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This ridiculous chart shows the complexity of Australian taxes when all you want is a drink

Before I tax your beer sir, how will you be having it? Photo: Scott Barbour/Getty Images

Treasurer Joe Hockey released his White Paper on reforming the Australian taxation system today, and says he wants a national conversation about it.

One aspect worth sitting down and discussing over a beer is alcohol tax. How much tax you’ll pay on your beer is a case in point. As the chart below outlines, based on a standard drink, you’ll pay more tax for bottled full strength beer than draught beer, more for low alcohol beer in a bottle than mid-strength on tap.

Choose a RTD (ready to drink), which has the same alcohol as a full-strength beer and you’ll be paying nearly double the tax after Wayne Swan changed the rules in 2008.

No wonder former treasurer Peter Costello described Australia’s alcohol taxation regime as a “dog’s breakfast”.

There are 16 different excise categories and two different taxation systems, depending on alcohol type, concentration, commercial use, and container size, raising around $6 billion for the government. The difference ranges from 5 cents of tax on a standard drink for cask wine to more than $1 for spirits and RTDs.

How much tax you pay on a standard drink. Source: RE: think tax discussion paper.

Excise is based on alcohol content, while winemakers are subject to Wine Equalisation Tax (WET), a 29% tax on the wholesale price, before GST, but that’s accompanied by an complex series of rebates designed to help small producers, but led to accusations of rorting last year. Wineries can get rebates of up to $500,000 a year, and independent breweries are offered $30,000.

Quality winemakers feel picked on by WET too, because the more expensive the wine, the greater the tax. You could argue that’s progressive taxation, targeting drinkers who can most afford to pay, but alcohol taxation in Australia is a curious mix of ad hoc agriculture and small business policy and social engineering (the RTD tax and low alcohol beer excise), with multinational importing businesses thrown into the mix against a growing boutique industry.

For example, an expensive wine, such as Penfolds Grange, made by a big producer, Treasury Wine Estates, cops a higher tax per “standard drink” than a similar wine made by a small producer, such as the family-owned Henschke winery of Hill of Grace fame. Unintentionally or not, the tax system favours the small guys over big ones – and the big players feel they’re subsidising uneconomic wineries.

And because grog is taxed on what it’s worth rather than the alcohol in it, premium winemakers argue the WET encourages people to drink inferior wines because it’s taxed less. Spirits sellers have similar complaints.

Even figuring out what tax to apply is a problem, with concerns emerging that some alcoholic products are being engineered for a more favourable tax treatment.

Cider, for example, is taxed like wine because it’s a fermented fruit product and in the wake of Swan’s RTD tax, the boutique industry has nearly doubled over the last half decade. Producers could crank the alcohol up to 8% if they want a different tax regime, but interestingly, the market for boutique ciders isn’t that interested in getting a more boozy bang for their buck, so consumers prevent any distortion.

As the tax White Paper says “In some cases, it can be difficult to determine if a product is subject to excise or WET”.

The White Paper gives this example of how alcohol taxes currently apply to ginger beer. In short, depending on how much alcohol it has and how it’s presented – the RTD tax is an exercise in social policy – it can be taxed two different ways, but the surprising thing is the higher the alcohol, the less tax:

The tax treatment of ginger beer demonstrates the inconsistencies in the current tax arrangements for alcohol, with the tax treatment dependent on alcohol content.

For example, a ginger beer with 4.5 per cent alcohol by volume is taxed as a ‘ready to drink’ (RTD) at a rate of $1.01 per standard drink. The tax payable on a case of twelve 500ml bottles is $21.54 under the excise regime.

However, a ginger beer that is nearly identical except that it has 8 per cent or more alcohol by volume is, instead, taxed on its wholesale selling price because it is characterised as a fruit or vegetable wine and subject to the WET regime. At a wholesale price of $30, the tax payable on a case of twelve 500ml bottles is $8.70 under the WET regime. The producer may also be able to claim the wine producer rebate.

This shows the significantly lower rate of taxation that can apply to beverages subject to taxation under the WET regime, despite the beverage containing more alcohol.

Diageo Australia’s managing director, Tim Salt said the discussion paper was a “once in a generation opportunity to fix the alcohol tax system”.

“The alcohol taxation system in Australia as it stands urgently needs simplification and a generous measure of fairness,” he said.

Diageo Australia, which imports spirits, most notably Johnnie Walker whisky, and beers, including Guinness, wants to see all alcohol taxed at the same rate.

“Alcohol is alcohol regardless of what form it comes in. The breathalyser doesn’t discriminate between beer, wine and spirits, so why should the taxman?” Salt said.

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