Australias winemakers reject the idea that the sun has set on oversupply problems

Australia's winemakers reject the idea that the sun has set on oversupply problems

Australian winemakers have rejected a charity's claim that the industry's oversupply problems are over and that it should be hit with a AUD1.5bn (US$1.56bn) tax hike.

In a 26-page analysis released today (17 October), the charity Foundation for Alcohol Education and Research (FARE) has argued that the idea of oversupply in the country is now a "fiction", and that the 15-year glut is coming to an end. As a result, FARE is calling for a reform of the country's alcohol tax system, to replace the current wine equalisation tax (WET).

Under the WET system - an ad valorem tax - cheaper wines are taxed less and a wine's abv is not taken into account. A government-commissioned review of the system recommended it be replaced with a "volumetric" tax rate, as a "matter of urgency". 

FARE's chief executive Michael Thorn said: “The WET is a bad tax that simply encourages the production of cheap wine, which is by far the cheapest alcohol available in Australia.

"The end result is a market flooded with alcohol sold as cheaply as AUD2 a bottle."

But, the Winemakers' Federation of Australia (WFA) has attacked the charity's findings. “The conclusion by FARE that "by all objective measures the wine glut is over" reveals a lack of understanding of all of the relevant issues, which are very complex,” said Paul Evans, the WFA's chief executive.

“FARE’s analysis is based on a simplistic focus on a narrow sub-set of production data that tells us very little about the key issue confronting the industry – profitability." 

He added: “It fails to grasp that oversupply is about more than just data on the physical surplus. It is also about confronting unprecedented exchanges rates, a high cost base, and fierce competition abroad and at home from foreign wines." 

Evans also claimed that the industry is still going through "considerable structural adjustment". He added: “The suggestion that the industry has now recovered enough to have a AUD1.5bn tax increase dictated to it is just not credible.” 

Earlier this week it emerged that plans for a minimum price on alcohol in Australia are moving forward.