the WET is a little different to what you have written.

In 92 or 93 the Keating Dawkins budget put a large increase in tax on wine producers and gave substantial tax breaks to grape growers.

This was at the start of the export boom and everyone jumped in. Croser then at Winemakers’ Fedearion of Australia negotiated the deal, which personally, as a small producer, I was never happy about. If memory serves me correctly he was floating Petaluma at the time and the wine market was in crisis while the Government, the Opposition and the industry attempted to resolve things.

Later on in ’96 or ’97 and the Howard government was in - I remember a visit from a minister who made it clear the industry shouldn’t expect help as they were still sore about that budget event.

Due to long lead times any investment in the wine industry takes about 10 years to have an impact. Little wonder about the time of the World Trade Centre the export market started to collapse and markets didn’t exist to take on the volumes of wine coming through.

The lead time figures in past events as well – the Whitlam Government changed the stock valuation rules in 1973 – by 1984 we had vine pull.

The WET came in with the Goods and Services Tax and kept the same rate as the old wholesale sales tax but our GST was an effective 12.9% not 10% - an argument the industry lost. In addition there was a small rebate covering all producers and the states offered various Cellar Door rebates. This changed when the High Court ruled some state taxes were invalid leaving Costello to come up with a system whereby the Feds collected the tax and re-imbursed the states. Soon after this the WET rebate was introduced (2004?) and then increased (2005?). Obviously they hadn’t considered NZ which turned out that under the CER agreement became subject to the same rebate when sold within Australia. So NZ producers got the rebate in 2005 backdated to the start of the scheme.

It would seem to me the Rebate was introduced to provide some assistance to the industry – it’s likely the Keating/Dawkins budget was as much to blame for the oversupply as any other factor. Unlike the beer & spirits industries the wine industry is focused on regions and generate a great deal of regional activity. The rebate is not a loss of general tax revenue and is directly funded from the comparatively high rates of tax paid on domestic wine sales (refer the Gillard deal with Bluescope and the Carbon Tax). Most small producers won’t get anywhere near the full rebate (otherwise it would be $1B+). I don’t understand how the rebate could affect the cask market as that is the preserve of major producers – where WET rebates will be exhausted anyway. To the extent of some rorting that is up to the Australian Tax Office and treasury. Deloittes data shows that most small producers are reliant on the rebate for profits and cash flow. The rebate had the effect of enabling growers to convert to wine producers – many have and many of them have been successful. The cost of setting up crushing facilities etc is significant hence the use of the contract processors. By my reckonings there are no more wineries with crushing facilities now than when I was at Roseworthy in 1976 – around 400.

How have we used the rebate? Stabilised our business, invested in vineyard upgrades/replants etc and winemaking leading to we believe improved quality. In addition we’ve managed to hold (and in fact grow) all our export markets despite the Global Financial Collapse and the high Australian dollar – not by discounting. We have a stable selection of excellent growers whom we work with closely and they receive good prices for their fruit.

Should the rebate stay or be replaced with an excise? The rebate is a catch 22. Long term maybe we can live without it – based on many of our competitors going broke before we do. As I’ve said before investment in our industry is very long term and to simply announce a tax change on a budget night in May causes immense problems (See Whitlam and Keating above). Any change should have a long lead in perhaps in steps to enable the industry to cope. We don’t know what impact such a change would have on the market. You suggest the price of sub $20 will go up and >$20 come down. I doubt this, as I imagine there would be cross subsidisation between the two. The market as you’re aware works on price points and a sudden change would play havoc with these.

Alcohol abuse through casks – and not all cask consumption is abuse – can be managed in other ways. The beer and spirit lobbies promote this abuse but it would seem largely on the basis that those abusing wine in casks should be equally abusing beer and spirits in bottles. My experience is that wine is a minor issue with the young. My own kids and their mates have access to as much alcohol as they like (not that I offer it) – for free – and yet don’t touch the stuff – preferring beer & spirits.

It’s wrong to think that bad wine will sell just because of the rebate. The diseased fruit that was processed was mostly from growers watching their investments collapse under them in an extremely difficult year. The contract processors may have a lot of it in tanks but it’s unlikely to go anywhere.

The big laugh is the major producers complaining. They’ve managed to dumb down the quality of Australian wine and now complain of lack of markets, apparently because of a WET rebate – go figure.

The reality is, in my view, they’ve badly managed their business models in an industry which ideally is no place for large corporates.

Paul Lloyd
Business Manager
Coriole Vineyards

If anyone else feels they have an essay in them, send them in - DRINKSTER

A Contrary View From John Casella, Managing Director, Casella Wines (Makers Of Yellowtail)

PRESS STATEMENT:

Casella Wines managing director, John Casella (left) , said that proposals to switch tax formats and remove the Wine Equalisation Tax (WET) Rebate would cause the closure of dozens of regional wineries, forcing job losses and, ultimately, the forced sale of family vineyards.

“The WET rebate needs to be reviewed to close loop holes, but it should not be abolished because it is doing its job. It is supporting small winemakers and supporting diversity in the wine industry. The proposal to remove the WET rebate will impact on the diversity of the wine industry, a key strength of the industry, and also impact regional economies which rely on the jobs created by small wineries and the tourist business they draw to regions,” Mr Casella said.

“For many small wineries and grape producers, the land they cultivate provides not only their livelihood but their only significant asset, providing security in retirement and a future for their family.”

Australian Vintage chief executive, Neil McGuigan, said the switch to a volumetric tax would effectively increase the cost of accessible mainstream wines while reducing the cost of high-end premium wines.

“It’s interesting logic, to push a scheme that puts up the cost of mainstream wines, that most consumers buy - allegedly as a means of reducing an industry oversupply situation,” Mr McGuigan said.

“Under a volumetric tax we will certainly change the Australian wine industry, but in a negative way that will see regional winemakers going broke, regional jobs and family vineyards disappearing and more Australian wine being sold at unsustainable prices into international markets as companies struggle to survive.

“Introducing a volumetric tax will have impacts beyond domestic sales and consumption,” Mr McGuigan said.

“As it will affect sales of mainstream wines it will affect the economies of scale of Australian wineries and impact our ability to compete effectively in tough international markets.

“Given the strength of the Australian Dollar in key export wine markets, like the UK and US, even small increases in wine costs will significantly reduce Australia’s export competitiveness and will also impact Australia’s ability to compete in emerging markets like China.

“The Australian wine industry is going through a process of painful change at the moment – we planted too many grapes when export markets were taking off and now we are struggling with a high dollar and stiff competition in international markets.

“The situation is turning around, there are many more vineyards being pulled out than are being planted, grapegrowers are switching businesses or crops and winemakers are looking at new markets,” Mr McGuigan said.

He said Victorian Department of Primary Industry figures showed that in the Murray Valley and Swan Hill region the grape crush was down 20% in 2011 compared to the previous season.

The South Australian Department of Primary of Industries reported a similar trend in the Riverland (Australia’s largest grape growing area) noting a reduction by 4,306ha (17%) of irrigated grapevines between July 2007 and January 2011.

“The proposal to switch to a volumetric tax will plunge the industry into catastrophic change that threatens tens of thousands of jobs in wine producing regions across the country and will destabilise wine businesses when they most need to focus on business strategy in order to survive,” Mr McGuigan said.

Representative of one of Australia’s largest grapegrower groups, Murray Valley WineGrowers, Mr Mark McKenzie, warned that a volumetric tax would have an absolutely devastating impact on inland winegrape growing regions.

“The Government needs to think very carefully in assessing changes to wine industry tax. They need to think long and hard about whether they want a broad based grape growing industry because this tax will hit 60 percent of the production base,” Mr McKenzie said.

Accolade Wines Chief Executive Troy Christensen said Australia’s wine industry was already facing significant challenges, including access to water, climate change, imported surplus wine and the unprecedented strength of the Australian dollar.

“The industry is facing its challenges and for a real industry solution it needs to work together.”

“Supporting Australian Wine is calling for the retention of the status quo in wine taxation for the sake of jobs, Australia’s wine industry and our regional communities.’’

“We believe if the WET rebate is being rorted it should be tackled through the appropriate channels, via a tax office crackdown, rather than turning the industry on its head.”

If anyone else feels they have an essay in them, send them in - DRINKSTER