19 August 2024

'It’s cheaper to buy illicit drugs than it is to drink alcohol': excise tax choking local breweries and distilleries

| Lucy Ridge
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Man pouring beer

Tumut River Brewing Co. owner Tim Martin says many small breweries are struggling. Photo: Michelle Kroll.

Craft breweries and distilleries are once again calling for reforms to alcohol excise tax in the face of industry challenges and even public health risks as young people turn to other substances.

There have been many independent craft breweries and distilleries around Australia going into administration as the tax increases are heaped onto rising costs and lower consumer spending habits.

Tim Martin, who owns the Tumut River Brewing Co., which recently opened at the Causeway in Kingston, says that since lockdowns, habits have changed, and the cost of beer is just making things worse.

“Not only do we have a cost of living crisis, but we’ve also had real change in people’s behaviour. Since COVID, people have gotten out of the habit of going out and socialising with friends over a drink, and that kind of connection is something we need to be fostering,” he said.

The Canberra Distillery owner Tim Reardon told Region he is concerned to see more young people running towards drugs as a substitute for alcohol.

“This is a controversial opinion, but we’re at the point now where it’s cheaper to buy illicit drugs than it is to drink alcohol, so while we’re seeing a decrease in young people’s alcohol consumption, there’s the increased public health risk of illegal substances,” he said.

“If the reason we’re imposing a tax on alcohol is because of its adverse social impacts, then we need to create a market where legally sold products such as alcohol can compete with illegal substances.”

Data from the Australian Institute of Health and Welfare shows that 18 to 24-year-olds are the age group most likely to use illicit drugs.

Glass of Beer

Alcohol excise increases every six months. Photo: Thomas Lucraft.

Current legislation mandates a twice-yearly alcohol excise tax increase in line with the consumer price index (CPI). Supply chain disruptions during COVID have caused an unprecedented 20 per cent increase in excise tax over a short period of time, creating a very difficult environment for small businesses. There are also complicated rules with different taxes for different levels of ABV (alcohol by volume), and for beer, even the kind of container it is sold in affects the taxation rate.

“Most of our ingredients have doubled in price in the last couple of years. When we started out, the tax on a 5 per cent ABV beer was around $15 a box, and it’s now about $22, plus $7 in GST before you can even think about other costs,” Tim Martin said.

“Most of us are struggling pretty drastically as it is to keep businesses not even profitable but just viable!”

Industry experts argue that Australia’s brewing and distilling industries have the economic potential to grow into a billion-dollar export industry, but current policies are constraining growth and forcing many small brands out of the game altogether. One recent example is the historic brewery Billson’s, which went into administration in July, following the trend of craft drinks brands struggling to keep afloat.

Larger breweries are increasingly owned by international corporations that have focussed on automating their processes. Iconic Aussie beers like Great Northern, Fosters, Victorian Bitter, Melbourne Bitter, Reschs and Carlton Draught are all owned by Japanese company Asahi Breweries.

Tim Martin told Region that independent craft breweries make up 6 per cent of beer sales, but they employ 60 per cent of the people working in the industry, so making sure that locally owned small breweries stay viable is hugely important for employment and keeping industry profits in Australia.

Australian Distillers Association chief executive Paul McLeay told Region that high tax rates are preventing the Australian industry from growing.

The current tax rate for spirits is $103.89 per litre of alcohol, compared to $14 per litre of alcohol in America. The Australian rate works out at nearly $30 of tax in a bottle for a 700ml, 40 per cent abv bottle of gin. In 2019, it was less than $25.

“The problem we face is that with the tax so high it prevents small businesses from getting to scale. When you have a lower tax, you can reinvest in your business, but when 50 per cent of your final product price is going to tax … our hands are tied.”

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Smaller breweries and distilleries are eligible for a tax rebate, but these rebates are having less of an impact, as Tim Martin explained: “The tax is going up every six months in line with inflation, but the rebate hasn’t grown, so it’s worth less and less to us every year.”

Industry advocates have long argued that increasing the rebate at the same rate as the tax would be an excellent (and relatively simple) way to help out small businesses.

The high tax rates are also impacting the sector’s ability to grow and export into overseas markets.

“Australian products are winning global awards and are sought after on the international stage. Twenty years ago, Sullivan’s Grove won best whisky, and there’s been a plethora of international accolades since then, but we can’t get products to the international market because the taxes are too high,” said Paul McLeay.

While beer and spirits makers are struggling with ever-increasing tax hikes, the wine industry has enjoyed the same flat rate for 20 years, just 29 per cent on the wholesale price. This means that cheap wines pay less tax, despite the fact that they could be argued to contribute to worse health and social outcomes.

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This has absolutely nothing to do with illicit drugs! The problem for Tim Martin is that in expanding to Canberra he has chosen a very out of the way location, nice as it is, possibly driven by initial investment decisions. The reality is that TRBC has a great product but they chosen a lousy location to launch in Canberra, unfortunately. Taxes and all, there’s a fix Tim, simply sell more! And this has nothing to do with 20-24yo’s doing drugs, nothing at all.

The article seems to describe the workings of capitalism…. What a whinge, alcohol IS a dangerous drug!

Capitalism would be if there was no excise at all: People get to buy whichever one they think is worth the price, without the goverment adding extra tax to one or the other.
What we currently have is closer to socialism than anything else: Everyone forced to be part of reducing the whole of society’s use of a substance the government deems “bad”.

Queenie-Lou Hilario2:20 pm 12 Aug 24

Lol. Where did you get those definitions from? That’s possibly the most inept attempt to define different governing systems anyone has ever proposed.

David Kaminski9:02 am 11 Aug 24

Considering alcohol is more harmful than most illicit drugs it sounds like people are making healthier choices.

It seems unlikely that illicit drugs are cheaper than the alcohol in goonbag wine, or as easily procurable.
There is a clear need for reform of the tax treatment of beer, spirits and wine that allows innovative products and venues to thrive and that acknowledges the place alcoholic drinks have in Australian life but mitigates against the problems they can bring.

What a bizarre argument, suggesting that the only reason people drink their products is to get wasted. Metho is also cheaper than craft beer. So what?

Alcohol Excise has two purposes, government revenue and hopefully decreasing use. Decriminalisation of illicit drugs in the ACT does neither of these two things. In fact decriminalisation of illicit drugs has already increased their use in the ACT. Next Canberrans will see the associated increase in petty crime that goes with increasing drug use. Yep, another great idea from the ALP/Communist Green ACT Government…….NOT!

Have you got a reference for the increase in drug use since decriminalisation? I don’t doubt you, I’d just be keen to read it.

Peter Graves10:30 am 10 Aug 24

The indexed increases in excise are there for a purpose – to make alcohol expensive and decrease its consumption.

Ignored in this article are the societal benefits to everyone = decreased drunk drivers (accompanied by state police RBTs); decreased hospital costs, decreased domestic abuse (hopefully). As an aside – hotels are far far better places to attend these days. They have to be, to attract patrons – compared against the six o’clock swill days and later: drunks on the road and elsewhere.

It’s not just about the makers and sellers of alcohol. There’s a comparision with the anti-smoking campaigns – where cigarettes were deliberately made more and more expensive. That means fewer tax revenues being paid out on medical costs – that are preventable.

GrumpyGrandpa8:30 pm 10 Aug 24

Hi Peter,
I agree about the intent of excises and the consequences of substance abuse whether it be alcohol, cigarettes or gambling and so on.
The problem however is that these solutions are a scatter gun solution, they hit everyone.
One of the big problems with increasing excises on vices like smoking and alcohol is that yes, while it does reduce consumption, the logic would be that those on welfare, with their limited financial capacity would stop smoking and drinking. Reality is that smokes and drink often ranks ahead of fruit and vegetables in the family budget.
So yeah, excises are a blunt instrument. They work, but there are broader consequences.
The hypocrisy of it all is that vices such as alcohol and smokes which are legal, are hit with excises to make them less affordable and yet vices like personal use of drugs, which were illegal, have now been decriminalised. The message sent by government is that drugs are ok, in moderation. If there was any consistency, drugs would be available for purchase and their use discouraged by applying an indexed excise.

Peter Graves11:29 am 11 Aug 24

Thanks for reading. There are other indirect benefits of reductions in smoking rates.
(1) it means there are far fewer people getting consequently sick from smoking-related diseases that are preventable;
(2) that means far fewer people need to see a GP for these illnesses;
(3) that also means far fewer people need to see specialists;
(4) that also reduces demands on hospitals, for specialist operations;
(5) AND that also means there are far fewer claims on the Medicare Benefits Scheme (to subsidise those visits in 2-4)
(6) thus lowering the general revenue needed specifically to support Australia’s health system (remember those people who complain about paying anything to see a GP and the current gap between the standard fee and the actual fee)
(7) thus “releasing” allocation of the general tax revenue (from the health system) to other even more-pressing issues these days
– like supporting the child care system with increased wages for the workers there.

Brew your own, homebrewing beer and cider is easy and with a little care and attention to detail is delicious. Beer is about $1 per 750ml and cider about $1.35

Maybe we can set up a lucrative and tax free moonshine industry. 🤣

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