Spirits tax hike brings AU$170m shortfall

The Australian government faces a AU$170 million (US$114m) shortfall in revenue due to increased spirits tax, according to the country’s mid-year budget update.

The Australian government’s Mid-Year Economic and Fiscal Outlook (MYEFO) showed a projected AU$170m shortfall in revenue from spirits excise in 2023-24 alone. Spirits trade bodies said the revenue loss is the result of high spirits excise and inflation, which have ‘dampened’ consumer demand.

From 1 August 2023, spirits tax rose by 2.2%, following a record 4.1% jump last August and a 3.7% hike in February. Tax increases are implemented every six months in Australia.

As such, trade bodies Spirits and Cocktail Australia and the Australian Distillers Association are calling for a reform of the country’s ‘untenable’ tax regime and a freeze on spirits duty.

Greg Holland, chief executive of Spirits and Cocktails Australia, said: “Declining spirits sales are now being reflected in the federal government’s tax coffers.

“This lower tax revenue is despite spirits excise having recently hit an all-time high of AU$100.05 per litre of alcohol.”

Holland compared the situation with the tax duty rise currently facing the industry in the UK. Spirits sales in the UK fell by 20% after the sector was hit with a 10.1% duty rise in August.

He continued: “With another excise increase for the Australian spirits industry due in February, we call on the federal government to follow the UK’s lead and better align alcohol taxation to the current economic conditions.

“The rate of spirits excise has increased, yet revenue is down. This tells us everything we need to know about the appropriateness of this tax in the current economic climate.”

The chief executive of Australian Distillers Association, Paul McLeay, meanwhile noted that the tax hikes are affecting the emerging local industry and putting it at risk.

He emphasised: “We now have more than 600 distilleries operating in all corners of Australia, the majority of which are in regional areas, contributing 5,000 manufacturing jobs to the Australian economy.

“The spirits excise in Australia has risen by a total of 12.5% in under two years, fuelling inflation and cost of living pressures on hard working Australians.

“As consumption is falling our spirits producers are also being hit with higher costs of production, and now they are facing another excise hike in February.”

McLeay then urged the government to “ease the pressure on the Australian industry by freezing spirits excise”.

Earlier this year, The Spirits Business looked into the country’s punitive spirits excise tax.