Our growth under threat, say local distillers

Local independent distillers behind iconic labels Ink Gin and Brookie’s Byron Dry Gin say a longstanding ‘bad’ government policy that taxes spirits unfairly, compared to other alcohol such as wine, is putting thousands of jobs at risk in a ‘dangerous high inflation environment’.

Husk Distillers (Ink Gin) employ 60 local people, and together with Cape Byron Distillery (Brookie’s) have been at the forefront of a growth industry producing local unique spirits, some of which are sold nation-wide and exported.

The Northern Rivers region is also home to a host of diverse smaller producers such as Winding Road Distillery, Lord Byron Distillery, Cabarita Spirits and many more.

The smallest distillers are under the excise threshold, and large foreign-owned companies can divert their production to maximise profits. But mid-size, growing local independent distillers such as Husk and Cape Byron are directly affected.

They say the spirits excise, which rises every month by the headline inflation rate, is now $28.42 for each bottle of $82 Ink Gin, for example, and is approximately 80% of the wholesale cost. CEO and founder Paul Messenger from Husk Distillers and Eddie Brook from Cape Byron Distillery recently met with local MP Justine Elliot, and have written to the Treasurer calling for an immediate freeze on indexation.

‘When the spirits excise was first introduced, there were hardly any local distilleries, and the tax fell mainly on huge multinationals.

But this is no longer the case,’ said Mr Messenger. ‘In 2004 only 17% of spirits were locally
produced. A decade later, there were only 28 distilleries in Australia. But last year, there were 350 – this is a promising industry, which at the moment resembles the wine industry in the 1980s.

It could repeat the wine industry’s success, but the combination of inflation and indexed excises threatens the industry’s green shoots.’

Eddie Brook said, ‘On 1 August, the excise tax per bottle increased by $1.18. With our cost of packaging and freight increasing this has resulted in an extra $2 of costs. That reduces our margin and at the end of the day affects our ability to invest to grow our business or employ additional people.

‘This latest excise increase means we will pay an additional $120,000 in excise a year which is two full-time people we could have employed locally.’

How wine is taxed

The success of the wine industry owes much to the Howard government’s recognition of its potential to stimulate regional and rural economies, create tens of thousands of jobs and generate billions of dollars in export revenue,’ says Mr Messenger.

In 2000 the excise on wine was fixed at 29% of the wholesale price. The excise rate on
spirits, of around 78%, is 270% higher than the tax on wine.’

Husk is a pioneer Australian producer in the Agricole-style rum market, and has recently invested over $2m in a sugar mill specifically designed for its rum, the first return of milling in the Tweed Valley since the Abbotsford Mill closed in 1895.

This month Cape Byron Distillery will release its first local single malt whisky. Messenger says the local craft distilling industry has the potential to replicate the wine industry, but it ‘takes many years to develop quality products, and build the required infrastructure and intellectual capital to compete on the world stage, and many more years to develop export markets in a highly competitive market.’

How beer is taxed

Draught beer, bottled beer, spirits and RTDs are all subject to indexation every six months, but all are taxed at different rates, that make no social, health or commercial sense and is confusing to consumers.

Alcohol consumption is measured in Standard Drinks with one standard drink equal to 10g of ethanol. Ethanol, or alcohol, is the same compound with the same effect regardless of whether it’s consumed in beer, wine or spirits, yet it is taxed very differently.

If you were to buy a standard drink of cask wine, you will pay 6c in excise. The same standard drink in a glass of beer will cost 50c excise and in spirits, the tax rises to a whopping $1.20.

Mr Messenger said that Justine Elliot MP was ‘very interested’ in this issue, and would raise this with the Treasurer.

‘Whilst it’s not going the change the excise right now, this is a continuing issue’, he said.

‘The rate will go up again in six months. At the moment it mainly affects medium-sized businesses like ours, as the big internationals can restructure globally, and the smaller producers in our region still benefit from the $350,000 excise threshold.

‘But that threshold continues to be eroded as the excise increases, and the whole situation is a great disincentive for businesses to grow and take advantage of the great interest in unique local products.’