Sour Grapes: A Case of Wine Tax

Kakwani, 1983, Progressivity Index of Sales Tax on Individual Expenditure Items in Australia, Economic Record, Vol, 59, 61, 10.1111/j.1475-4932.1983.tb00581.x Hardy, 1983, Industry Paper: Wine Grapes, Quarterly Review of Rural Economy, 5, 84 Wine, 1983 Australian Associated Brewers, 1983, 1983-84 Budget Submission Tsolakis, 1981, The Demand for Wine and Beer, 13 Ibid., p. 14. In the 1970-71 fiscal year this tax raised $9.25 million for the Federal government. See Australian Wine and Brandy Corporation, op.cit., p. 39 for the statistics relating to Federal excise duties. George, 1974 It is interesting to compare this argument with those expressed in 1983 when the possibility of an excise or sales tax on wine is being discussed. The National Australia Bank in 'Stock Exchange: wine and tobacco' in its Monthly Summary of July 1983 presents the views of three large wine companies who extol the merits of an excise tax. The small wine companies have reacted bitterly to this support by Penfolds, Lindemans and Orlando and have argued that the real reason for this support was to force some of the smaller operators into mergers or out of business. See, 1978, Shergold, 'Problems in the Australian Wine Industry', Australian Quarterly, 57 McB, 1972 See Shergold, op.cit., pp. 64-65, for details of Section 31A and discussion of the arguments of those in favour of its re-introduction. 1977, Tax and the Wine and Grape Industiy, 79 Tsolakis, 1982 See Australian Associated Brewers, op.cit., pp. 8-10. Beer is considered 4.6 per cent alcohol by volume since low alcohol beer (2.8 per cent alcohol) makes up about ten per cent of the beer market and normal beer (4.8 per cent alcohol) the rest. These statistics are from C.W. Murphy, The Market for Alcoholic Beverages: Pricing Demand and Taxation, Paper presented to the Tenth Conference of Economists in Canberra on 24-28 August, 1981. These statistics agree with those used by Tsolakis, op.cit p. 6. There is also sales tax on spirits of 17.5 per cent. This tax represents double taxation, as shown by the I.A.C. in Spirits, Spirituous Beverages etc., A.G.P.S., Canberra, June 1979 when it was shown that sales tax on the excise component of spirits raised the prices of spirits more than $1.00 if an increase of $1.00 to excise rates was undertaken. This percentage is calculated since non-fortified wine contains 11 per cent and fortified wine 18 per cent alcohol. In January 1983 non-fortified wine made up 87.41 per cent of wine consumption and fortified wine 12.59 per cent. Monthly figures have been used since these are the latest available and the selection of this month does not negate the general conclusions. D. Tsolakis, op.cit., p. 13 provides this datum in 1981-82 prices. L.abys, 1976, An International Comparison of Price and Income Elasticities for Wine Consumption, Australian Journal of Agricultural Economics, Vol. 20, 33, 10.1111/j.1467-8489.1976.tb00612.x Miller, 1972, The Effect of Price Changes on Wine Sales in Australia, Quarterly Review of Agricultural Economics, Vol. 25, 231 He also favoured the higher end of income elasticity range (2.0) produced by, 1969, The Prospects for Wine in Australia, Quarterly Review of Agricultural Economics, Vol. 22, 198 See Murphy, op.cit., p. 32. Owen, 1979, The Demand for Wine in Australia, 1955-77, Economic Record, Vol. 55, 230, 10.1111/j.1475-4932.1979.tb02225.x Clements, 1982 Wills, 1972 This agrees with the Clements and Johnson estimates of -0.38 and -0.39 (conditional). Murphy provides a similar estimate of -0.27 for the short run compensated. own-price elasticity of wine. The estimate from Owen is also similar, being -0.28 in the short run (based on wine price relative to beer). A major problem is the different forms of wine - bottle, flagons, casks and the types of wine - dry, white, etc. As well there is the important distinction between premium vintage and ordinary quaffing wine. See S.C.S. George, op.cit., pp. 36-37 where he estimates the long-run supply price elasticity of 0.4 for wine. This represents half of 66.7 percent as per Figure 1 based on the work of Tsolakis and George. Murphy, op.cit., p. 32. Clements and Johnson, op.cit., p. 14. Tsolakis, op.cit., p. 13. Bureau of Agricultural Economics, 1976 No account in the revenue estimates is taken of reduced company taxation due to possible reduced turnover of sales of wine and profitability of wine makers or sellers. These would need to be considered in a broader assessment.