Yahoo Finance Tax relief has cheered Australia’s beer and spirit producers – but what will it mean in the bottleshop?
When the federal government announced last week plans to slash taxes on the production of craft beer and artisanal spirits, few could be blamed for hoping the change would bring down prices at the bottleshop.
The decision follows decades-long campaigns by craft breweries and distillers to get the same tax treatment as the nation’s wine industry – a lobbying effort that has, at times, been aided by a certain “cocktail diplomacy”.
In February, the Australia Distillers Association (Ada), which represents boutique distilleries, and Spirits and Cocktails Australia (Sca), the industry body for the big spirits producers, partnered to hold a cocktail party in Parliament House for the nation’s politicians.
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With free drinks on offer, attendance quickly outpaced capacity and the good times seemed to have stuck in the memory of the federal treasurer, Josh Frydenberg.
In delivering the budget last week, it was announced that the excise relief cap for beer and spirits would be lifted from $100,000 to $350,000 for brewers and distillers, meaning those eligible will be refunded any excise they pay up to that amount.
To date the excise on spirits has been calculated according to strength, says Stuart Gordon, president of Ada and Four Pillars Gin. This has meant the price of a 700ml bottle of 40%-alcohol gin will generally include roughly $26 in tax.
“It’s roughly one third the price,” Gordon says. “The higher the proof, the higher the tax, but it also depends what you’re drinking.”
Small and independent beer brewers have been feeling similar pain, says Kylie Lethbridge, general manager of the Independent Brewers Association (Iba), whose organisation ran its own campaign in pursuit of the same goal.
Lethbridge says that for every dollar made by the craft beer sector, roughly 42 cents is being paid in federal taxes.
“Basically, in our country we pay the third highest tax on beer production in the world,” Lethbridge says. “The higher percentage alcohol your beer is, the more tax you pay.”
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Those in the industry say last week’s decision will benefit the hundreds of boutique breweries and distilleries that dot the landscape, particularly in regional areas. But while it will allow them to employ people, buy more kit and enter the market, the industry says it will unlikely bring down prices.
Jon Lark, founder and brand ambassador for Lark Distillery in Tasmania and the former head of the Ada, says the decision was more about making it easier to start up a new business or grow an existing one.
“It’s the one thing that’s held our industry back from growing more than it has done until now,” Lark says. “There was a distiller in South Australia who was addressing a group of people, saying I just wanted you to know that I got an order from one of the big liquor companies, and I turned them down.
“Everyone was shocked and asked why, and he said if I took that order, I’d have to beg, borrow or steal to get the money to pay that excise, and knowing I don’t get paid for 90 days or longer, I don’t have the cash flow to do that.”
In practical terms, Lark says the change will not lead to an immediate drop in price, though that could change over the long term as the industry expands and the world develops a taste for Australian craft beer and liquors.
“Will we experience a price drop? The reality is, the reason why the government gave us the excise relief was not to lower the price, was not to create a product to encourage greater drinking, but to help a distillery expand its production and employ more people,” Lark says.
“In the long run there will be a trickle-down effect on the price simply because of market forces.”
It’s a similar story for craft beer, Lethbridge says, and under current arrangements, the price won’t be coming down any time soon.
“It’s unlikely the cost of beer will come down, because you get what you pay for,” Lethbridge says. “The product our members produce is classified as premium or artisan. And our breweries are resource-heavy. It costs quite a lot to produce because they’re labour intensive.”
So while the price of a tipple will likely continue to go up every February and August, when suppliers put up their prices, the good news is that drinkers will be spoiled for choice.
With the combined membership of Ada and Iba counting more than 600 brewers and distillers, their numbers are only expected to grow – and with it the range of products on the market.
“This is great in that it helps a lot of the smaller guys,” Gordon says. “It is very difficult to get a business up and running and profitable, and reinvest in the business when the tax rate is high. You don’t have economies of scale.
“They don’t have the competitive structure that a larger distiller has elsewhere in the world.”
