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Wednesday, 16 November 1983
Page: 2827


Mr EWEN CAMERON(7.45) —I wish to address my remarks to clause 6 of the Excise Tariff Amendment Bill (No. 2) 1983 and in particular to those parts of the clause which refer to extending excise to including fortifying spirit. My remarks will mainly revolve around the effects this excise will have on wineries in north-eastern Victoria and will offer some alternative ideas to the Government. The wineries of north-eastern Victoria are predominantly family owned, speciality producers of fine wine, with particular emphasis on the production of well-aged and outstanding fortified wines. These have long been celebrated as Australia's only unique wine style, and one of the great wine styles of the world, equated in stature with the traditional sauternes of France , the sherries of Spain and the ports of Portugal.

For more than 50 years the deserved international recognition, hard-earned by producers of premium north-eastern Victorian fortifieds, has carried much of Australia's reputation as a quality wine producer. Latterly, particularly in the last 20 years, the long-standing awareness and appreciation overseas of these classic fortified styles have been rightly used by the Australian wine industry to spearhead export initiatives. The great fortified wines of north-eastern Victoria are sought by connoisseurs all over the world, and their market position is a major promotional advantage to Australian table wine exporters. They are connoisseurs wines because they are special. They cannot be produced in bulk, they are invariably well-aged and their extraordinary quality reflects the expense of making and maturing them. I believe that with the implementation of the fortified excise tax at the point of production, these wine styles will be largely eliminated, with considerable loss of prestige to the Australian wine industry, significant economic loss to the region and severe financial damage to the individuals concerned.

The proposed fortified wine tax involves the payment of $1.50 per litre of alcohol at the time of production of fortified wine. The $1.50 is due and payable within seven days of use by the winery. This will usually take place during the months of February, March and April each year and will require the winemaker to pay up to 28c per litre of wine at the time of production. These wines would normally be aged for upwards of five to 10 years, in some cases for as long as 20 years, before being sold. During the maturation process, a portion of the wine evaporates at a rate of 3 to 5 per cent per annum and hence the volume of wine available for sale after a 10-year period is considerably less than that produced.

I believe that there is no precedent for an excise tax being charged on a product years before the finished product is sold. It could be expected that the proprietor of a typical small winery in this area would, over a 10-year period, have to find in excess of $250,000 in prepaid tax if he elected to stay in fortified wine production. This would not be a viable option for most vignerons. Production of fortified wines will not prosper and for many will no longer be a possibility.

The winemakers of the Rutherglen region depend on their traditional market. Of their total production, 46 per cent is in premium fortified wines. The fortified tax is therefore especially iniquitous to those producers. Over 50 years of effort, skill and investment in developing this wine style, and the vineyards to produce suitable fruit for it, are now to be swept away. The raw material-the winery equipment and the technology of this wine production-cannot be easily turned to the production of table wine. In any event, diversion of this production into an already oversupplied table wine market would be suicide for these wineries.

The discriminatory effect of the tax on one sector of the industry seems grossly unfair, particularly as such a large proportion of the producer's livelihood is threatened. Fortified wine consumption in 1968 represented 53 per cent of Australia's wine consumption, but by 1982 it had fallen to 18 per cent. Premium fortified wines have enjoyed increasing demand because of their speciality quality and the nature of the product. The ambitions of the region's winemakers to develop and specialise in what this area does best are now jeopardised by this taxation measure.

As a host to tourism, the Victorian wine industry ranks second only to the State's snow skiing resorts. But unlike the snow slopes, it is a year-round source of revenue, playing a vital part in the economic infrastructure of communities in the wine regions. This is particularly so in the north-east Victorian wine region centred on the Rutherglen, Milawa and Glenrowan areas. In 1981-82 the number of visitors to north-east Victoria was the fourth highest in the State, with 3,271,000 visitor nights being recorded. That figure did not include visitors overnighting on the New South Wales side of the border because of Rutherglen's limited accommodation, nor is there any measure of the considerable flow of traffic which diverts through Rutherglen en route between Sydney and Melbourne. The unique nature of the fine fortified wines and the attractive old traditions of their production are an important and acknowledged tourism drawcard in this area, for both interstate and overseas visitors. Through its regular and seasonal work, as well as its major contribution to the multitude of local businesses benefiting from tourism, the industry's vineyards and wineries are significant factors in regional employment. As of 1 July 1983 the number of persons registered as unemployed in the Rutherglen Shire totalled 102, representing 6.4 per cent of the shire's population, considerably below the national average of 9.8 per cent.

It is an established fact of life in the wine industry that price rises bring immediate sales reductions. This is borne out by the finding of the Bureau of Agricultural Economics that a retail wine price rise of 10 per cent will evidence a 13.5 per cent sales decline. Price rises also produce an immediate downturn in visitors to wineries and cellar door sales. In this region, which is heavily dependent on cellar door sales for much of its trade and which has devoted considerable effort and money over the years to promoting visitor traffic, such a downturn can have a catastrophic effect. The burden of finding the money to pay the fortified wine tax is beyond the resources of the smaller wineries of this region. The tax not only has far-reaching ramifications in itself but also is applied at the time of the year when wineries experience their greatest liquidity problems, that is to say, at harvest, when the annual raw material of the winery is being brought in for production. Unlike other liquor industries, the wine industry is inherently a primary production process, specifically acknowledged in the Australian Labor Party's rural policy statement . With all the raw materials being taken into stock at one time of the year only , the cost of harvest and the cost of fruit purchased from other growers annually places a huge strain on wineries each vintage time. This, combined with the excise tax, makes the financial demands horrific.

Further recent changes by the Taxation Office in its demand to treat the wine industry as a manufacturing industry for stock valuation purposes will further worsen the strain of carrying wine stocks. The wine industry is also inherently capital intensive. To maintain top quality, annual capital investment is necessary. With all these factors combined, the viability of the small independent winery relying on premium fortified wine production would seem doubtful. Aspirations to build on quality and the carefully nurtured policy of aging wine for many years prior to its release and to maintain the traditional qualities of this area would now seem to be neither possible in the short term nor economic in the long term. Like the very best wines of Europe, north-eastern Victorian fortified wines are made only in very small quantities. But if these wines are used as a flagship of quality for Australian wine makers, as they are, they represent a major benefit to the whole industry. Leading United Kingdom and United States wine writers regard north-east Victorian premium liqueur muscat and tokay in particular as among the few truly unique wines of the world. In the international market-place these traditional Australian classics are held in the highest esteem, standing on their own.

Although it is possible to claim a rebate of the value of the new tax on wine exported, the abiding problem is not overcome. Wine made to meet the new criteria of being the best in the world will be matured for upward of 10 years before release for sale. But the wine maker will have already paid the excise duty at the time of production. The refund of the value of the duty 10 years later will seem of no significance at all. Financing the wine from the time of production threatens not only the integrity but also the very existence of these great wine styles. Because the fortified wine tax is a tax on the production process rather than a tax on the finished product itself, imported wines are able to come into Australia without attracting this penalty. Contrary to Australian regulations, overseas producers of fortified wines can also use fortifying spirit not derived from grapes and derived at very little cost-for example, spirit produced from dairy whey in New Zealand. Imports of fortified wines from Cyprus, Spain and Portugal will certainly place a further strain on the Australian industry, particularly the grape growing sector, where surpluses are already at dangerous levels.

The wine producers of this area believe that if it is essential to gain extra revenue from the Australian wine industry it should be done on an equitable basis, embracing all wine producers and all types of wine. They make this recommendation while clearly understanding that there is a very large overproduction of fruit in Australia, that the industry is currently in a very difficult growth situation and that any form of additional impost on the industry will have a detrimental effect on overall supply demand. They believe, however, that a long term indexed tax, perhaps in the vicinity of 5c a litre, across all wine produced in Australia, would gain relatively more revenue than the discriminatory fortified wine tax and could be applied without destroying a section of the industry. This alternative, if combined with the review of the basis of stock valuations as proposed in the Australian Labor Party's policy statement on the wine industry, would give the industry every opportunity to overcome the current problems of overproduction. It should also allow wine makers to engage in long term planning without further short term government disruption which has inflicted continuing damage on the industry. The nature of the industry is such that it must operate in a long term planning environment.

Given the established conventions for other primary industries to value stock, I believe the wine industry, given the same options, would be in a position to balance the highs and lows of grape production. Such circumstances would also allow all types of premium wines to be properly aged, thus improving the general quality of the Australian product, enhancing export potential and fostering a strong domestic market in competition against subsidised imported wines. This would greatly assist wine makers in dealing with the difficult cash flow problem inherent within this unique industry which holds a huge proportion of its stock over many years. The current taxation approach to the valuation of wine stocks is an approach that might be taken to a manufacturing industry with full absorption costing. It is causing considerable strain on smaller, quality producers who have limited financial resources, thus forcing more of them into the hands of the multinational corporations and away from quality production. This is already a disturbing trend in the Australian wine industry and can only be accelerated by the new excise tax.

The imposition of the excise on fortifying spirit is directly against the intention and the letter of the Australian Labor Party's election pledges to the wine industry. However, the method of implementation of the tax is now of major concern. The excise on fortifying spirit to be collected within seven days of use by a winery should be regarded by the Government as a debt incurred, to be paid by instalment over a period of, say, 12 months to two years. This would enable many small wineries who are involved in this specialised industry to remain economically viable. The Australian wine industry has potential to contribute a great deal to Australia's culture, exports and tourism and is a primary industry that seeks no government handouts. The future of the industry can be destroyed by short term, ill-conceived government action. But the industry can develop and flourish while contributing to the nation's revenues if long term and carefully planned strategies are developed in consultation.