WET Rebate round 2 – a poorly worded press release or just an unwanted ‘reform’?

Update 6th May: A few reactions to show you what some of the producers are saying on twitter:

Changes to eligibility criteria for the WET rebate in #budget2016 may stop corporate rorting, but stifle new young entrants.

— Rory Lane (@storywines) May 3, 2016

Would paying for barrel space in a winery constitute a ‘long-term lease’ for the WET rebate post 2019? Or are smaller producers in the cold?

— Phil Jones (@PhilJduVin) May 3, 2016

After WFA outed as useless in budget process, it wants to speed up benefits to their top 1%. Q:Which WET reform is bad for big guys? A:none

— Dudley Brown (@TheWineRules1) May 5, 2016

May 5th:  Following up on yesterday’s story on the changes to the WET rebate and eligibility tightening, more information has come to light that is very relevant.

When the WET reform discussion paper was announced last year, a ‘Wine Equalisation Tax (WET) Rebate Consultative Group’ was also setup with a purpose to ‘consider submissions and provide specialist industry advice to the Government on reform options’.

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Looking at the list of representatives it appears to be reasonably representative, with participants as diverse as Robert Hill Smith (Yalumba), Nigel Gallop (Fraser Gallop), Lawrie Stanford (WGGA), Tony D’Aloisio (WFA) and Rebecca Duffy (Holm Oak).

I’ve now received a copy of the final report from the Consultative Group (read it here), which contains a host of suggested reforms, and many of which appear to have been adopted).

Of particular note is the push to redefine the term ‘producer’, as the Consultative Group noted that it is was currently too broad and open to exploitation).

The following characteristics, according to the group, are considered key to defining a ‘producer’ of wine as one who:

• operates a wine business premise in Australia who manufactures and sells wine in a form fit for retail sale where the finished product is identifiably theirs;
• the business owns or leases one out of three of a vineyard, winery (production facilities or fermentation facilities) or cellar door outlet;
• holds a licence to sell liquor in an Australian state or territory;
• is self-employed or engages employees; and
• sells their wine from wine businesses mentioned above through direct or indirect channels of distribution.

There was apparently a minority of the members who believed that the second category should be further tightened to ‘two out of three’ – ie vineyard and winery. Thankfully this was not broadly supported, as it was believed to be a ‘barrier to new innovative entrants’.

Still – and here it gets murky – what has now ended up in the press release from the minister(s) doesn’t fully support the group’s recommendations. In fact, it suggests that the government may take an even stricter definition more attune with the minority of the panel. This line is particularly pertinent:

‘Under the tightened eligibility criteria for the (WET) rebate, a wine producer must own a winery or have a long term lease over a winery and sell packaged, branded wine domestically… The final details on the tightened eligibility criteria, including the definition of a winery, will be resolved through further consultation. ‘

It could simply be a confusion between ‘winery’ and ‘producer’, but it does beg many questions. It could just be a poorly worded statement, but we’re operating in a situation now where that press release is the current direction, and it doesn’t bode well for small producers.

Indeed, even if the Consultative Group’s suggestions are accepted in full, we’re still looking at a situation where only producers who ‘lease’ (whatever that means) a winery/vineyard or have a cellar door will be able to receive the (reduced) WET rebate.

As a positive, that could mean more cellar doors, or more firm relationships between winery and producer – much of it hinges on the interpretation of ‘leasing’ and the flexibility of the term. But it still has the potential to stifle innovative winemakers, purely by placing a barrier to entry for new makers (especially given the high capital costs of vineyards/wineries and notoriously difficult cellar door licensing restrictions).

The Consultative Group’s suggestions at least acknowledge the barriers to innovation, yet they’re also suggesting to enshrine them into law (perhaps unintentionally).

Again, the question is – reform or regression? Time will tell…