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Reducing the whopping tax burden on Tasmania’s award-winning whisky, vodka and gin producers will free up funds to help many local businesses flourish.

Less than 10 years ago, there were 28 distilleries across Australia. Fast-forward to 2021 and there are 300 locally owned distilleries, including about 50 either established or planned in Tasmania. From rye whisky smoked in sheep manure to saffron-infused gin, the offerings grow more exotic by the day and are taking the world by storm.

Craft distilleries are mainly small and medium-sized family businesses in rural and regional areas, buying produce from local farmers, bringing in tourists and creating job opportunities for local communities.

Directly supporting over 5,000 jobs nationally, they indirectly help create 15,000 more across the supply chain from primary producers and manufacturers through to sales and hospitality. But the ability of this burgeoning industry to recover from COVID-19 is being hamstrung and its hopes of expanding overseas are being dashed because Australia has the third highest spirits excise in the world.

In fact the tax is two-thirds higher than that paid in New Zealand, and nearly 10 times the impost in the United States. Indeed, craft distillers are paying a whopping $88 of tax per litre of pure alcohol, which increases twice a year and is projected to hit $100 over the next five years for each litre produced. That means when you buy a bottle of your favourite boutique gin around the $80 mark, more than half of that money goes into government coffers.

That’s why I’ve pressed the Federal Government to reform the taxation regime for Australian distillers to make it more competitive globally and fairer compared with other alcoholic beverages. For a start, spirits excise should be cut by $6 per litre which would put it on par with the brandy excise rate. This seems only fair given that, per standard drink, even brandy is taxed at more than double the rate of wine, cider or beer. It’s nonsensical that the taxation rate is unequal across grape-derived spirits, like brandy, compared with grain-derived spirits like whisky, vodka and gin.

Moreover, as these increases are linked to CPI and reset every six months, actual prices are rising faster than inflation because the tax increases are on top of the inflation. This adds up big time, with Australian distilleries facing no less than 20 tax increases in the past 10 years. It’s not unreasonable, therefore, for the industry to request a three-year freeze on the biannual tax increase, giving businesses time to recover and grow in our post-pandemic world.

Finally, we need to increase the distillers excise refund scheme limit from $100,000 to $350,000 per year, which would bring it into line with the incentives offered to small winemakers. These proposed changes have received a warm reception from Treasurer Josh Frydenberg, who has instructed his staff to examine the matter.

While I understand high tax on spirits is in part designed to reduce the social cost of excessive alcohol consumption, I’m not convinced the current tax system achieves this aim. Indeed many government inquiries, including the 2009 Henry tax review, have criticised the inconsistencies within Australia’s alcohol tax system and have recommended reform.

For instance it was noted in the Henry review, and summarised in the Australian Distillers Association and Spirits & Cocktails Australia pre-budget 2021 submission, which said: “Spirits are taxed at one level if they are fermented from grapes (specifically brandy), and at a higher rate if fermented from grain (such as whisky). Cheap wine is taxed lightly, while premium wine is taxed heavily. Additionally, beer is taxed at one rate at the local pub and another when purchased to consume at home.”

To be clear, my intention is not to drive prices down for consumers and encourage irresponsible drinking but to enable small businesses to flourish in local and global markets alike. With extra funds freed up from the excise changes, boutique distillers would surely be able to employ more staff, invest in better infrastructure and expand their markets. Tasmania’s boutique distillers desperately need this tax reform, and some may sink without it.