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Monday, 6 September 1993
Page: 945

Senator BEAHAN (5.43 p.m.) —I speak as a West Australian from a winegrowing area too—not a major winegrowing area in the same way as South Australia is, although in 1991-92 we produced 9,673 tonnes of wine grapes. While it is only two per cent of total wine production, I think the quality of West Australian boutique wines in particular are attested to not only generally but also in this place. I can recommend the beautiful Cape Mentelle red in the Parliament House dining room as a good drop, but there are many other boutique wines in Western Australia.

  I am speaking as a red wine drinker and also a beer drinker. I speak as one who is proud of the wine industry not only in Western Australia but also Australia wide. I was in England recently and it was with immense pride that I saw so many Australian products on the shelves competing with the best that Italy and France can produce—and I think doing a lot better, certainly if the consumers are any judge.

  I would be deeply concerned if I thought that any action of the government affected this important industry—I was going to say fledgling industry, but it is well past the fledgling stage. In this regard I am probably similar to a number of opposition senators and also Australian Democrat senators, but here I think the similarity ends. I also speak as a member of a government which has, I believe, over the past 10 years shown the courage to face tough decisions when those tough decisions are in the national interest. Those tough decisions are in the national interest now, and nowhere am I more happy to exercise this discipline than in relation to wine tax.

  The position of the Liberals, indeed of the opposition generally, as I see a National Party member, Senator O'Chee sitting opposite—and he will notice that I am wearing my National Party jacket today—is understandable in the fact that it has now positioned itself as a result of this and other decisions of recent weeks as a permanent opposition. Opposition members are opposed to everything; they are no longer concerned about the economic consequences of what they do. They are prepared to be fiscal wreckers and spoilers, regardless of the national interest or of the economic consequences.

  The position of the Democrats is a little more difficult to understand. They have set themselves up as the guardians of social justice whilst being economically responsible. I have been impressed with the way that Senator Kernot and the Democrats generally have managed to achieve the difficult balance that is often involved in the process of trying to balance economic ends with social justice ends.

Senator Loosley —Social justice never registers with the coalition.

Senator BEAHAN —That is right. But on the question of sales tax on wine, I would suggest that Senator Kernot and the Democrats generally—and I suspect under pressure from South Australian colleagues who have the numbers in their group—have thrown logic, social justice, economic good sense and the national interest over in favour of, I think, a cheap populism.

  I do not think it does Senator Spindler any good to claim that the Democrats have been consistent in voting against progressive taxes of this sort since 1984. They have been consistent, yes—consistently wrong and consistently unjustified in the positions they have taken. `Monday Comment' by Ross Gittins in this morning's Sydney Morning Herald states:

  By extending their objection to the Budget's indirect-tax rises to opposing the higher tax on wine, the Libs, Democrats and Greens have blown their cover. It's clear now that they're motivated by populism, not protecting the poor.

  Tax increases of any sort are never popular. Politicians can always win themselves some cheap popularity by opposing them. On this occasion the opponents had a good argument: the Government's proposed increases in indirect tax were regressive. But that's not true of the wine tax.

Of all the budget measures, perhaps the most progressive is the wholesale sales tax on wine. Because it is a wholesale sales tax, the higher the product's price the higher the tax per unit of alcohol. There are big variations in wine prices. For example, let us take a four-litre cask of wine, which costs on average $7, and the same amount of Grange hermitage, about 5.3 750 ml bottles, which costs about $450. There is a big variation in prices according to the quality of the wine. A 31 per cent wholesale sales tax on the former, the four-litre cask of wine, will add 42c to the price. The 31 per cent wholesale sales tax on the latter, the same amount of Grange hermitage—5.3 bottles or, again, as close as you can get to four litres—would add about $27. The tax is clearly progressive, yet the Democrats are prepared to forego an extra $27 tax collected for that unit of alcohol at the top end of the market because of the 42c tax at the lower end of the market, which just does not make sense in terms of their social justice arguments.

  To take the analysis further, the cheapest bottle of wine—at, say, $4—would increase in price by about 20c a bottle. A medium level wine—at, say, $15—would increase by roughly 78c a bottle. Each of these figures assumes that producers pass on all the increases. History has shown that in fact that is not what happens; only part of the increase is usually passed on and sometimes none of it is passed on, as in 1986.

  Importantly, if we are talking about equity and progressivity, why should wine drinkers pay far less tax than beer or spirit drinkers? How is that fair by any standard? Because beer and spirits, unlike wine, are subject to wholesale sales tax and excise, they are taxed at a far higher rate than wine. Raising sales tax on wine from 20 per cent, which was the same level as soft drinks, to 31 per cent goes some way to closing this gap but only a small part of the way. Even with the increases in tax on wine, the wine industry enjoys a massive comparative advantage over both beer and spirits.

  If these taxes are passed by the parliament—at present it is certainly looking as if they will not be passed by this chamber but they may be as members and senators become more economically responsible later in the game—the effective tax on alcoholic beverages, including excise, for the same quantity of alcohol would be 201 per cent for spirits, 80 per cent for beer and 31 per cent for wine. There is a big disparity still remaining regardless of the increase in the tax. So no argument against the tax has anything to do with progressivity, the application of social justice principles or any sense of fairness or equity. These arguments advocate taxing one group of drinkers more heavily than another based simply on their tastes and nothing more.

  There is nothing new in the hysteria of the campaign surrounding this proposal. There is hysteria around any campaign where there is an opportunity to make changes. The only new element in this situation is the Senate and its numbers, the situation as I have said in which the opposition has positioned itself as a permanent opposition—spoiling, rejecting everything, not worrying about economic responsibility, not worrying about fairness, not worrying about social justice—and with the Democrats acting as opportunists determined to achieve some short-term popularity, regardless of the fairness of the proposals or the economic consequences.

  No-one likes tax increases and any group facing such increases will fight them to try to retain their former, and in this case I would say privileged, position. So it is with the wine industry. But its arguments are flawed in a number of ways that have already been pointed out. I will just look at them, somewhat repetitiously, from a new angle. They are seen as flawed not only by the government but also by any sensible economic commentator—Ross Gittins is one that I have quoted but there are many others—and trenchantly, of course, by the brewing and distilling industries who have a vested interest as competitors.

  They are not only annoyed at the unfairness of the tax disparity which applies between their drinks and those of the wine industry, but they are also, I think rightly—I say this despite the fact that I am proud of the wine industry—angry at the claims being made by winegrowers that theirs is the only industry that represents anything especially Australian or that it is the only industry that is especially important in terms of exports. That is utter nonsense. These other industries are equally important, particularly the brewing industry, which has had significant export successes. I say this even though, as I have said, I am a supporter of the wine industry and would not like to see it suffer in any way as a result of any action of the government.

Senator Tierney —You will be voting with us, then.

Senator BEAHAN —I certainly will not be. The main thrust of the wine industry's argument is that the increased rate of tax will damage an increasingly successful export drive. This might make sense—it has already been dealt with very adequately by Senator Sherry—if the proposed tax applied to exports, but of course it does not.

Senator Vanstone —No-one here has suggested it does.

Senator Loosley —The very urgency motion suggests it does.

Senator BEAHAN —I agree with Senator Loosely; the very urgency motion suggests that it does. The industry suggests that it does and the opposition is just parroting the industry, so it seems that it is supporting its view. The industry argues that successful exports demand a substantial domestic market from which to spring. It needs as a springboard a big domestic market which is successful. I do not argue with that point either and it might make sense if it were not for the fact that the big four wine companies in Australia, despite the figures that we are given about the number of small winegrowers around the country, produce 80 per cent of the wine.

  It is clear that the wine industry today is not any longer a fledgling industry or a cottage industry. To the degree that it is, it is only at the margins. There might be lots of small wineries around but they are not the ones that are currently doing the exporting in the volumes that are going to be important. It might make sense if the wine producers were finding it difficult to attract investment but they are not, as Senator Sherry has already pointed out.

  There should be, rightfully, concern at the estimated $1.2 billion that the industry needs in investment to meet its target of $1 billion worth of exports by the year 2000. But, again, as Senator Sherry has already pointed out, the BRL Hardy float, the South Australian Brewing Company wine division plans for the future and the floats in a number of smaller companies, all successful in recent months, attest to the fact that they are not having any trouble raising finance, and I predict that they will not in the future.

  The industry is also aided by government initiatives: the reduction already announced in the corporate tax rate from 39 per cent to 33 per cent; and the 10 per cent general investment allowance which is designed to address the run-down in agricultural equipment. Both of these commitments will assist the industry in a positive way. They show the government's support for industry policy, which Senator Spindler brought into question in his argument. So, again, the arguments about the impact on exports are nonsense.

  Even the impact on the domestic industry is grossly exaggerated. Cask wine will be most affected—and that is agreed—since this is the most elastic end of the market. But even here, according to the Tasman Institute report—and the Tasman Institute is a very conservative institute—cask wine will face a decline in sales of only 3.8 per cent; bottled wine, on the other hand, is estimated to face a decline of only 1.3 per cent, which is less than the decline expected to be faced by spirits.

  It also has to be said that previous increases in the tax on wine, both in 1984 and 1986, have not, despite what the opposition claims, had the disastrous effects predicted. There was a fall in consumption for a period, but that fall was paralleled by a fall in consumption in other alcoholic beverages; it was a fall due more to health choices than to price. (Time expired)