Government policy thwarting $1 billion potential for Australian spirits exports

A new economic modelling commissioned by the Australian Distillers Association and Diageo Australia has demonstrated how Australia’s spirits sector is being directly jeopardised by Federal Government policy and regulatory barriers such as the spirits excise tax. 

The Spirits Industry Competitiveness Plan economic modelling was conducted by research firm Mandala. 

“While there has been an overall increase in the number of distillers in Australia, the average size of distilleries is declining, and many are not scaling as it is either too challenging or not worthwhile,” said the report.

“This is primarily driven by the high excise tax, which is restricting businesses’ ability to reinvest in their company and attract investment.” 

The report recommends that the Federal Government takes an active role in helping Australia’s spirits sector to fulfil its potential, suggesting that doing so would bring simultaneous benefits to other government policy goals such as growing Australian manufacturing and supporting regional jobs.

The Spirits Industry Competitiveness Plan also echoes recent calls to freeze the bi-yearly increases to the spirits tax and recommends the creation of a ‘Spirits Australia’ body to support industry growth. Mandala estimates that these two steps could increase the net worth of Australia’s spirits export market from $210 million in 2022 to $1 billion by 2035.

“This report proves what distillers right around this country already know, that Australia’s spirits tax has significant implications for the competitiveness of the spirits industry and the ability for distilleries to scale and attract investment,” said Paul McLeay, Chief Executive at Australian Distillers Association.

“We welcome the federal government’s move to set up a parliamentary inquiry into expanding innovation and value addition in food and beverage manufacturing, and we look forward to lending our expertise to those discussions.

“However, we already know the current spirits excise regime is limiting the opportunity Australian distillers have to expand and grow their businesses, and that by freezing it, we can grow regional jobs, tourism and manufacturing.”

The report was partly commissioned by Diageo, who earlier this year launched a Bundaberg Rum campaign that brought attention to the impact of current liquor taxes. 

“Our consumers, who are having to pay $38 in tax for every 1 litre bottle of Bundaberg Rum, know this tax is not sustainable,” said Dan Hamilton, Managing Director at Diageo Australia.

“Now, this report makes it clear that it’s also limiting the foreign direct investment which could drive industry and export growth.”

Australia’s spirits industry currently supports 5,700 jobs in manufacturing, including almost half of its 701 distilleries located in regional areas. The industry is also responsible for attracting 631,000 visitors annually, with distillery visits currently the fastest growing tourism activity for overnight trips in Australia. 

Despite this, economic pressures stemming from government policy and regulation have been forcing a decline in staff size that is at odds with both international spirits industries and Australia’s wine industry. Currently, Australia is sixth in the world for wine exports and 29th for spirits exports.

“Even though we perform better than the global average for spirits exports potential, we’re significantly behind the global lead pack,” said Amit Singh, Mandala’s Managing Partner.

“If Australia exports at its full trade potential, performing as efficiently as the UK, France, Singapore, Ireland, Mexico, we could export $1 billion of spirits annually by 2035 at our current rates of growth.”

Federal Government data recently confirmed that the biannual spirits tax indexation has been jeopardising its efforts to curb inflation, further enforcing the need for regulatory change.