Australia: Spirits exports could reach AU$1 bln if twice-yearly tax hike on alcohol is frozen

Australia could export AU$1 billion (US$635 million) of spirits annually by 2035 if the government freezes the twice-yearly tax hike on alcohol, The Spirits Business reported on March 25.

The Spirits Industry Competitiveness Plan, which was prepared by research firm Mandala and commissioned by the Australian Distillers Association and Diageo Australia, revealed that policy and regulatory barriers are ‘thwarting the potential’ of the country’s spirits industry.

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.

The Australian Distillers Association recently called for duty to be frozen for two years.

Australia’s spirits industry currently supports 5,700 jobs in manufacturing, with almost half of the country’s 701 distillers located in regional areas. The spirits sector attracts 631,000 people every year, with distillery visits now the fastest-growing tourist activity for domestic visitors in Australia.

The report noted that the industry continues to grow with 88% of all distillers having fewer than 20 employees, while more than half of distilleries are less than five years old.

It also found that the average size of distilleries has declined, and many are unable to scale as it’s either ‘too challenging or not worthwhile’ with the high excise tax cited as the main reason.

Australian Distillers Association chief executive Paul McLeay said: “This report proves what distillers right around this country already know: Australia’s spirits tax has significant implications for the competitiveness of the spirits industry and the ability for distilleries to scale and attract investment.”

By taking steps such as freezing twice-yearly tax increases on spirits and establishing a Spirits Australia body to support the sector’s growth, the nation’s spirits could go from being a AU$210m (US$137m) export market in 2022 to a AU$1bn export market by 2035, the report said.

This would create an additional AU$111m (US$72.5m) in direct economic contribution and support almost 878 new full-time jobs.

Dan Hamilton, managing director of Diageo Australia, which owns Bundaberg rum, noted that the country’s spirits sector has “enormous promise”.

Diageo acquired Mr Black coffee liqueur in September 2022 and backed Australian whisky Starward through its Distill Ventures arm in 2015.

Hamilton said: “Diageo has a strong track record in investing in great Australian spirits brands, but this report clearly demonstrates current policy settings are limiting the industry’s growth.

“Our consumers, who are having to pay AU$38 in tax for every one-litre bottle of Bundaberg Rum, know this tax is not sustainable. This report makes it clear that it’s also limiting foreign direct investment, which could drive industry and export growth.

“Having seen first-hand the way Japan cultivated and grew its spirits export industry, I am confident Australia has all the hallmarks of being able to do the same, however, that cannot begin to occur until the government freezes the tax on spirits.”

Australian spirits exports are small compared with the wine sector and global competitors, the economic study noted.

Mandala managing partner Amit Singh said: “Our analysis shows that while Australia is sixth in the world in wine exports, we’re 29th in spirits exports. Even though we perform better than the global average for spirits export potential, we’re significantly behind the global lead pack.

“If Australia exports at its full trade potential, performing as efficiently as the UK, France, Singapore, Ireland and Mexico, we could export AU$1 billion of spirits annually by 2035 at our current rates of growth.”

McLeay also welcomed the government’s recent move to set up a parliamentary inquiry into expanding innovation and value addition in food and beverage production.

“We look forward to lending our expertise to those discussions,” he added.

26 March, 2024