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Thursday, 26 October 2017
Page: 12249

Mr HART (Bass) (10:44): The intent of the Australian Grape and Wine Authority Amendment (Wine Australia) Bill 2017 is to mitigate some of the unfortunate consequences of the Turnbull government's decision to reduce the wine equalisation tax—the WET—rebate in their 2016 budget. In the 2016 budget, the Turnbull government announced two major changes to the WET: the reduction of the rebate cap from $500,000 to $350,000 and a declaration that only wine producers with a financial interest in a winery can claim the rebate.

Reformation of the WET was long overdue. There was evidence that the system was being rorted by bulk and unbranded operators and creative entity structuring in order to access the rebate. The Winemakers' Federation of Australia said that it was compromised on three fronts: firstly, the ability of brokers, intermediaries and uncommercial arrangements to access the entitlement; secondly, the role of the rebate in delaying the correction of the supply and demand imbalance by underpinning the conversion of uncommercial grapes into bulk wine and ultimately low-equity cleanskins and home brands; and thirdly, the ability of New Zealand entities to access the entitlement on unfair preferential terms.

Reducing the perceived rorting of the WET rebate is something that certainly required attention. Unfortunately for the industry, the Turnbull government also saw it as an opportunity for a revenue grab—a tax grab that has hit the bottom line of winemakers very hard. The government initially planned to pocket $300 million from the first reform proposal that was put forward. Following significant industry backlash and expressions of concern from Labor, the government backed down and went back to the drawing board. This legislation is the result. The government still plans to pocket $160 million as a result of the reforms and the implementation of this industry support package.

The bill does a number of things. Firstly, it will formally change the name of the authority previously responsible for industry regulation, the Australian Grape and Wine Authority, to Wine Australia. It will also enable Wine Australia to implement all program activities under the Export and Regional Wine Support Package, including for the purposes of cider and international wine tourism. It will enable Wine Australia to administer grant programs for wine, including the cellar door grant. The grant programs are necessary to enable transition for wine, including from the previous scheme, but those programs may not be enough for transition. The wine support package and the cellar door grant were announced by the government in an attempt to allay fears from the industry to assist them in transitioning to their reforms of the WET. The wine support package will allocate $50 million for an export and regional wine support package. The program will allow entities with below $20 million annual turnover to claim 50 per cent of their promotional activities up to a cap of $50,000.

This fund unfortunately is limited, and the money will be allocated on a first-in best-dressed basis. It is also limited to marketing promotion in China, Hong Kong, Macau and the United States. There will be $10 million allocated for a wine tourism and cellar door program. This is a cash grant program allocated in part on the amount of sales at the cellar door. It is also capped and, if oversubscribed, every successful applicant's grant will be reduced by the proportion necessary to bring all applicants under the cap.

This WET legislation is of particular significance to my home state of Tasmania. I consider myself most fortunate not only to live in my electorate of Bass but also to represent an area of northern Tasmania that has a focus on wine, food and tourism. The Tasmanian wine industry is unique within Australia; 100 per cent of the product is premium product. That attention to detail—that focus on premium product—and the cellar door experience have also infected or transferred to the craft beer industry. I know there is a real and sensible link between the production of craft beer and tourism, but I think most people concede that the cellar door experience, particularly a cellar door experience in Tasmania, provided much of the inspiration for the potential represented by craft beer.

My electorate is blessed with some of the best sparkling wine in Australia, if not some of the best sparkling wine in the world, potentially. This has been recognised by some of the oldest producers of sparkling wine in Europe, who have chosen to establish or acquire vineyards in northern Tasmania. The acclaim for Tasmanian wine is widespread. For example, James Halliday, in the 2014 Australian Wine Companion, said that the best sparkling wines are now predominantly sourced from Tasmania. Anthony Rose, in the Independent, from the United Kingdom, said that Tasmania is rapidly becoming Australia's 'little Champagne'. Nevertheless, most of the producers within Tasmania are small producers. Some of the largest Australian wine producers do operate within Tasmania, but all of their product that is grown within Tasmania is premium product.

Whilst Labor recognises and supports the necessity for amendments within this legislation, particularly the changes made to the WET, it is very important, particularly for the premium producers of wine within my home state of Tasmania, to acknowledge and recognise that a disproportionate burden is imposed on the small premium producers as a consequence of this legislation. Eighty per cent of Tasmanian product derives from approximately 20 producers. The small producers in particular, as I said, will be hit very hard. There is a disproportionate effect of a reduction of the rebate for a small producer. While it might be the case that a very large producer of wine can absorb the reduction in rebate, notwithstanding that there is some financial effect across the whole industry, it is obvious, as a matter of financial necessity, that a small producer will be disproportionately disaffected.

While the government seeks to ameliorate the effect of the reduction of assistance with the introduction of these grants programs, this in turn requires the parliament to take the government on trust that the grants program will be effectively run with the stated aim of supporting regional producers. These programs need to be well designed and money must be allocated on a merits basis. Labor will be watching this process closely.

I can tell you that there has been considerable disquiet in the industry as a result of this process. Quite appropriately, the industry has asked whether the elements of this package align with the strategic focus of Wine Australia. That question has yet to be answered. The peak representative wine bodies within the states of South Australia, New South Wales, Tasmania, Victoria and Western Australia have submitted a joint response to the draft grant guidelines. The organisations have been actively involved in discussions and consultation regarding the changes and are very keen to ensure that the grants programs are successful and that they support the long-term repositioning of their members in the Australian wine sector more broadly. This is essential for the premium wine industry of Tasmania.

The cellar door and wine tourism grants are good in principle. However, the state wine organisations are very concerned about the impact of the proposed grant processes on organisational cash flow and the overall profitability of wine businesses. The potential impact on a wine business is that it would lose up to $150,000 from the bottom line immediately following the rebate reduction in 2018-19; yet it will not be able to access any additional top-up grant of $100,000 until November 2019. That is, of course, assuming the administration of the grant program will be effective and efficient.

In addition to this, there is uncertainty over the potential for over-subscription, which must create additional pressure on financial planning and performance of the small businesses. Put another way, the grant programs which are designed to support regional producers need to recognise the potential effect of the withdrawal or reduction of the rebate and the potential difficulties in replacing at least a portion of that funding through the grant program. Again, the Export and Regional Wine Support Package is good in principle, but, as a response to the financial effect of the reduction of the rebate, the effect is still to be determined. The intention is that this will be restricted, and the competitive grants program is designed to support a collaborative, strategic approach towards attracting and maximising international wine tourism.

The various state wine organisations have specific strategies and priorities which have been developed in partnership with their respective members and, I understand, the regional associations. The state wine associations may be in the best position to determine what will be the appropriate activities to support their members in their regions, particularly where these regions are negatively impacted by these and other changes. It is obvious, therefore, that any grant oversight and/or assessment process, to be effective and responsive, will need to have very good and clear insight into the views of the state wine organisations. The various state wine organisations are not-for-profit and are supported, in the main, by wine producers. As a consequence there may be difficulty with the proposed co-contributions which are proposed within the draft grant guidelines. I urge the government to work with the state wine organisations to ensure that the state wine organisations are able to access the funds which are intended to support their members for trade and tourism outcomes which are for the benefit of the wider industry and, of course, our regional communities. The proposed wine export grants are likely to be very quickly exhausted, according to industry feedback. It will be most appropriate that the government put in place real-time updates with respect to approved and pending applications so that the individual businesses can determine whether it's appropriate or not to submit a particular application.

As I indicated earlier, Tasmania produces high-value wines, and when sold domestically they are taxed on their value at 29 per cent. The change to the WET rebate disproportionately affects Tasmania's wine producers, dominated by small premium producers. The state's wine industry has projected that production could triple over the next five years. I've been speaking with producers in my electorate who have had to question decisions on expansion and hiring plans as a direct consequence of this government's decision. The small to medium wineries, as I indicated earlier, will be most impacted by this. Rebecca and Tim from Holm Oak Vineyards in the Tamar Valley have put their expansion plans on hold. Shane and Fran from Delamere Vineyards, who have six full-time staff, have raised a number of concerns with respect to maintaining their current staffing levels.

Tasmania is proactive in marketing itself as a place to invest in the wine industry, particularly at the premium end. My home state enjoys and celebrates a national and international reputation as a leading producer of premium cool climate wines. The state consistently wins high praise, not to mention an array of medals from wine judges and critics alike. Industry and government need to work together to facilitate the expansion of the industry and further develop our reputation in wine and food tourism. The industry is seen as a priority sector with excellent growth prospects. Successive Tasmanian governments have consistently argued the case for securing value-added investment within the state.

Taxation measures, like these taxation measures, often affect behaviour of consumers and businesses, and these measures are no different. The initial proposal for the reduction of the rebate was, quite correctly, rejected. The two funds created as part of the rebate reforms—the $50 million Export and Regional Wine Support Package and the $10 million Wine Tourism and Cellar Door Grant program—are both necessary and appropriate. Labor supports them. It is, nevertheless, essential that the government does the hard work, in consultation with the industry at the national and state levels, to ensure that the administration of the grant program is effective. This is necessary to ensure that those who are disproportionately affected by the changes to the rebate receive appropriate assistance in transitioning to the new regime.

The premium wine industry in my state of Tasmania is now part of the identity of Tasmania. It has built a well-deserved reputation for excellence and innovation. The small producers need to have their voices heard through the state-based wine organisation—in this case, Wine Tasmania—and their interstate counterparts. It is also most important that the strategic focus of the grant program is aligned with the strategic focus of Wine Australia so that there is no inconsistency between the application of funds and the strategic interests of the industry as a whole.

This is very important legislation, particularly as it affects my home state. As I've said on a number of occasions, we have a predominantly premium based industry made up of small wine producers. Those small wine producers need an effective transition program. The transition program might not be so effective if those grant programs are not administered correctly. The government must continue to talk to the wine industry organisations at both state and national levels. It's essential for the reputation of Wine Australia that these programs are effective in transitioning to the new WET regime. This industry is too important in my home state to fail. It is a focus of industry expansion for the future. These taxation measures can't put any limitation on those expansions.