Excise tax call ignored

17:00, Jun 19 2012

The government has turned a deaf ear to calls from grapegrowers and winemakers to switch collection of its $170 million a year wine excise tax from wineries to retailers.

Taxing those who drink wine rather than those who produce it would better address social policy goals, wine industry leader Stuart Smith has said.

The excise tax, which is adjusted annually on July 1 and applies only to domestic wine rather than exports, has been a perennial thorn in the side of industry players.

The official industry journal, New Zealand WineGrower, said that after last year's increase of 12 cents a litre - the highest rise in 20 years - any further adjustment would border on the destructive.

Smith has been an outspoken opponent of the annual adjustment which is based on movements to the consumer price index for the year to March 31. The tax currently sits at $2.72 per litre, which combined with GST and fuel costs, has hard hit the wine industry which is a $1.1 billion annual export earner.

The industry had tried to raise the issue with politicians and through the normal channels "for many years", but with little success, Smith said.

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He says the issue is topical right now because of the social policy debate on the Alcohol Law Reform Bill and where excise fits into that.

"(Excise is) thought of as a lever that could be used to influence the price of alcohol when in fact it isn't," he said.

While the industry accepted the government has to collect income tax, the excise is not reaching the market as a social policy goal, Smith said.

"We believe it should be shifted to be collected off the consumer rather than off the producer so it becomes a price disincentive as it was meant to be. The tax could still be taken, just at the other end of the cycle," he said.

Smith thinks the excise should be collected after GST so when an item is purchased, the excise tax is added on top.

"It sends a clear price signal to the consumer."

Winegrowers chief executive Philip Gregan agreed the excise should be firmly considered in a social policy context. "If you're going to achieve some social policy goals with it, then you're levying it entirely in the wrong place."

Most wineries aren't able to pass the increases onto the retailers and Gregan says their data shows some wineries haven't had a price increase in five years but have to keep absorbing the annual excise adjustment.

Marlborough, the country's key wine-growing area, pays $127m of the $170m collected each year in excise tax.

Growers in Marlborough receive an average $1400 a tonne for their grapes. The government takes the equivalent of $2000 a tonne - paid by the wineries producing the actual wine.

Neal Ibbotson, who with wife, Judy, owns top sauvignon blanc producer Saint Clair Family Estate in Marlborough, said the tax takes effect when the wine leaves the winery.

He said many growers and wineries were under extreme pressure.

"The industry is going through the toughest trading period for over 30 years whilst the government just keeps taking an increasing amount annually," he said.

Last year the government simplified the wine excise tax rules which it said would help more than half the country's 700-or-so wineries, particularly smaller ones.

It adjusted thresholds - not tax obligations - so some wineries would be able to pay the excise six-monthly or annually instead of monthly. It was the first change to thresholds in 14 years.

A spokesman for the Minister for Economic Development Steven Joyce said the benefits of a change in the way the tax was applied needed to outweigh the costs of doing so for government and industry.

"Because of the large number of wineries selling in a market with a few big retailers, it is unlikely that changing the point of collection would materially alter the profitability of the wine industry or change how the cost of excise is passed on to consumers," the spokesman said.

Replacing the wine excise with a sales tax would likely result in buyers paying less to the wine growers or wineries to reflect any additional tax placed on them.

"Overall there would be little, if any, benefit to the wine grower compared to the current excise arrangement," the spokesman said.

BusinessDay.co.nz