The Death of the Cellar Door

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Changes to the WET rebate announced in the Federal Budget will impose severe hardship on many smaller wine producers and will have an even greater impact on wine businesses that sell their own branded and packaged wine, but who have it produced for them under contract by a winery.

That’s according to Des Caulfield, director of MGI Adelaide, part of the MGI global accounting network.

“Following lobbying from the industry, the Federal Government agreed to review eligibility to the rebate. The changes proposed in the Budget are, in my opinion, the equivalent of throwing out the baby with the bath water,” he said.

“From 1 July 2019 the rebate will not be available for the sale of bulk and unbranded wine. This is a long overdue reform and is generally welcomed. However, the proposed changes require that, to be eligible for the rebate, the wine merchant must either own a winery or have a long-term lease over a winery and sell packaged, branded wine domestically. The winery can be located in either Australia or New Zealand.

“The other major proposed change is to reduce the maximum annual rebate from $500,000 to $350,000 on 1 July 2017 and then to reduce it further to $290,000 on 1 July 2018. The impact of the changes will hit the smaller producers hardest as the rebate in many cases represents almost all of the profit of these producers. Their costs will initially increase by up to $150,000 annually, dependent upon total domestic sales. There will be a further increase in costs of up to $60,000 in subsequent years. It is doubtful that they could recover the lost rebate from increased prices as such a move is likely to make them non-competitive.”

Mr Caulfield said the removal of the rebate for those selling branded packaged wine in Australia would have an even more devastating effect.

“The result of these proposed changes will be to substantially reduce the number of small producers in Australia and, as a consequence, many cellar doors will close,” he said.

Mr Caulfield said the decision in the Budget to provide $50 million over four years for promotion of Australian wines overseas and in wine tourism at home was welcomed.

“It is not yet clear how individual wineries may be able to take advantage of this. The saving made to the Government from the proposed measures is estimated by Treasury to save $300 million over the same four years,” he said.

“In the meantime, eligible New Zealand producers can continue to claim the WET rebate despite not having a manufacturing operation in Australia. Many Australian winemakers are about to suffer a substantial reduction in WET rebates with serious consequences for their businesses.

“Yet Australia will continue to subsidise foreign manufacturers. It has been Government policy to reduce subsidies to many Australian industries. The car industry is a recent example. There is no logic in continuing to extend the WET rebate to New Zealander producers.”

Mr Caulfield said the Adelaide Hills wine region would be hit hard.

“There are more than 50 cellar doors in the Hills but just seven wineries and planning restrictions make it unlikely that any more can be built,” he said.

“The impact of the proposed integrity measures limiting the WET rebate will have a devastating impact on this region alone.

“It is just over a year before the first impact of the proposed changes and three years before the final and most dramatic impact is felt. Now is the time for the smaller wine producers and sellers to voice their concerns to Government.”

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