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Thursday, 6 September 1984
Page: 609

Senator CRICHTON-BROWNE(8.35) —In this cognate debate I shall be referring to the Sales Tax (Exemptions and Classifications) Amendment Bill. I shall address my remarks to that part of the Bill which makes provision for the introduction of a 10 per cent sales tax on Australian alcoholic grape wines. Broken promises are something of a feature of this Labor Government, but I find it incredible that only two years ago the Prime Minister (Mr Hawke) said in his rural policy speech at Griffith-a speech which has been referred to by other senators on this side of the chamber:

The wine industry is beset with problems . . . Labor is pledged not to impose a sales tax or an excise tax on wine.

It was said in that unqualified fashion. However, in only its second Budget, Labor has announced that wine will now be subject to a sales tax of 10 per cent. One does not need a fertile imagination to speculate what other broken promises there will be and what other taxes will be imposed in the unhappy and unlikely event that Labor is returned to office in the next election. This change of policy can only be described as utterly cynical.

At the same time as the Government announced the new tax on wine, it is interesting to note that it also announced the holding of an independent inquiry into the grape growing and grape product industry. The Treasurer (Mr Keating) said that the inquiry would:

. . . 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 in itself recognises that there are problems-economic problems most of all. Many people would find it hard to believe that the Treasurer is really genuine in his desire to help the industry. Certainly a 10 per cent sales tax on wine is unlikely to help. Indeed, it is likely to cause enormous damage, especially to the small wine producers. At the very least, the Treasurer might have been expected to delay any decision on taxing wine until after the outcome of the inquiry. I fully support the amendment moved by Senator Jessop-an amendment which has been supported by other honourable senators, including Senator Hill.

The sales tax of 10 per cent will be applied to the wholesale price of wine. I refer in a non-parochial but practical sense to Western Australia. The Western Australian Grapegrowers and Winemakers Association has estimated that the increase in the retail price of wine will be somewhere between 13.5 per cent and 15 per cent, if one adds the extra bank account debit tax and the financial institutions duty which the money banked to pay that new tax will attract. The Australian Wine and Brandy Producers' Association has produced an estimate of the likely fall in sales of wine as a result of the new tax. On the basis of the Bureau of Agricultural Economics estimates of the price elasticity of demand for wine, it is calculated that in the short term wine sales will fall by approximately 4.2 per cent. In the long term the imposition of the 10 per cent sales tax will result in sales falling by approximately 13.5 per cent. The Association points out that this will result in a long term annual loss to wine makers of sales of 40 million litres, with a resultant reduction in intake of grapes of some 65,000 tonnes. This amounts to $15.6m per annum in lost income to the grape growers.

In my own State of Western Australia wine producers will be particularly hard hit because our wine industry is still in the fragile, early stages of development, with many growers and producers facing heavy loan repayments. According to the Bureau of Agricultural Economics, it costs about $10,000 per hectare to establish a vineyard, and takes three to five years for it to come into production. The estimates, which I do not think have been refuted, are that it takes about eight years to build up stock, sales expertise in the market and several more years before a return on capital is likely to be seen. In Western Australia many of the 75 wineries are small concerns which have been operating for between five to eight years. However, the economic contribution of the industry is substantial. Total investment in the industry in the Margaret River area alone has been estimated by the Western Australian Department of Agriculture at something like $5m for vineyards and $10m for wineries.

Senator Walsh —How much of that was Denis Horgan's?

Senator CRICHTON-BROWNE —I do not know but, as I understand it, Denis Horgan has made a substantial commitment in the south-west. Unless I am wrong, he has made it with his brother, John Horgan, who has been employed by Senator Walsh's colleague the Labor Premier of Western Australia, Brian Burke, as the Chairman of the Western Australian Development Corporation. As I understand it, they were both shareholders and directors of Metro Industries Ltd at the same time that Senator Walsh was slandering one, but there was a deafening silence regarding the other one. He might make up his mind where his integrity stands. Does it stand on the one hand or does it stand evenly balanced? As Senator Walsh blushes and gurgles with anxiety, the truth of the matter is that there seem to be double standards. As I understand it, last year-let Senator Walsh condemn it if he will-the Horgan brothers produced a wine, a chardonnay, which won first prize in Paris on the world market. If Senator Walsh wants to condemn that and criticise it, let him say so quickly and say so now.

Senator Jack Evans —Quickly? I am going deaf.

Senator CRICHTON-BROWNE —It is the only way.

Senator Walsh —You and all your other Liberal Party tax evading mates on that Liberal Party finance committee. No wonder you are protecting them.

The ACTING DEPUTY PRESIDENT (Senator Elstob) —I ask Senator Crichton-Browne to address his remarks to the Chair.

Senator CRICHTON-BROWNE —Mr Acting Deputy President, I have some difficulty in comprehending what Senator Walsh is saying. He seems to be talking, in a debate on the wine tax, about tax evasion and avoidance by a member of the Liberal Party. I repeat only what I said before. John Horgan, Denis Horgan's brother who is also a shareholder, is now employed by the Premier of Western Australia and is Chairman of the Western Australian Development Corporation and is making major decisions about Western Australian taxpayers' money in such matters as investment in the Argyle diamond industry and a whole range of areas. I hear a deafening silence from Senator Walsh about that.

Senator Walsh —Tell us about Christo Moll.

Senator Peter Rae —I take a point of order, Mr Acting Deputy President. The interjections which have been coming from those on the Opposition side of the chamber as far as we are concerned-that is, the present temporary government- ought to bear in mind some of their past problems. I wonder whether we ought to extend the inquiry into the activities of a judge into tax avoidance, trading in relation to shares, and other areas, if we are to have the sort of interjection that has been coming from Senator Walsh.

The ACTING DEPUTY PRESIDENT —Order! There is no point of order. I ask that the interjections cease.

Senator CRICHTON-BROWNE —In the Margaret River area at least 200 people are directly employed in the wine industry. That may be some revelation to Senator Walsh. Of course, that takes no account of the indirect employment in related industries which is created by the wine industry. The most recently available figures on employment in the industry in Australia are those from the 1981 census which took into account establishments which employ fewer than four people. At that time there were 7,235 people employed in the grape growing industry. A further 4,590 people were employed in the wine and brandy producing industries. Undoubtedly, many of those jobs will be placed in jeopardy by the proposed 10 per cent sales tax on wine. It is difficult to put a figure on the number of jobs which will be lost at this stage. However, the Western Australian Grapegrowers and Wine Makers Association, for whom I personally have considerable regard, has suggested that employment in the Western Australian industry will fall as much as 10 to 15 per cent as a result of the new tax.

Senator Walsh —They are the other tax evaders.

Senator CRICHTON-BROWNE —Through you, Mr Acting Deputy President, if I heard the interjection correctly, Senator Walsh was saying that they are also tax avoiders and tax evaders. I will be very happy to circulate his speech and his interjections in due course to those grape growers.

The development of the wine industry in Western Australia has provided a tremendous boost and encouragement to the tourist industry in that State and is a major source of regional employment and development. Of course, much of the attraction lies in the free tastings at the cellar door. One Margaret River winery gives away something like 15 per cent of its stock in free tastings. I understand that the average amount of wine given away is something like 10 per cent. Another producer in the Swan Valley estimates that at least seven dozen bottles of wine are used each month for free cellar doors tastings. The proposed tax on wine, applied as it will be at the wholesale level, will be levied on the wine that is used for these tastings. In my view, that is grossly unfair and will have a clear result. Many wineries will simply be unable to support the cost of free wine tastings, something which has been a very considerable tourist attraction in Western Australia and something which, as I understand it, at least, superficially has been encouraged by the Premier of Western Australia, Brian Burke. The Federal Labor Government's wine tax will therefore not only penalise the industry but it will also be extremely damaging to the tourist industry.

Another result of the sales tax on wine will be to encourage the sales of imported wines and thereby reduce the share of the wine market available for locally produced wines. Before the Budget, imported wine was subject to Customs duty at a flat rate of between 25c and 75c per litre. In addition, a Customs duty equivalent to 20 per cent was levied. The new arrangements for imported wine announced in the Budget leave the flat rate of Customs duty essentially unchanged. The existing 20 per cent sales tax, however, is to be replaced by an ad valorem Customs duty which will be equivalent to a sales tax of 10 per cent. In addition, imported wine will, of course, be subject to the 10 per cent sales tax on locally produced wine. The tax on imported wine therefore remains largely unchanged, but the imposition of the sales tax across the board means that Australian wine will now be relatively more expensive vis-a-vis imported wine. For that reason I find it hard to accept the view of the Treasurer (Mr Keating), which stated:

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

Certainly that was not the experience of the brandy producers after the application of the tax on grape spirit. In January this year Mr Roger Hoar, Chairman of the Murrumbidgee Irrigation Area Wine Grapes Marketing Board, pointed out to the Bureau of Agricultural Economics National Outlook Conference:

An evaluation of ABS data reveals that, as excise on brandy increases there is a reduction in the usage of Australian grapes for brandy and a significant increase in imports of brandy.

I suspect that that will be very much the experience of the wine industry if the Labor Government continues with this tax. The Australian Wine and Brandy Producers Association has produced an estimate of the effect of the Budget measures on imported champagne, for instance, compared with locally produced champagne. Those calculations are based on assumptions of costs and margins of 20 per cent in calculating the value for sales tax purposes. One should compare the tax on a litre of champagne with a Customs value of $8.51-that is the average unit value of imported champagne in 1983-84-with the tax on a bottle of Australian champagne of equivalent value. The Australian Wine and Brandy Producers Association found that before the Budget the tax on imported champagne , which I point out accounts for something like 29 per cent of all wine imports, would have been $2.64 per litre. After the Budget the same litre of champagne will attract virtually the same level of tax-$2.61 in their calculations. By comparison an equivalent litre of Australian champagne, with a wholesale value of $10.79-with an equivalent value for sales tax purposes as the imported champagne-after the imposition of the 10 per cent tax in the Budget will increase in price by $1.87. In other words, the price of imported wine will not change while the price of Australian wine will increase by 10 per cent through sales tax.

Australian wine therefore will be at a cost disadvantage relative to imported wine. This action is particularly worrying at a time when there is the well documented existence of a European wine lake. I believe there is a justified fear that this Government's action is only easing the way for the appearance on the Australian market of large quantities of subsidised European wines. Imports of wine to Australia already are showing signs of a significant increase. Figures from the Australian Bureau of Statistics show that in 1982-83 Australian imports of table wine totalled some 62,869 litres. By 1983-84 table wine imports had increased by 50 per cent to 94,336 litres.

Senator Peter Rae —Full reason for deferring the tax until after the inquiry.

Senator CRICHTON-BROWNE —Absolutely. What is the use of having an inquiry if one presumes to make judgments before it is completed? With regard to Mr Keating's pronouncement that the sales tax on wine will not increase wine imports, I quote the comments of the Labor Premier of South Australia, Mr Bannon. I think he has been quoted, and accurately quoted, in the Senate before. He said:

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

The argument that seems to have been used in respect of the tax on wine is that somehow it is justified as a result of the tax on beer. I recall our vocal Senator Walsh making some rather pathetic and inappropriate remarks along these lines in the Senate two weeks ago. As I recall, he made the observation that Liberals hated beer drinkers. We might be selective about which beer drinkers we dislike but as a general observation I find that totally inaccurate. What is overlooked by this argument is the fundamental difference both in the industries themselves and in the nature of the tax to be applied. Of course beer is a product which can be relatively quickly and easily supplied and regulated in response to demand. On the other hand wine, of course, takes years to mature and to develop in a sophisticated way. In addition the wine producing industry is inextricably linked to the grape growing industry. As I have already said, vines take many years to become established. Fluctuations in demand for Australian wine cannot be speedily responded to by either the grape growers or the wine producers. Furthermore, the regional nature of the grape growing industry is such that many rural communities are heavily dependent on the wine industry for their survival.

I refer to the tax on beer, which is a flat tax of 66c a litre. Of course, the tax on wine will be a percentage or progressive tax. Thus we will have a situation in which wine makers who concentrate on top quality premium wines will pay more tax for their efforts. I am sure it does not escape Senator Walsh that in the south-west of Western Australia some very fine quality wines-perhaps some of the finest wines in Australia-are produced. In effect what we are talking about is a tax which will penalise the pursuit of excellence. In many respects it will support mediocrity. In my view this will have serious ramifications for the future development of the wine industry in Australia. Encouraging the production of lower quality wines by default may mean that the reputation which the wine industry has succeeded in building up could be badly knocked. In turn, this could have a detrimental effect on our exports of first quality wines.

It is a matter of very great concern to me that the Labor Government should be introducing a measure which could prove disastrous to a very real sunrise industry in Australia, particularly in Western Australia, the State whence Senator Walsh comes and which presumably he represents. The quality wine industry in Australia could develop into a major and prestigious export earner. Imposing this sales tax on that industry can only hinder that development.

I conclude by saying that I find it bizarre to hear Senator Walsh and other's arguing in support of increasing the tax on low alcohol content beer. Swan Gold is perhaps the classic example. I am sure that it is a fact of life recognised by most responsible people that as a result of the introduction by Swan Brewery of Swan Light the social pattern of drinkers in Western Australia has changed very significantly. Its influence on drink driving has had a material and consequential effect. It is something that ought to be supported, not taxed.

Senator Chipp —Why don't you get stuck into Walsh again.

Senator CRICHTON-BROWNE —He is looking hammered to death over there. I do not think the average person in Western Australia would recognise Swan Light as a syrup or a cordial. By and large it is recognised as a sophisticated beer having a low alcohol content. As I said, drinking patterns have changed very dramatically. That has had consequential and beneficial effects on social patterns and drink drivers in Western Australia. It has been commended by the State Government of Western Australia. It ought to be commended by anybody who has care and concern for drink driving and for alcohol-related fatalities on roads. I can find no justification or civil rationale for imposing a levy on low alcohol beer simply because there happens to be a tax on cordial. If we are serious about reducing the level of alcoholism and road deaths we ought to be supporting, in a practical and tangible way, beer which has a reduced alcohol content. I conclude by saying that I can see no merit in the Government's proposition of imposing a tax on wine and increasing tax on low alcohol beer.