UK tax threatens to undermine benefits of FTA for Australian wine

Trade Minister Dan Tehan has written to the British Chancellor Rishi Sunak to register the Australian wine industry's concerns about a proposed tax structure on wine which he says threatens to undermine the gains of the recently signed FTA.

In a recent interview, Mr Tehan told Sky News that the new system would be detrimental to the wine industry in both countries.

“We've seen in the last twelve months, and this is even before the FTA kicks in, a 33 per cent increase in Australian wine exports to the UK. British wine consumers are voting with their feet, they love our wine, and we want to be doing everything we can to continue to make it affordable for the British wine consumer,” he said.

Mr Sunak announced the changes to the tax in October’s budget describing the overhaul as the "most radical simplification of alcohol duties for over 140 years".

However, the proposal which includes a tax on beverages with an alcohol content higher than 11.5 per cent has been met with consternation at home and abroad.

CEO of Australian Grape & Wine, Tony Battaglene says the new tax structure would undermine the AUD$48m worth of benefits of the FTA as well as negating “the uptick in demand”for Australian wine Australian wine which is already playing out in the market in response to the agreement.

Mr Battaglene says that under the new system, 93 per cent of wine imported to the UK from Australia will be impacted and the cost to Australian winemakers is estimated to fall between AUD$133-143 million (GBP£70-80m).

“Taxing all alcohol on its alcohol volume adds an average of 30-40 pence per bottle and for higher end red wines, this would add around GBP£2.23 (AUD$4.25),” Mr Battaglene explained to Drinks Trade.

The UK is Australia’s leading export market. It was worth $453m in 2021 and Australian wines are the most popular in the UK retail sector, with brands including McGuigan, Yellowtail, Jacob’s Creek, Hardys and Penfolds.

Mr Battaglene says the feedback to the UK government from AGW outlined the unintended consequences of the proposal, not just the impact on the pricing of Australian high end wine but also the difficulty and administrative burden of the tax structure on collectors, retailers and right across the supply chain.

Minister for Agriculture David Littleproud, state premiers, and industry bodies in the UK, France, Italy and Spain have made representations to the UK as have Treasury Wine Estates.

Treasury Wine Estates is lobbying for the British government to reconsider a new tax regime for wine imports that threatens to wipe out any benefit from a free trade agreement.

A spokesperson from Treasury Wine Estates added: “We understand it will wipe out the £26 million benefit for Australian wine growers agreed upon in the recent UK/Australia Free Trade Agreement, replacing it with £70 million of costs and diminish future growth prospects in the largest export market for Australian wine growers and UK consumers. The new duty could add up to 40 pence to a bottle of Australian wine for UK customers.”

The UK tax reforms – whatever they end up looking like – are due to come into effect next February. Mr Battaglene says that he is hopeful of a collaborative and consultative approach to find a different solution.