UK's $160m booze tax hike may wipe out wine industry's $43m FTA gain

The proposal, which taxes beverages based on their alcohol content, will hit Aussie wine growers harder than those from other nations, because Australia's climate causes as wine and grapes ripen at naturally higher sugar, and therefore alcohol, levels.

Analysis from the Australian wine sector shows the tariff reduction would provide a benefit of about $43 million, however the new tax would cost the industry $160 million.

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Senate estimates revealed Department of Foreign Affairs staff knew about the tax "a month or two" before the FTA negotiations concluded.

Labor Senator Tim Ayers said it appeared as though the UK was "giving with one hand and taking with the other", and grilled department staff about why nothing was done about the tax during the FTA negotiations.

"[The tax] potentially wipes out the benefit for that sector.... the situation for the [wine] industry is worse than when you started," Senator Ayers said.

However, DFAT officials said taxes did not fall within the boundaries of an FTA negotiation.

Wine Australia has made a submission to UK government during the tax public consultation process, and DFAT officials said Trade Minister Dan Tehan wrote to his UK counterpart to raise the concerns of the wine industry.

"I'm hoping we may have expressed considerable displeasure rather than just concern, in whatever the jargon of diplomatic world is, to let it be known 'we are not amused', to use the English expression," Liberal Senator and estimates committee chair Eric Abetz said.

Labor called on Mr Tehan to to use whatever bargaining power Australia had with the UK to save wine producers from the incoming tax burden.

But Australian Grape & Wine chief executive Tony Battaglene said it was disingenuous to suggest the Trade Minister or DFAT officials could have any influence over foreign domestic policies such as tax.

"Australia wouldn't change our taxes for the UK if they asked," Mr Battaglene said.

"The FTA is good, let's not confuse that. It does give us a level playing field with Europe [into UK] and an advantage over other exporters."

"The tax proposal is separate - it's bad and really concerning. We've been aware of it since September when announced in the UK budget. We know it will have an impact, but we don't know what impact it will have on demand - it could reduce demand for wine, and increase demand for beer."

Under the new proposal, the tax on alcohol beverages will increase with every 0.5pc increase in alcohol content, starting at 8.5pc and ending at 22.5pc. Mr Battaglene said 11.5pc was the "break even point", and everything above that would fall under a higher tax.

The average alcohol content of Australian wine exported to the UK is about 13pc.

Mr Battaglene said the 0.5pc increments would be extremely difficult to administer, as wine's alcohol content could change between vintages due to the weather.

"We've proposed to raise that half-a-percent increment to increments of one per cent or higher," Mr Battaglene said.

"The UK Department of Treasury has asked us for more information on the increments, so there is a strong possibility they're taking a closer look and we may have a small win on that."

It was also revealed in the estimates hearing that Mr Tehan was considering rushing the UK FTA through without the regular parliamentary scrutiny.

Labor trade spokesperson Madeleine King called on the Trade Minister to rule out rushing the FTA sign-off, to ensure it was comprehensively scrutinised.

"Despite longstanding practice of the Joint Standing Committee on Treaties considering new treaties for more than 20 joint sitting days, Dan Tehan is considering rushing the agreement through the Parliament in the two joint sitting days before the election," Ms King said.

"Noting that the UK ratification process will also take months to conclude, there is no justification for this rush other than for cheap, superficial, political point-scoring."