ONE SIDE OF THE CONFOUNDING WET

Just one angle on the slippery WET and its rebate vs excise: 
this thing's got a long way to go 
by PHILIP WHITE

While I don't usually even consider putting explanatory flashes like this at the top, I'm entering the territory where the shockjock introduces me by saying "We've got this wine bloke on the line from Adelaide, like a wine writer, probly gets all his wine for free, who wants everybody to start paying a lot more for their glass of wine by the telly with their tea ... " Please let me know if I've got this line of observation wrong. I'd like to see good wine get cheaper!

WET? WET? Lotsa clucking and fretting about the Wine Equalisation Tax (WET) this last week, and climbing.

From its conception, the WET was negotiated with more than a levy in mind. It was also a levee bank to ease the movement of a giant wine lake from the Murray Darling Basin. In an age of obscene management by testosterone, the wine industry councils and some politicians oversaw such feverish vineyard expansion they flooded the old inland sea with a swillion olympic swimming pools of highly-irrigated plonk which somebody would have to drink.

The 2000 introduction of the Goods and Services Tax (GST) saw a 41% wholesale sales tax on wine eventually chopped to 29% upon which the new 10% GST would be added at retail. Winemakers were irate: they thought the GST would bring the total elimination of this sales tax, but ended up paying the 29% anyway.

Government's cheek in breaking its promise and insisting on this impost, then calling it an Equalisation Tax is to this day a perfect indicator of the derision politicians generally show wine industry councils.

The tax wasn't equalising anything at all.

Always the prima donna of the ethanol peddlers, Australian winemakers had insisted on paying tax differently to other boozemongers. Beer and spirits makers, and all the premixed kiddylikkers and gins and Jacks and Jims and Bundy's and whatnot pay excise, which is a flat tax upon the amount of pure ethanol in your drink.

Stronger your drink, more excise you pay. GST goes on top.

Pretty sensible way of taxing a dangerous depressant, you'd think.

But not our winemakers. Having somehow convinced the powers that be that their ethanol is morally superior to other ethanol, the winemakers pay no excise. Instead, they have their WET, which even at 29% ensures that cheap refinery plonk of dismal quality is taxed at a lower rate than good clean premium wine, regardless of its alcoholic strength.

Cheaper the plonk, lower the tax rate.

You wanta be taxed at a higher rate? Add value to your product. Give it true worth. Do it responsibly. Pay properly for your grapes. Look after the country and do things really carefully with no detrimental cost to the ecology or the waterways or public health. Right from the start, aim to make a nice clean profit, true blue, as soon as you can. Employ a few people in the vineyard and winery. Train them.

Sell your ethanol dissolved in a more wholesome, gastronomically intelligent, healthy natural matrix called premium wine. More beautiful, more luxurious;  not so goddam cheap and nasty.

Therefore more expensive. For your trouble, the WET system will ensure you are taxed at a higher rate, ensuring your wine costs even more. Bung the GST on the top and the gap between your price and goonbag juice just grows and grows.

Regardless of whether any of the growers make a cent the politicians along all those big rivers can keep their seats by keeping right on swapping more irrigation water we don't have for cheaper and cheaper wine for the poor and the elderly and the differently-abled and the differently-coloured and everybody can guzzle on at will or whim and she'll be right mate.

But she wasn't. By 2004 it was apparent that too many smaller producers were in deep trouble, so a scheme was introduced wherein the winemaker can claim a rebate of 29% of the wholesale tax paid on domestic sales. This capped out at $290,000 upon introduction, but within a couple of years winemakers had convinced the treasurer to wind it up to $500,000 maximum per financial year.

In the recent budget, Prime Minister Turnbull's conservative coalition announced it would be chopping this to $350,000 by July 1, 2017, and further to $290,000 in 2018.

You can imagine the regular recipients of these moneys feeling hurt by Turnbull's parsimony, but that's not all they're whingeing about. What's really got 'em whining is the plan to tighten up the general rules of the system to eliminate some of the obscenely overt rorting which some of us have complained about for decades.

The regulations are also tightening to eliminate the New Zealanders, who through free trade agreements can claim the rebate if they sell wine in Australia, and local sharks who neither own nor lease vineyards nor wineries yet live off the rebate through nefarious bulk, unbranded wheelings and dealings.

 These 'virtual wineries' are direct threats and rivals to the small premium producers they told us the WET rebate was set up to assist.

In The Wine Front blog on 13 May, the highly-respected wine editor and author Campbell Mattinson echoed the alarm of many when he wrote "More alarmingly – and tellingly – the proposed changes include an 'eligibility clause which states that to qualify for the WET rebate you need to have a physical winery or a substantial lease of a winery.' The general view is that the latter change shows a fundamental misunderstanding of the way the Australian wine industry works."

Perhaps not. Perhaps it indicates a forensic understanding of how indeed it does work.

Mattinson then goes on to quote Master of Wine Andrew Caillard at some length.

"The idea of owning or leasing a winery to access the rebate, is anti competition, anti small business, anti entrepreneurship, anti new entrants, pro protectionism, and pro industry stagnation," the expat Brit says.

"By imposing this proposed change it will stop or hinder grass roots innovation and visions. I think it is an appalling and unnecessary change. It is counterintuitive, passionless and utterly obtuse. There is no sense of history or ambition."

Last time I looked, Caillard worked for Woolworths. In fact he has worked for them since selling them Langton's, the powerful price-setting premium wine auctioneer.  Woolworths also owns Dorrien Estate, one of the Barossa's biggest wineries and home to Cellarmasters, amongst a myriad other brands.

This big refinery is crawling with winemakers who rent its facilities to make their own "small" brands, using the WET rebate to pay their bills.

It is also full of the sorts of wines, all looking like small family businesses, that fill the main central discount floorspace of its own joints like Dan Murphy's. These wines too are made by Woolworths at Dorrien. While Woolworths sets up dozens of these 'independent' boutique-looking firms to sell through its own liquor chains, one would hope that in its shareholders' interests it claims the WET rebate on every brand that fits the government's legal prerequisites.

This ain't over yet.