The Good, The Bad & The Ugly…
7 May 2018
...from the Federal Government's proposed Tax Reform.
Craft beer consumers around the nation have had their interest piqued at the proposed changes to the Federal Government’s excise tax laws. Ostensibly described by a media campaign as a “Tax cut for Craft Beer”, these reforms should cut overheads for small brewers, who can pass on these savings to loyal consumers. This is, in fact, very incorrect and potentially damaging to small breweries who will not be able to pass savings on as the savings are not as significant as would initially appear. Although some of these changes are welcome, others will actually make things more difficult for smaller brewers.
Ok, so let’s break it down. This reform has two significant alterations. Firstly, an excise rebate, which sees 60% of each, weekly, excise payment returned, up the value of $30,000, is now returned up to a value of $100,000. Great. This is tangible, cash in hand. A $70,000 boost for every single brewery in Australia (assuming that the brewery pays more than $167,000 in tax each year). It applies across the board and not just for craft although each company can only claim it once. Malt Shovel, for instance, would not be able to claim it if Lion have already claimed it for their Castlemaine brand. Secondly, beer is taxed based on (1) the amount of alcohol in it and (2) the size of the container it is delivered in. Currently, there is a rate which is cheaper for alcohol in a 50L keg. Put that exact same beer in a can, bottle, growler, 20L or 30L keg (anything under 48L) and you pay a HIGHER rate of tax. This container size cut-off has been dropped from 48L to 8L. The only real positive garnered from this is one of Occupational Health and Safety improvements. Brewers, bar staff and sales reps lifting 50L kegs that weight 62.5-odd kilos is an accident waiting to happen. So, yes we can certainly move to 30L kegs, pay a lower amount of excise, and improve conditions for our staff. We would have to purchase 500 or so 30L kegs, of course, at a cost of $50,000.
Both of these alterations fall short in what brewers across Australia need to remain competitive against big, international corporations and alternative alcoholic beverages.
$100,000 in excise rebate is truly great, a very welcome reprieve from the current situation. To put it into perspective, however, Newstead will pay over $1 million in excise tax this year (on top of significant payroll and corporate taxes). An equivalent sized brewery in America will pay $22,000. $22,000! That’s right, $22,000. Say it with me now, Twenty. Two. K. Why do American breweries pay such little excise tax? Because their federal government recognises the impact breweries have on employment, urban renewal, safe consumption of alcohol and cultural vigour. What does an American pay for a pint of delicious, independently brewed beer? $5. If independent beer consumers want to pay $5 for a pint of beer in Australia than our independent brewers need to be paying $22,000 p.a. in excise tax, instead of over $1 million. Let’s look at it from another stance; an equivalent sized cider maker in Australia would pay a similar amount of Wine Equalisation Tax (29% of wholesale value), but, and here is the kicker, their refund is a whopping $350,000 (down from $500,000 a couple of years back). $100,000 is a wonderful start, but it’s not enough for any meaningful change in the amount of overheads small breweries in Australia pay.
Changing the container size tax threshold to 8L will hurt Newstead far more than help us. Currently we pull 2L ‘growlers’ and sell them at the bar. Remember, if you sell in vessels <48L you have to pay more tax. You cannot do this from a 50L keg, unless you pay excise twice. We circumvent this currently by filling 20L kegs, paying a higher rate of tax on those kegs, and are free to fill and sell growlers. The proposed changes would make this scenario illegal. Filling 5L kegs would be nonsensical due to the amount of wastage in the keg you would have. So we would need to fill growlers from the bonded/manufacturing area. This would necessitate a change to swap-and-go fills, meaning we could no longer accept non-Newstead bottles. We would also have to purchase an expensive bottle filler. And we are one of the lucky ones since we have an excise licence. There are many bottle shops and bars that fill growlers from 20L kegs that would now be found to be in breach of the law. We would no longer be able to sell our 20L kegs to these venues for the purpose of growler filling.
The government and media claim this reduction in excise tax rate for smaller size kegs will help craft breweries. Again this tax reform is available for all breweries in Australia, independent of size. There are 2-3 bars across all of Brisbane that take our 20’s due to size constraints or fear of not selling much of a crazy beer. 50L kegs contain approximately 110 schooners; easily achieved for even the chunkiest of quadruple IPAs. So we are all set to save a business-changing $100 per week, or $0.001 per pint.
These reforms have all the hallmarks of an incomplete, rushed reaction to some good work initiated by the Labor Party. They have great intention but ultimately fail to deliver meaningful change. Moreover, it is potentially damaging for most smaller breweries who simply have nothing to pass onto the consumer, consumers who now believe ‘craft’ breweries will pay significantly less tax. Excise tax is crippling and still will be if these reforms are implemented. Only a significant change in (a) the amount and (b) the administrative rules, will help to benefit small, independent breweries.
With around 400 independent breweries nationwide, the industry is growing rapidly. Being a major source of cultural and economic stimulus, this industry needs to be respected as such.
Mark Howes, Chief Executive Officer.