The Australian government’s spirit tax has been fermenting trouble for local distilleries in the land down under. The tax, which has recently risen to AU$101.85 per litre of alcohol, is now the third-highest in the world. This increase is part of an automatic adjustment in line with the consumer price index (CPI), a policy that has seen the tax soar by 16% over the past three years.

The Impact on Distilleries

For the Australian distillery industry, this tax hike is more than just a financial nuisance; it’s a barrier to growth and sustainability. Small distilleries, in particular, are feeling the burden. Unable to pass on these costs to consumers in the current economic climate, they’re faced with shrinking margins when other costs are also rising. This has led to job cuts and has stifled the ability of these businesses to invest in scaling up operations.

Proposed Solutions

Several proposed solutions have been put forward to address the Australian spirit tax issue, aiming to alleviate the financial pressure on the distillery industry:

1. Reducing the Excise Rate: Trade groups have suggested reducing the excise rate for spirits to align with the rate for brandy, which is fermented from grapes and taxed at a lower level.
2. Freezing the CPI Increases: A joint Pre-Budget Submission has requested the government to freeze the Consumer Price Index (CPI) on spirits and brandy tax rates for three years to prevent automatic tax increases.
3. Excise Tax Freeze: Spirits & Cocktails Australia and the Australian Distillers Association have called for a freeze on spirits excise at the rate set on 1 August 2023 to provide immediate relief and allow time for industry and government to collaborate on sustainable policy settings.
4. Increase to the Craft Distillers Refund Scheme: A proposal to increase the refund scheme for craft distillers would provide much-needed relief and support to local distilleries.

Insolvency and Restructuring: A Necessary Measure

The tax increase has not only affected operational costs but also led to a precarious financial situation for many distilleries. As a result, there’s been a noticeable uptick in restructuring and insolvency activity within the industry. Distilleries are finding themselves in need of professional advice to navigate these choppy waters, with some turning to restructuring schemes to stay afloat.

The Importance of Seeking Help Early

In light of these challenges, distilleries must seek help early. Proactive measures can include restructuring debt, renegotiating with creditors, or exploring new markets. Business Restructuring (for big and small businesses) provides a lifeline for financially distressed companies, allowing them to restructure debt and regain business control. Feel free to contact your local Rodgers Reidy office to discuss whether this option is right for your clients.