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Thursday, 6 September 1984
Page: 605


Senator JESSOP(8.09) —I rise to discuss the Sales Tax (Nos 1 to 9) Amendment Bills and the Sales Tax (Exemptions and Classifications) Amendment Bill. I intend to devote my time to dealing with the 10 per cent tax on wine, because the imposition of that tax will have a very serious effect on a major industry in South Australia and other States that are emerging as wine producing States; Tasmania and Western Australia are developing an industry that is valuable and producing some very good wines.


Senator Peter Rae —Henschke and Piper's Brook are excellent.


Senator JESSOP —I recall that at a wine competition Piper's Brook won the prize for the best riesling produced on that occasion. The red wine that won the prize on that occasion came from South Australia. Over the years it has been common knowledge in the wine and grape growing areas of Australia that governments of all persuasions have rarely listened to the advice and warnings given by the people and organisations in the industry. Over the past 14 years there have been no fewer than 11 government inquiries into the wine and grape growing industry. A long list of recommendations has been brought down by these inquiries, very few of which have been accepted by governments. None of these government inquiries recommended putting a tax on wine. It is interesting to observe what is happening at present. I believe it is typical of the anti-grower, anti-small business Labor Government that it imposes a tax on local Australian wines and at the same time promises to set up yet another inquiry into the grape growing and grape product industry. Why should the Government need another costly inquiry into this industry having regard to the past dismal experiences of inquiry recommendations? One would have thought that the Government, having abandoned the discredited excise on fortified spirits which was so disastrous to grape growers--


Senator Peter Rae —It was introduced by the discredited present Treasurer.


Senator JESSOP —That is exactly right. It was a discredited tax introduced by the now discredited Treasurer (Mr Keating) who has admitted that it was not in the interests of the industry to have inflicted that tax on it. One would have thought that far more thought would have been given to the matter before inflicting yet another imposition on that industry. I recall the words of the Treasurer, Mr Keating, when he gave the reason for setting up this other inquiry . It was to:

. . . investigate all aspects of the structure of this industry with a view to making recommendations to government to overcome the industry's economic and regional problems.

That is what the now discredited Treasurer said. By imposing this tax the Government has disregarded the recommendations of past inquiries. It seems incredible that it should now put the cart before the horse in setting up yet another investigation into the wine and grape growing industry after the introduction of a 10 per cent sales tax. Obviously, the Government still does not understand the intricacies of the wine and grape growing industry. It should not need another inquiry. This Government is totally irresponsible in introducing a tax without fully understanding the implications that it will have on the future of the industry. On the other hand, if it does claim to understand this industry, the only reason I can see for setting up an inquiry at this time would be to determine the short term negative effects of this tax. Such deleterious effects will undoubtedly occur. We have seen that happen. It has been publicly stated by representatives of the industry and by no less a person than the Labor Premier of South Australia. An article in the Australian on 4 September, under the headline 'Bannon slams Government over Federal wine tax', states:

The South Australian Premier, Mr Bannon, yesterday lashed out at the Federal Government's new wine tax and said one could be forgiven for thinking the closest the Government had come to the wine industry was ''their claret over lunch''.

Mr Bannon was speaking in Sydney at a luncheon for members of the Sydney Chamber of Commerce.

The article continued:

He said few people understood Australia's economic health depended on the strength of its regions.

The article went on to make other comments about the Government's attitude as follows:

. . . decisions at the national level are often made without full regard to their regional impact. This problem is exacerbated by the phenomenon we are now experiencing of a whole generation of decision-makers having been born, educated and having lived all their lives in Canberra.

On the same day in the Herald a headline states: 'Budget wine tax leaves a sour taste'. The article goes on to say what damage this tax will do to the small wine producers of Australia. I will quote part of that article:

If wineries cut production they must cut their intake from growers. 'Another thing that will hurt is that imported wines will stay the same price', stated the spokesman, Mr Thomson.

'And its nonsense to say the Australian wine industry has been untaxed. In 1983 -84, the Australian wine and brandy producing industry paid $118.5 million in taxes. Not bad for an industry which doesn't pay any tax.'

It is also interesting to observe comments made by the Premier of South Australia in a letter on this subject to the Treasurer. There have been Press comments regarding this letter. In the letter, Mr Bannon states:

I am astounded that the Federal Government could have made this decision given the arguments that have been put before it over the past twelve months in relation to this industry. Particular aspects of this tax that seem to have not been properly evaluated in making your decision are:

1. The discriminatory impact on this State which is likely to occur because of reduced Australian wine sales and hence grape intake following the 10% sales tax impose. South Australia produces over half of the wine made in Australia and harvests more than half of wine grapes grown.

2. In view of the well-authenticated existence of the vast ''wine-lakes'' in European Economic Community countries and their heavy subsidisation of wine exports, it is surprising to read at page 21 of your speech:

''This reduction in protection is not expected to result in any significant increase in wine imports.''

This is likely to be one further occasion when Federal Treasury forecasts of the effects on industry of their suggested measures proves to be grossly inaccurate. The inaccurate fortified wine duty forecasts are testament to uncertainties in these predictions.

The third point made by the Labor Premier of South Australia, Mr Bannon, is this :

3. The Riverland Region has considerable problems in finding adequate markets for its range of products and obtaining above subsistence incomes for many small -scale enterprises.

4. The wine industry in South Australia is both a valuable source of decentralised employment and a central focus of tourism.

The last point the Premier made is this:

5. A succession of previous reports on aspects of the industry have consumed a lot of time and industry resources, and seem never to be followed up by any worthwhile commitment.

Mr Olsen, the Leader of the Opposition in South Australia, totally supports the Labor Government in that State with respect to these matters. The whole Parliament of South Australia has demonstrated its attitude through a unanimous resolution condemning the Federal Government for this measure. It is also interesting to observe that the Bureau of Agricultural Economics has calculated that a 10 per cent tax on local wine will lead to a long term loss in wine sales of about 13.5 per cent, which represents 40 million litres more per annum. Consequently, grape growers will have a reduced wine grape market of at least 65 ,000 tonnes, which will result in lost income to grape growers of $15.6m a year. Some people estimate that that tonnage could rise to about 80,000 tonnes.

It is also interesting that fears are being expressed by various sectors of the industry with respect to the dumping of French wine on the Australian market. Senator Peter Rae referred earlier to that very significant point. The Australian Wine and Brandy Producers Association has produced a document which I showed to Senator Walsh when he was in the chamber earlier and which he agreed could be incorporated in Hansard. It has two pages and I believe that it contains very interesting information. It is headed: 'How do the Budget changes affect imported wines and their relationship to Australian wines?' I seek leave to have that incorporated in Hansard.

Leave granted.

The document read as follows-

HOW DO THE BUDGET CHANGES AFFECT IMPORTED WINES AND THEIR RELATIONSHIP TO AUSTRALIA WINES?

With reference to imported wine, the 20% sales tax has been converted to a 10% sales tax and additional ad valorem customs duties equivalent to a discriminatory tax of 10%. The particular changes to customs rates are:

Current

tariff New item Goods rates

22.03.900

All Goods

GT: 37%

FI: Free

DC: 22%

22.05.100

Champagne containing more than 1.15% by volume of alcohol

11%, and

$0.48/L

22.05.200

Sparkling wines, NSA containing more than 1.15% by volume of alcohol

13%, and

$0.65/L

22.05.310

Wine, NSA, containing more than 1.15% by volume of alcohol but not more than 20% by volume of alcohol, in packs not exceeding 5L

11%, and

$0.25/L

22.05.390

Wine, NSA containing more than 1.15% by volume of alcohol but not more than 20% by volume of alcohol, in packs exceeding 5L

16%, and

$0.40/L

22.05.900

Other wine

11%, and

$0.70/L

22.06.000

Vermouths, and other wines of fresh grapes flavoured with aromatic extracts, containing more than 1.15% by volume of alcohol

12%, and

$0.25/L

22.07.000

Cider containing more than 1.15% by volume of alcohol

GT: 23%

and

$0.30/L

FI: Free

* Papua New Guinea rates remain unaltered. New Zealand rates remain unaltered. The duties on other goods contained in the relevant classification remain unaltered.

The changes basically mean that if an importer previously imported a champagne, the importer would have paid 48 cents per litre customs duty and 20% sales tax; now the importer would be paying 11% of the customs value (defined in sections 156-161B of the Customs Act) + 48 cents per litre customs duty and 10% sales tax .

An example illustrating the changes for imported wine is shown below:

IMPORTED CHAMPAGNE

Average unit value (1983/84) $8.51 per litre

Before After

Budget Budget

$ $ Customs value (C.V.) 8.51 8.51 Customs duty .48 .48 .94 (11% of CV)

8.99 9.93 Add 20% as specified in Section 4 (1) of the Sales Tax Assessment Act (No. 5) 1.80 1.99

Value for sales tax purposes (VFST) 10.79 11.92 Add sales tax 2.16 (20% of VFST) 1.92 (10% of VFST)

Wholesale value 12.95 13.01

AUSTRALIAN CHAMPAGNE

Suppose a wholesale value (equivalent to value for sales tax purposes) of $10.79 per litre

Price 10.79 10.79 + 10% (=$11.87)

This shows that the price for the imported product has not changed while the Australian wine has increased in price by 10% and therefore Australian wine is 10% disadvantaged relative to imported wine.

Please note that the example on imported champagne was based on Sales Tax Assessment Act (No. 5). Examples were not given with respect to Sales Tax Assessment Acts (No. 6), (No. 7) and (No. 8) as the Association holds no information on costs and margins. However, it should be noted that if the costs and margins are greater than 20%, the importer now pays less total tax than before. Conversely, if the costs and margins are less than 20%, the importer now pays more total tax than before. The above explanation applies for all types of imported wine except New Zealand wine where the rates remain unaltered.

Canberra sources indicate that the changes to the taxation of wine and, in particular imported wine, will be acceptable within GATT as there was a 10% discriminatory duty at the time of implementation of GATT in 1947.


Senator JESSOP —I suppose that the Government thought the only way to test this devastating scenario was actually to introduce a 10 per cent tax on wine and see what happened. One never knows, the long term effects may not be quite so bad and the Government may get a fair percentage of the estimated $60m-odd it expects from the tax revenue. But I just fear-this has been substantiated by comments made by producer organisations-that the reverse will happen and that many small grape growers and producers and small wine producers will go to the wall.


Senator Jack Evans —Did you say that that was $60,000m revenue?


Senator JESSOP —I beg your pardon; I should have said $60m-odd. It seems to me to be a wrong calculation and as far as I am concerned, as I said earlier, the cart has been placed quite improperly before the horse.


Senator Peter Rae —I am sure that with this big spending Government anybody would excuse you for getting confused between millions and billions.


Senator JESSOP —Having regard to the tremendous interest payments on the public debt at the moment, I think anybody could be excused for being confused. To spend 8.8 per cent of the Budget on the repayment of interest on the public debt amounting to something like $5.6 billion is quite incredible. I do not believe our local industry will be able to sustain sales, as demonstrated by the Bureau of Agricultural Economics, and I think that, for it to stay alive while the Government is milking it, something drastic has to happen. Earlier Senator Peter Rae asked the Minister whether he would delay the introduction of this measure until such time as the committee that will be appointed, if it has not already been appointed, to investigate the industry has a chance to present yet another report to Parliament. I think that is the way the Government should go. Although I sympathise with the suggested amendment by the Australian Democrats, I do not think the answer to the problem is to reduce the tax from 10 per cent to 2.5 per cent.


Senator Macklin —It will help.


Senator JESSOP —The point is that when the Democrats were elected to this place they said they were not going to do anything about rejecting Supply.


Senator Macklin —That is Supply; it is not revenue. They are different.


Senator JESSOP —My view will be reflected in an amendment which I will move at the appropriate time and which will reinforce the Opposition's attitude with respect to this tax. We will say that the Government should not introduce the tax until the report is presented to the Parliament. We have already said that as the alternative government we will repeal this tax after the next election.


Senator Macklin —You have the chance of doing something now.


Senator JESSOP —I know what the Democrats will scream out if we do not support their amendment. They will say the South Australians are not interested in the wine industry. That is exactly what they will say; I can anticipate that. But I believe that the South Australian senators have repeatedly stood up for the industry in our State and will continue to do so.


Senator Macklin —Do it with your vote.


Senator JESSOP —I will deal with that when the honourable senator moves that amendment, and I will move an amendment which I hope the Democrats will support. To the motion that the Sales Tax (Exemptions and Classifications) Amendment Bill be now read a second time, I will move the following amendment:

At end of motion, add ', but the Senate is of the opinion that the impact of the Government's new tax on wine, when taken in conjunction with changes in the taxation treatment of imports of wine, unreasonably and unfairly disadvantages the Australian wine producing and grape growing industry at a time when imports of surplus protected and subsidised European wines are disrupting the Australian wine industry and when there is an inquiry proceeding into the future structure of the industry and calls upon the Government to delay the commencement of the tax subject to receiving and considering the report of the said inquiry'.


Senator Peter Rae —Mr Deputy President, I wish to indicate that the the amendment just foreshadowed by Senator Jessop will take the place of the amendment which I foreshadowed.