Tax hike ‘unsustainable’ for Australian distillers

The Australian spirits sector is calling on the government to freeze duty for two years after it recently increased to a new rate.

Twice a year, the excise tax on spirits in Australia automatically increases in line with the consumer price index (CPI). On 1 February 2024, it rose to AU$101.85 per litre of alcohol, up from AU$100.05 in the previous six months. The country pays the third-highest spirits tax in the world.

Australian Distillers Association chief executive Paul McLeay said the country’s craft spirits sector is united in its call for urgent tax reform.

He noted that there are now more than 600 distilleries in the country.

“Their future is increasingly being jeopardised by these relentless six-monthly tax increases,” he warned.

“We say to the government: enough is enough. Freeze spirits tax at its current rate for two years so that we can work together on developing sustainable policy settings for our industry.”

Spirits & Cocktails Australia chief executive Greg Holland said the latest increase means spirits tax has risen by 16% over the past three years.

He believes the duty is “unsustainable” for spirits producers, particularly during the cost-of-living crisis.

“This temporary measure will take the pressure off our industry and help the government accomplish its mission of bringing inflation back under control,” Holland added.

Australian distillers voice their concerns

Cape Byron Distillery founder Eddie Brook said that small distilleries are unable to pass the tax hikes on to trade and consumers in the current economic environment.

“And we don’t have the economies of scale, nor are we growing quick enough to absorb these ongoing costs,” he cautioned.

“As a result, these six-monthly increases really do have the effect of reducing margin in our business at a time when we are already experiencing cost increases across the board, and economic conditions are impacting consumer demand and spending choices.

“It’s getting to the point that it is putting such stress on the industry.”

David Vitale, founder of Starward Whisky, noted that the tax rate was previously AU$64 per litre in 2007 when the distillery was founded.

“Startup businesses have a fixed amount of capital available to scale and grow, and every six months that’s compromised by the government giving themselves a pay rise,” Vitale explained.

“Every dollar increase in excise is a dollar less that we have to invest in scaling our businesses.”

He said the company would look to export markets as it’s “simply uncompetitive” to operate in Australia.

The co-founder of Never Never Distilling, George Georgiadis, said the duty hike makes its products “proportionately more expensive” when compared with beer and wine.

The previous increase led to several redundancies at the distillery last year and a further hike means it is under pressure to further reduce its workforce.

A report last year revealed that the Australian government faces a AU$170 million (US$114m) shortfall in revenue due to increased spirits tax.