NT minimum alcohol price is a massive threat to the Australian wine industry – unless we change our tax system

The Northern Territory government announced on Wednesday a suite of alcohol policy reforms that could pose a risk to the whole Australian wine industry.

While most of the reforms (read them all here) are not contentious –  such as the establishment of a dedicated liquor commission – there is one reform that is notably extreme – the establishment of a minimum pricing floor on alcohol.

The exact details of how this price floor would work aren’t confirmed, early reports state it will be a volumetric price leveraged per standard drink of alcohol. The initial recommendations suggested this would be $1.50 per standard drink but it appears to have settled on approximately $1.30. That would mean that a typical bottle of Barossa Shiraz (14% alcohol and 8.3 standard drinks) cannot be sold for less than $10.79 per bottle. Or a 4 litre cask of Fruity Lexia (10% alcohol) would work out to be a staggering $40.91.

Not only is such a mechanism the first in Australia, it is also one of the only such places in the world with an alcohol floor. NT joins Scotland and a few Canadian provinces as the obvious examples.

The Northern Territory is notable as having the highest alcohol consumption per capita in the country, with well established issues around alcohol in certain locations (where liquor sale is already tightly controlled). Yet the price floor takes the regulation to another level, and may well set a precedent for the whole nation.

I won’t argue here about the merits of increasing alcohol prices as a public health move (as studies have shown that increasing the price of alcohol can help reduce alcohol related harm and associated costs). But I will say that this price floor could be very dangerous indeed for wine producers.

The critical issue here is that wine prices will immediately go up. Cask wine, in particular, will take a massive, immediate hit within the territory as the value proposition evaporates. The floor is indexed too, which means it will continue to increase over time. It will also mean that wine consumption will likely decrease as beer, premixes etc become more cost effective, reversing a decades long move away from beer and into wine consumption.

I’m also intrigued at how such a price floor will work for wine purchased outside of the territory and delivered. Will we see a spike in internet wine purchases from the NT?

While you could argue that the Northern Territory is likely not a big wine market (though figures on this aren’t clear) the precedent here is particularly alarming – one territory/state sets a minimum price and the rest could quickly follow. Such a move could eventually kill off cheap wine in Australia, and in the process hurt the wine industry as a whole as consumers en masse move away from wine. Beer makers at our large breweries would be rubbing their hands together!

Conversely, you could also argue that wine is too cheap here. The (mostly dumb) WET taxation on wine in Australia is built on value not volume, with a 29% rate leveraged on a wholesale price. That means that there is next to no tax paid on cheap wine, and much on premium products. That system ultimately advantages cheap wines, while working against a push for premium drinks. Further, the WET rebate ensures that many producers get all of this tax back anyway, so it’s a tax that can benefit winemakers, though it is estimated to be costing millions to the national budget in the process.

It’s contentious within the industry to argue for volumetric taxation as it would genuinely destroy many producers. Large tracts of our inland grapegrowers are geared up for quantity not quality, and if all cask wine around the country was sold at $40/cask minimum on a volumetric tax model, it could decimate whole communities around the Riverina and Riverland. If the rebate also went (which almost happened last year) then it would kill small producers as well as cask-focused winemakers.

That said, you could also argue (and Philip White has done numerous times for years in language much more fluid than mine) that cask wine production is unsustainable in Australia anyway. That’s a whole other argument, however.

What is interesting is that, despite the obvious threat to wine producers by the price floor, there has been no response from the industry. Nothing, in particular, from the Winemaker’s Federation of Australia (WFA) who you’d expect would be first to comment. Nothing from the federal MPs with lots of grapegrowers as constituents whom would see this as a threat. Nothing.

You’d expect that retailers would be alarmed too – except that the price floor is an artificial one, and wines can still be purchased at the same wholesale price. In other words, a wine that costs a retailer $3 that they’d previously sold for $6.99 is now $10.40. The extra profit goes straight to retailers, with the mooted slight increase in license costs unlikely to negate this profiteering.

Ultimately, the problem with the NT minimum drink price is that it’s effectively volumetric taxation that isn’t proper taxation. Premium wine will continue to be expensive, but now cheap wine won’t exist – and wine lovers at both end of the spectrum are going to be hurt by the move.