The Current Situation in the Australian Wine Industry

1. Literature Review

To ensure that this research is up-to-date, a number of journals and reports were reviewed to provide an overview of the current situation in the Australian wine industry. The focus of this research is to identify and measure the significance of taxation on domestic Australian wine sales and various variables which could affect the consumption of wine in Australia. The independent variables which was identified which might be significant in effecting the consumption of domestic wine are average income of Australians, beer consumption, and wine imports.

According to Selvanathan & Selvanathan (2004), Income level and the price of the wine significantly influences the consumption of alcohol in Australia. They found that wine consumption has a positive relationship with income level, and a negative relationship with price of wine. For this research, the price of the wine was assumed to be reflected in the level of tax, as the price set varies greatly for each wine category and function.

According to Tsolakis (1983), the demands for alcoholic beverages are relatively unresponsive against price changes in the short run, but will show its effects after 2-3 years time. While Meagher et al (1985), created a more complex calculations that shows that tax increase and wine have a negative correlation. Tsolakis (1983) also stated that the tax would affect the quality of the wines produced. This is due to the producers' effort to maintain profitability. It will also lower the perceived value of the said wine due to lack of exclusivity. This could also affect the level of wine consumption. In 1999, during the time the government announced they are discussing on changing the wine tax level in Australia, numerous group did researches on the impact of the change of wine tax on the wine industry (DSICA, 2006; Berger & Anderson, 1999; Meagher et al, 1985).

According to an article which is published by Distilled Spirits Industry Council of Australia (DSICA), the current taxing system that Australia government imposed for local wine taxation on year 2006 are Wine Equalization Tax (WET) and Goods and Service Tax (GST). The government charge 29% of WET, and 10% of GST for the domestic wines. As for imported wines, an additional Custom Duty is using the tax of ad-valorem, and the tax is added to the price of the imported wine. Besides, WET and GST is actually replaced by the older taxing system, the previous tax system that charged by the government is 41% of wholesale tax, which was used before the year 1999 (Berger & Anderson, 1999). However, Edwards and Spawton stated that actually the ad-valorem tax is able to affect the wine sales. Especially for consumers who are having price conscious because of impose of tax able to increase the wine price, but wine producer is willing to produce more wines in order to gain more profit.

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