The spirits industry says Australia’s inaction on alcohol tax reform is looking increasingly out of step with its major trading partners.

Spirits & Cocktails Australia chief executive Greg Holland said the Federal Government should take heed of recent policy initiatives in the UK, Canada and Japan.

“Three of our most important G7 trading partners have recognised that the current economic conditions are putting unprecedented cost pressures on the industry and consumers,” he said.

“Yet in Australia, the world’s third highest spirits tax was increased again last month to $101.85 per litre of alcohol, with another hike coming in August.

“As a result, hard-working Australians are continually being asked to pay more for their favourite spirits. For example, tax comprises 63% of the cost of a bottle of Bundaberg Rum.”

The UK Government this week extended its freeze on alcohol duty until February 2025 in a bid to relieve pressure on the industry and households struggling with the rising cost of living.

Canada cited similar reasons last year when it temporarily capped its annual inflation adjustment to excise duty at two per cent.

And in Japan, the National Tax Agency has taken steps to align tax rates and remove distortions between different alcohol categories. 

Australian Distillers Association chief executive Paul McLeay said Australia’s relentless biannual indexation of spirits excise is clearly untenable against this global backdrop.

“Australia is manufacturing some of the world’s most exciting and highest quality spirits,” he said.

“We have real potential to create a major export industry in this country that will grow manufacturing jobs in the regions, where half of our 600-plus distilleries are based.

“However, this won’t happen without meaningful reform of this punitive tax, which has already increased 16 per cent in the last three years.”

Holland said the ABS’s January CPI figures once again laid bare alcohol’s contribution to Australia’s cost of living crisis, with out-of-control spirits tax the major culprit.

“A growing Australian spirits industry will promote investment and job creation across the industry and its supply chain,” he said.

“Sadly, Australia is increasingly being defined as a place where it is impossible for spirits manufacturers to do business.

“We call on the Federal Government to immediately freeze spirits tax for two years to safeguard our industry’s future and help the Government accomplish its stated mission of bringing inflation under control.”

Alcohol inflation causing huge hole in treasury coffers

Australian Federal Government data released last month confirmed automatic CPI indexation of spirits tax is undermining its efforts to curb inflation.

Holland said it was safe to assume that spirits excise remained a major culprit, because the ABS previously disclosed that spirits was the biggest contributor to rising alcohol prices in the September quarter.

It’s similar story in the UK, where the latest data from His Majesty’s Revenue & Customs (HMRC), the national taxing authority of the United Kingdom, shows its Treasury lost £436m between September and January compared with the same period last year. In addition, with losses from beer and cider, Treasury coffers are down almost £600 million.

The Drinks Business reports that it comes as consumers are abandoning purchasing alcohol due to the steep escalation in duty caused by the rates change last year.

“Alcohol duty hikes in August 2023 were the largest in almost 50 years, adding 20% to excise duty on over 85% of all wines on the UK market and more than 10% to duty paid on full strength spirits,” The Drinks Business said.

“Following those duty increases, sales volumes have declined, alcohol inflation has risen to more than double the headline rate, while revenue from duty receipts has declined.”