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Thursday, 6 September 1984
Page: 614


Senator WALSH (Minister for Resources and Energy)(9.08) —I do not know what to make of that speech. If I recorded it correctly, Senator Teague said that the Opposition will do all in its power to stop this tax being implemented short of the conclusion of an inquiry into the wine industry. I do not know whether that means he will vote against it. He will vote for the motherhood amendment, I presume, which has been moved by the Opposition, but is he going to vote against the second reading. He and the rest of the Opposition members have the power to vote against the second reading of this Bill if they choose to do so. I simply observe, for the record, that they did not choose to do that in the House of Representatives. If Senator Teague and his colleagues are going to vote against the second reading of the Sales Tax Bills, and since that would be in direct conflict to the action taken by the Opposition in the House of Representatives, one can only assume that John Howard, who favours the wine tax, has been rolled at the meeting of the Liberal Party of Australia and that the opportunists have won. Mr Howard is on record as saying that he believes that there should be a tax on wine.

The fundamental mistake made by Senator Teague and most others who have spoken on these Bills is that the tax will be a tax on producers. From that false assumption comes Senator Teague's conclusion that 60 per cent of the burden of this tax will be borne by South Australia because 60 per cent of the wine is produced in South Australia. In fact, by any rational assessment, supported by the empirical evidence of the experience in Victoria in the last 12 months, the tax will be borne by the consumers. There are very sound underlying reasons why this will be a tax on consumers rather than a tax on producers.

Senator Jack Evans mentioned the high priced end of the market-the quality wines as he called them. Does Senator Jack Evans seriously believe that people who are willing to pay and can afford to pay over the counter $9 a bottle for wine and in an upmarket restaurant $15 a bottle-I have even seen $30 a bottle charged in this city and if one goes to really upmarket restaurants they could even be higher-will be deterred by the imposition of a 10 per cent tax at the wholesale level, which will be something less than a 10 per cent price increase at normal retail levels and something less again in the restaurant market? Does he believe that people who are willing to pay and can afford to pay even $10 a bottle for these quality wines will be deterred from doing so because the price has been increased by 60c or 70c a bottle?


Senator Jack Evans —Overseas, yes.


Senator WALSH —Overseas!


Senator Jack Evans —Yes, the export market.


Senator WALSH —The sales tax does not apply to exports. Exports, by definition, are exempt from sales tax. I was going to point that out later but I am glad that the honourable senator reminded me of it now. Exports are exempt from the sales tax. It applies to domestic wholesale transactions or, where there is no arm's length domestic wholesale transaction, to a deemed wholesale price. Exports are categorically exempt. I am sure that if Senator Evans at least reflects on this he will recognise that, at those price levels, people will not be deterred from buying a bottle of wine simply because the price has increased, depending on just how far up market one goes, by something between 60c and, at the maximum, $2 a bottle. Anybody who can afford to pay $10 or $15 in a restaurant for a bottle of wine will not be deterred from buying a bottle because the price has gone up by 60c or $1. People might be deterred from buying another bottle because they are frightened of being breathalysed on the way home or for some other reason like that, but they will not be deterred by the very modest increase in price.

When any tax is imposed on consumption the basic economic rule is that in some proportions the cost of that tax will be shared between the producers and the consumers. Because of the structure of the wine industry, the evidence is quite overwhelming that the tax will fall overwhelmingly on the consumers, in which case it will have a negligible impact on the prices received by producers. There is another possible effect of an increase in prices because of the tax and that is that consumers will substitute other alcoholic beverages for wine that is presently being purchased. Under certain circumstances that could arise but for a high substitution effect to be feasible there must be a readily substitutable product which is price competitive.

If we look at the realities of the wine market we see that the cask wine, depending on which grog shop it is purchased from, sells from $4 for a four- litre cask-sometimes a bit higher and sometimes a bit less-which will attract a sales tax of the order of 30c a cask. The alternative for that sort of wine buyer or person who drinks other than wine is beer, which will cost about $14 for an equivalent amount of alcohol. When the disparity between the prices of the two products is as wide as that it is not conceivable that there will be any significant substitution of beer for wine.

I understand that, before I returned, Senator Jessop cited some figures from a Bureau of Agricultural Economics officer whose name I have forgotten-I think it was Tsolakis-which were based on obsolete data recorded from 1955 to 1959 and from which he made estimates of elasticity; that is, consumption responses to price changes. Firstly, the estimates themselves are fallible, as I am sure Mr Tsolakis would readily admit. Secondly, the structure of the industry and its marketing organisation applicable to the time from which he made his estimates is no longer applicable today and cannot or ought not to be regarded as reliable .

As I mentioned earlier, Senator Jack Evans implicitly made the same mistake as Senator Teague has made; that is, he assumed that the cost of this tax would be borne by producers rather than consumers. From that he concluded that because the tax fell relatively more heavily per unit of alcohol-he is correct in that- on the wines upmarket in price there would be a severe deterrent to the production of those wines. I have dealt with the improbability of his assumption being correct; that is that the burden will fall on producers. But he opened up, as indeed he acknowledged, a very important point; that is, the progressivity of this tax. At the lower priced end of the market the tax effectively is of the order of 7c per litre-the upper end of the market runs off almost into infinity- and at the upper medium level of the market where wine is sold retail for $10 to $12 a bottle the tax is likely to be of the order of $1 a litre. That draws attention to the important fact that the higher income groups which are capable of paying and willing to pay those very high prices pay a very much higher amount in tax on the same proportion of alcohol than the people who buy cask wines. That is correct and I make absolutely no apology for it. I claim that it is a virtue of this tax that it is highly progressive. Indeed, it is conceivably more progressive than the income tax.


Senator Teague —Have you put those arguments directly to the industry?


Senator WALSH —The problem with the industry is that it has been fed on a steady diet of nonsense for longer than anybody can remember by people such as the honourable senator. Turning to the second reading amendment which the Opposition has moved and to that section of it which refers to the reduction in the protection margin on imported wine--


The DEPUTY PRESIDENT —To avoid misunderstanding, no second reading amendment has been moved to the Bills before us. The only Bills before us at the moment are the Sales Tax (Nos 1 to 9) Amendment Bills. That amendment will have to be moved later.


Senator WALSH —But it is a cognate debate, is it not?


The DEPUTY PRESIDENT —It is a cognate debate but the amendment has not been moved.


Senator WALSH —Thank you for correcting me on that point of fact, Mr Deputy President. The amendment which the Opposition has given notice of moving to the Sales Tax (Exemptions and Classifications) Amendment Bill refers to the effect of the simultaneous changes of the imposition of this sale tax and import duty on the wine industry. It is correct that the effective margin of protection that the Australian industry has against imported wine, as a result of this package of changes, will be reduced from 35 per cent to 23 per cent. However, that is a step which would of necessity have been taken regardless of whether there was a general sales tax on wine. It would of necessity have been taken for this reason : Australia, for a very long period, indeed some time back in the 1950s and much more importantly because the margin has substantially increased since 1981, has been in breach of the General Agreement on Tariffs and Trade because, due to the linkage of the discriminatory sales tax on imported wine and the intermediate rate of sales tax, the sales tax over the last two Budgets of the Fraser Government was increased from 15 per cent to 20 per cent.

Our GATT partners are aware of that breach of the GATT. They made known their awareness of it as early as March this year. I guess one could argue that Australia was not necessarily obliged to correct that breach of the GATT. Had we not chosen to do so, however, we would have invited retaliation against, among other things, Australian beef and dairy exports. The possibility-indeed, the probability-of retaliation by the other GATT signatories against Australian beef and dairy exports was so severe that the only course available to a responsible government was to terminate the long-standing breach of the GATT by Australia and reduce the discriminatory sales tax or its import duty equivalent on imported wines to the level of 10 per cent which applied in 1947 when the GATT was first concluded. So that is a completely separate issue. Even, however, if we were not, the effects of that reduction in the margin of protection to the domestic industry have been greatly exaggerated.

The Bureau of Agricultural Economics estimates presented to the Government were that there would be a change of, at the most, 14 per cent in the volume of sales of imported wines. That is to say, given that imported wines currently hold about 3 per cent of the market, at the most there would be an increased market share of less than 0.5 per cent accruing to imported wines because of this change. It is possible, I suppose, that if the great surplus of wine in the European Economic Community were pushed on to the Australian market at extraordinary low prices that percentage could increase. Again, that is a separate issue from both the imposition of the general sales tax and the reduction in the margin of protection available to domestic producers. If that sort of action were taken, the normal anti-dumping provisions could be invoked.

The Australian Democrats' amendments to the specific Bills with which, as the Deputy President has pointed out, we are dealing is designed to reduce the rate of tax from 10 per cent to 2.5 per cent. Really, if the rate of tax were 2.5 per cent, I do not believe that it would be worth proceeding with any tax at all. The Government will be opposing that amendment. I note that the Democrats have given notice of their intention to move a number of other amendments to the Sales Tax (Exemptions and Classifications) Bill, which is not in the formal sense before the Senate at the moment but which is the subject of a cognate debate. If the Democrats wish those amendments to be taken seriously, I wish they had presented them to me or to the Treasurer (Mr Keating) at least at the beginning of this week or preferably the previous week. But I understand that consideration of those is to be deferred until tomorrow.


Senator Jack Evans —How much time would you like before we get the Bills?


Senator WALSH —The Bills were in the House of Representatives some time ago. I wish to make a couple of comments concerning Senator Crichton-Browne's remarks. It is not surprising to anyone who knows Senator Crichton-Browne's record or, indeed, the record of the Western Australian Liberal Party as a whole, that Senator Crichton-Browne is opposed to paying tax. Indeed, most of the prominent members of the Western Australian Liberal Party took very elaborate precautions to ensure that they paid no tax on their incomes over a very long period. One of the wine producers for whom Senator Crichton-Browne expressed particular concern tonight-Mr Denis Horgan, the former Chairman of the Finance Committee of Western Australian Liberal Party-took evasive action to the extent of $7m, according to an article that was published in the Sydney Morning Herald a couple of years ago . So it comes as no surprise to those who did not know it before or to those who already knew it, to be told that Senator Crichton-Browne is opposed to paying tax. Given that, however, the arguments that he put up were essentially puerile. Firstly, he claimed to be presenting a particular Western Australian perspective on this matter because, he said, of the importance of wine production in Western Australia. In fact, the Western Australian wine production represents just over two per cent of total production which is about one-quarter of Western Australia 's proportion of the population. So although Senator Teague is correct in saying that the wine industry is proportionately quite important in South Australia, in Western Australia it is proportionately unimportant. The ratio of wine production to population as a percentage share of the national total in South Australia is of the order of 6 : 1, whereas in Western Australia it is of the order of 0.25 : 1. So Senator Crichton-Browne was wrong about that as well.

The other rather extraordinary argument that he raised was that because it takes five years to bring a vineyard into production and another three years before sales can be made, this is not the time to impose a wine tax as it will, so he said, discourage the establishment of vineyards. Given that anybody who may be contemplating establishing a vineyard or a winery now, by Senator Crichton-Browne's own admission, would not be exposed to this tax for a minimum period of eight years, I do not see that that is a particularly powerful argument against applying the tax now. The sort of hysterical and ill-founded comments that Senator Crichton-Browne made may be provoked or at least reinforced by the equally hysterical and irrational comments that have been coming from some of the Western Australian wineries to which he referred. In particular, at least one and I think two or three Western Australian wineries have been putting advertisements in newspapers announcing that as a result of the imposition of this tax they will be closing their doors as from tomorrow. It is irrational, to say the least, that a winery should decide to close its doors before it has had any chance whatsoever to assess the impact of the tax on its cash flow or net income. If, however, the winery was about to close because of the incompetent management of its owners or for some other reason to do with the shortage of liquidity, it is hardly rational to blame the wine tax for its closure.


Senator Crichton-Browne —Are you saying that is why they are closing?


Senator WALSH —We know very well that Senator Crichton-Browne does not believe in paying tax. We also know that that is one of the reasons-indeed, I would say the reason-responsible for his association with Christo Moll.


Senator Crichton-Browne —Mr Deputy President, I take a point of order. Senator Walsh, in his normal revolting, common, crude, unattractive manner in this Senate--


The DEPUTY PRESIDENT —Order! That is not a form in which--


Senator Crichton-Browne —Which has given him a reputation throughout Australia, made the allegation against me--


The DEPUTY PRESIDENT —Senator Crichton-Browne, you must not take a point of order in those terms. You may explain what your point of order is without commenting on the matter.


Senator Crichton-Browne —I am arriving at it as quickly as I can. He suggested that I did not believe in paying tax. I take that as suggesting that I do not pay tax. I will not compare what I assume to be the trivial amount that the Minister pays with what I pay. It is an implication that I evade tax. I think that is a reflection upon me and I ask him to withdraw the statement.


Senator Button —With respect, Mr Deputy President, that is surely a matter for a personal explanation rather than a point of order.


The DEPUTY PRESIDENT —I think I can rule on this, thank you, Senator. I think it is true that none of us like paying tax but I think the context in which Senator Walsh made the remark was a reflection on the motives of Senator Crichton-Browne ; so I think he should withdraw it.


Senator WALSH —Very well. In deference to you, Mr Deputy President, I will withdraw. The point I was making when I was interrupted-I must say that I am surprised that it took Senator Crichton-Browne two or three minutes to react; his reaction time was two or three minutes behind the clock--


Senator Crichton-Browne —I thought the dribble might stop running out the side of your mouth, that is all.


Senator WALSH —I am tempted to suggest why Senator Crichton-Browne may be so passionate about paying higher prices for wine and why his reaction time might lag by a couple of minutes, but I shall refrain from doing so as I am sure that Mr Deputy President would not approve of that either.

The point I was making immediately before I was interrupted was that those wineries that have been inserting Press advertisements announcing their closure because of the tax are managed either by incompetents who are not sufficiently rational to wait to see the effect of the tax on their business operation or-I suspect that this is more likely-by incompetents of such magnitude that the wineries are facing insolvency anyway and thought that this would be a convenient way of dumping the blame on the Australian Labor Party and blaming somebody else for the consequences of their own incompetent management.

On the question of Swan Light, many people-this is a major concession-may agree that a case can be made against imposing a sales tax on a beer that has an alcohol content less than that of many of the ginger beers on the market. To the extent that drinkers, who would otherwise consume normal beer and then drive home drunk, could be persuaded to drink Swan Light and drive home sober, there is something to be said for encouraging them to drink Swan Light. I believe that the price factor is not a major consideration in the choice that people make between Swan Special Light and Swan something else. The real motivation behind that choice is the fear of being breathalysed on the way home rather than the fact that the prices of the two types of beer may differ by 10c a can.

As far as I know, no Opposition senator has attempted to defend the principle of neutrality in the tax system. Given that already there is a sales tax of 20 per cent on lemonade, ginger beer, soda water and, I believe, mineral water-I am open to correction about that-it is difficult to sustain the case that the tax exempt status of Swan Special Light should be allowed to persist. Swan Special Light has an alcohol content of less than 1.1 per cent, and therefore it is exempt from excise under the existing law and is also exempt from sales tax because it is a beer. I do not believe that any reasonable person would argue that that anomaly should have been allowed to persist. The Government will not accept the amendment to the motion for the second reading or the amendment to reduce sales tax from 10 per cent to 2.5 per cent.