WA’s distilling sector has called for a two-year freeze in the spirits tax and a 10-year sector plan from the state government.
The alcohol tax on spirits has increased nearly 20 per cent over the past four years, hitting $103.89 a litre after the latest hike by the federal government.
The extent of this tax burden is causing significant strain on Australia’s distilling sector and has led to calls from industry for reforms.
The Australian Distillers Association appeared before the Inquiry into Food and Beverage Manufacturing in Canberra on July 17 to present its case for a two-year pause on tax hikes.
The national distilling body said that time period would allow for a comprehensive review of the excise regime, encourage reinvestment in the sector, and create new job opportunities.
Australian Distillers Association chief executive Paul McLeay said the current excise regime, which is tied to the six-monthly Consumer Price Index numbers, was misaligned with the federal government’s aims to boost domestic manufacturing and trade.
“We don’t need billions in government funding to make this happen, just some relief from these untenable six-monthly tax increases,” Mr McLeay said.
“The continued government inaction on this issue is incredibly frustrating for our industry, which already contributes $15.5 billion in added value to the Australian economy and supports more than 100,000 jobs.
“We know that our economic potential could be much greater. Analysis from Mandala Partners has demonstrated that spirits manufacturing can be a billion-dollar export industry for Australia by 2035, but only if we have the right policy settings.”
The current spirits policy was introduced in 1983. Forty-one years and 75 tax hikes later, many in the sector believe automated indexation is no longer fit-for-purpose for the distilling industry.
“There were only two distilleries in Australia when these six-monthly tax hikes began in 1983,” Mr McLeay said.
“Today there are 700 distilleries, and we want to work with the federal government to build a major export industry that Australians can be proud of, just like our globally renowned wine industry.”
Western Australian distillers are supportive of the two-year excise freeze proposition, with Spirit of Little Things co-founder and head distiller Tom Martin saying the industry had potential for significant growth but was being held back by the tax burden.
“[The federal government] needs to actually change the system to recalibrate excise tax on spirits, to be more in line with excise tax on other alcoholic beverages,” Mr Martin told Business News.
“That is the sustainable solution, but to do that will take time. So we need to pause as quickly as we can to then work through that process.
“If [the government] wants this industry to grow, [it] needs to step back and look at how to build a sustainable tax system for sustainable growth of the industry.
“The current parliamentary inquiry is aimed to make that more visible to government. As a first step let’s just pause … to do some proper work on how we restructure.
“Spirit production could be a really good industry for Australia, it really could. It could be a great industry where we’re world renowned for spirit products. But it’s not going to happen if it doesn’t have the right support.”
Mr Martin said producers already operated on fine margins, with costs rising across the board and discretionary spending by consumers in decline.
“[I]t’s just getting too expensive to produce and pay the tax and for the consumer to then want to buy,” he said.
“For our Australian botanical gin, for example, there’d be about thirty-one dollars of tax in that bottle.
“The problem is ... for a bottle that retails for eighty-five dollars, once we pay the tax component, the cost of goods, the transport on goods, the sales team, distributors, and then the retailer takes their margin, we’d be making about ten bucks a bottle.
“Excise is nearly $104 per litre. That’s astronomical [and] if you compare it to the US, their excise rate is less than fifteen dollars a litre.”
Mr Martin said the ingredients used by Australian distillers set their spirits products apart from the rest of the world.
“Whether it’s a gin or a botanical rum or even a slightly flavoured vodka, the flavour notes you get from Australia are so unique that we can produce amazing products you won’t find anywhere else in the world,” he said.
“As an industry, it should be thriving because there’s a lot of demand from customers.
“You have a huge number of people driving this industry … a lot of employment opportunities and lots of benefits for the economy. But now it’s very quickly tipping over the edge where it’s going to start dying because people just can’t keep up the pace of tax increase.
“Fewer people are going to get into it because they understand the constraints, and more people are dropping out; people who have opened a distillery in the last few years.
“There are more and more deciding to call it quits because it’s too hard to make any money off this thing.
“The UK had the same issue. Their excise was getting out of control. Not as bad as Australia, but the UK went, ‘Right, we’re just going to freeze alcohol excise so we can actually assess it properly’.”
According to Sin Gin chief executive Kate Sinfield, governments have form when it comes to limiting the distilling industry’s capacity for growth.
“There are some really good historical comparisons to what happened in the 1960s,” Ms Sinfield told Business News.
“The government interfered in commercial ventures and completely destroyed the distilling industry in Australia, which is why everything you see is just imports.
“And now they’re fiddling around with it again, and they’re destroying it again.
“I think at the moment with the way they’re doing it … it creates an unfair playing field, and also for people who want to invest in this country.
“The big brands that want to buy Australian brands aren’t going to do it with the tax regime like this, so it stops foreign investment and it stops us exporting because we’re not competitive.
“The whole thing’s just absolutely broken.”
Sin Gin’s Seven Deadly Sins gin range. Photo: Michael O’Brien
Other solutions
On a more positive note, Ms Sinfield said the WA government had been eager to protect the industry and support its future.
She told Business News a 10-year strategy bolstered by state government funding would deliver a similar strategic plan to the WA Craft Beer Strategy launched on August 2.
“Jackie Jarvis, the minister for small business, [has] given us $30,000 and we’re drafting up a blueprint for the way forward for WA distilleries,” Ms Sinfield said.
“They’ve done one for beer … and [Ms Jarvis] said that’s been really well received.
“We’ll be able to use that going forward to work with government to get more grants for training, funding, exporting and things like that.
“The WA government’s working really well with us now.”
In addition to a tax excise freeze and a 10-year strategy, Ms Sinfield said there were other opportunities for the state’s distilling businesses.
“To have some more push from WA government when they go to the international trade shows, to really push WA spirits; that’d be huge,” she said.
“And then we can lift our branding locally, as well. That gives the local consumer more confidence in buying our products.
“During COVID, everyone was very focused on buying local, and now the cost of living has gone up and it’s not COVID anymore, so everyone’s like, ‘Well, I’ll just buy whatever’.
“That definitely affects us because we need people to support us.”
Ms Sinfield said the current state of the distilling sector was not unlike that faced by the wine sector in the 1960s.
“Australian spirits are still only about five per cent of all spirits purchased in Australia. The rest are all imports,” she said.
“Interestingly, Australian wine in the 1960s was there. Only four per cent of wine drunk in Australia was Australian; the rest were all imports. We just need to do what wine did.
“I do a lot of work with Tourism WA and Swan Valley tourism [agencies] because we are only thirty minutes from the CBD and tourism plays a huge role in growing the industry.
“When you have a distillery you’re in production, manufacturing, tourism, retail, hospitality. All of those buckets we sit under, and a lot of us are regional as well.”
Singlefile Wines managing director Patrick Corbett (left) and Tom Martin. Photo: Nic Duncan
Future
Spirit of Little Things collaborated with Singlefile Wines late last year to produce two unique products: a chardonnay gin and pinot noir gin.
Due to the project’s success, the two businesses are set to team up again this year on another release.
Mr Martin said partnerships encouraged business diversification, but also helped distilleries prove their value within the community.
“Collaborations are a massive part of our business and our strategy, so we try to do a lot of that,” he said.
“We did the West Coast Eagles gin this year to celebrate the thirtieth anniversary of their 1994 premiership.
“We did one with the musical Chicago earlier this year. We did one with Oasis Ball, the charity ball for advertising, media and communications. We did a gin for them.
“Any kind of collaboration is really valuable … because it brings the community together.
“We’re not here just to operate as a bar serving drinks. We’re here to be a brand giving community experience.”
Spirit of Little Things plans to relocate its production facilities and hospitality venue from its current location in Subiaco to a bigger space, but Mr Martin remains concerned about the future of distilling.
“We’re looking for a bigger production space,” he said.
“We’re also looking to grow our production footprint and our wholesale revenue and just continue to grow market share over on the east coast and overseas as well. Those are our goals.
“We’re looking to expand a bit more. But if I’m perfectly honest, the excise is making it harder and harder to grow because you just can’t compete.”
Ms Sinfield said Sin Gin’s diverse range of products would help it survive the sector’s current challenges and uncertain future.
“We have a big giftware range, so we will continue to focus on that,” she said.
“We also have a lot of liqueurs, which are lower in alcohol so they’re a cheaper price point. We’ll focus on those.
“And having the Seven Deadly Sins as a product range has just been fantastic.
“We’re really trying to work out where we sit and what do we focus on … we are going through a lot of strategy decisions at the moment.
“Do we keep growing? If the excise keeps going up like that, you can’t keep putting up the price of your bottles because nobody’s going to buy them.
“We have to work out what we do within the constraints of rebates and excise prices.”
Despite these challenges, Perth restauranteur Jacquie Chan has ventured into distilling with her newest venture under the Miss Chow’s Group banner.
Moon and Mary, which opens on September 3 in Fremantle, is the first of Ms Chan’s venues to feature a distillery.
It is expected to produce a variety of spirits including vodka, gin, whiskey and spiced rum.
In conversation with Business News, Ms Chan said the current state of the distilling industry would not hinder her company’s goals.
“It’s always been our plan to go into distilling or spirits one day ... aesthetically, I suppose it looks good,” Ms Chan said.
“We chose for Moon and Mary to have [a distillery], but it actually works for us because we’ve got quite a few bars so [the products] will feed back internally into our businesses.
“We’ve had our hearts set on it, so hopefully it will work out.
“Things can always change and it’s quite fluid with the current market within the distilling world."
