The Australian government is cracking down on 'virtual' winemakers

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The Australian government is cracking down on a tax rebate used by “virtual” winemakers to subsidise cheap wines, the budget reveals.

Changes to the Wine Equalisation Tax (WET) rebate follows two years of lobbying by the wine industry, which was enraged that distributors, wholesalers and “virtual winemakers” were using the tax credit, worth up to $500,000, to sell low cost bulk and unbranded wines to major supermarket retailers.

“Virtual” winemakers buy bulk wines and repackage them to claim the rebate, using it to reduce the wholesale price and undercut existing players saddled with the infrastructure costs of vineyards and a winery.

The rebate on tax paid on wholesale wine was designed to support small winemakers, but after former treasurer Peter Costello increased the level to $500,000 a decade ago, the number of “wineries” claiming it exploded and a government review last year found it was distorting the market.

The subsidy costs taxpayers around $300 million annually, but tightened criteria for access to the rebate will save the government $300 million over the forward estimates, with $50 million in savings given to the industry to both promote Australian wine overseas, and local wine tourism.

While the criteria is not yet finalised, assistant treasurer Kelly O’Dwyer said “a wine producer must own a winery or have a long term lease over a winery and sell packaged, branded wine domestically” to be eligible, but the rules won’t be changed until July 1, 2019. Unbranded and bulk wine will be ineligible under the tightened rules.

In the meantime, the government plans to reduce the rebate to $350,000 from July 1 2017, dropping it again in 2018 to $290,000.

But in good news for the local boutique cider makers and distillers, the scheme will be expanded to include them from next financial year.

One key element remains to local chagrin, with New Zealand winemakers also able to collect the rebate as part of trade agreements between the two nations.

The Winemakers’ Federation of Australia welcomed the changes, but wants to see action sooner.

Federation president Tony D’Aloisio said “The industry sees removing the claims for bulk and unbranded wine as important drivers to industry’s restructure and we believe these changes need to happen now rather than later to assist in returning the industry to profitability.”

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