Australia's smaller brewers are set for a major windfall thanks to a proposal within next Tuesday's Budget. It is a result of Treasurer Scott Morrison's plans to end a two-tier system that sees brewers charged 40 percent more tax for using smaller kegs – and to increase the amount of excise tax on which they can claim a rebate from $30,000 to $100,000 per year from July 1, 2019.
The Minister said: "This not only champions the craft brewers that we’ve all grown to love, it raises a very tantalising prospect for Australians: the likelihood of cheaper craft beer.
"The extra help to craft brewers and distillers will drive competition in a sector currently dominated by large domestic and multinational brewers, opening the door to new products and will likely put downward pressure on prices."
Both issues have been at the centre of lobbying by the craft beer industry for years. At present, beer attracts a far higher rate of excise tax if packaged in kegs measuring 48 litres or smaller when compared to the same beer in a 50 litre keg.
And brewers have only been able to claim an annual excise tax rebate up to $30,000, a figure dwarfed by the $350,000 rebate available to the country's winemakers via the Wine Equalisation Tax (WET). Next week's budget proposes to more than triple this to $100,000, with the change also applying to Australia's rapidly growing number of craft distillers.
The proposals have been warmly welcomed by the industry, with Independent Brewers Association (IBA) chair Ben Kooyman pointing out that the country's small brewers have been campaigning for fairer tax for more than two decades.
"Blair Hayden (The Lord Nelson) and Chuck Hahn were campaigning at Parliament for excise reform more than 20 years ago," he says. "After that it was Paul Holgate and Cam Hines (Mountain Goat), the CBIA and now the IBA.
"[These changes] will make a huge difference for small brewers versus bigger brewers."
Momentum has certainly been gathering. In 2012, the excise tax rebate for brewers was increased from $10,000 to $30,000 per annum. The following year, a White Paper on tax inequality was published by the Australian Real Craft Brewers Association (ARCBA), while, last year, the IBA launched launched a campaign calling for fairer tax that was taken forward again in March this year.
Also last June, a collection of Inner West Sydney brewers enlisted the support of Federal, State and local ministers, led by Anthony Albanese MP, who took up the fight in Parliament, where he raised a motion that attracted cross-bench support and highlighted, among other things:
- the inequity between how Commonwealth excise is calculated for small and large scale brewers which disadvantages the craft brewing sector
- that excise currently accounts for a disproportionate amount of the costs of production for small brewers and the calculation of excise imposes a significant burden on them
Ben described today's news as "another step" in the IBA's ongoing fight for the country's independent brewing companies.
"It's a nice little break but it's not what we want to get to," he told The Crafty Pint. "We sent a letter and economic evaluation directly to the Treasurer's Office and got a reply that was somewhat stock standard, but the feedback we got was that we timed it perfectly."
The IBA had made four requests:
- To match the wine industry's $350,000 excise relief
- To receive deferred payment terms, in order that brewers don't have to pay excise tax as soon as they move beer, as it can take months to receive payment from customers
- Remove the two-tier tax system related to keg size
- To have tax relief indexed to CPI so its real value doesn't fall over time
"We've got part of one and can tick off the keg issue," says Ben. "Next, we'll try for more relief and would like to simplify the situation around beer excise – beer is beer is beer."
As for the latest wins, he says the proposal related to kegs has positive impacts beyond the balance sheet.
"It's great for Occupational Health and Safety," he says, as brewers can look to use more smaller, lighter kegs without being penalised financially. "It's great for freshness and for diversity.
"We can start approaching small bars and restaurants with smaller sizes and it will hopefully help keg fresh beer, with people able to buy [small kegs] direct from a brewery to take back to their house. It's something that could be quite exciting and has a great environmental impact too."
Initial reaction to the announcement has seen many of the industry's supporters – in other words, craft beer drinkers – take to social media to say they're looking forward to cheaper craft beer. But Ben says they're warning against small brewers passing on their savings by lowering the price of their beer.
"We don't want brewers to funnel it straight through to price, but into investment in jobs and better quality beer," he says, highlighting the issue of cheaper kegs and price wars that have been impacting the industry in recent years, as featured on this site here and here.
Looking ahead to next year's Federal election, he said they would be looking to see what Labor will now offer, particularly with Albo having taken up the fight less than a year ago.
"Labor has an opportunity to propose an alternative," says Ben. "They might come to the party or they might say this is a bad move and go back to the old system."
It promises to be a busy few weeks for the IBA, which last year voted to strip membership from brewing companies with large brewery ownership. It will reveal its new CEO on Monday and is set to launch its Independence Seal and associated awareness campaign on Thursday. In June, it will host its rebranded conference, BrewCon, and annual beer awards, The Indies, in Sydney.
"It's a very interesting time for the industry," says Ben. "We're so disruptive, with so many new openings.
"It's an exciting time to be alive."
UPDATE FROM WA
In a statement welcoming the news, Western Australian Brewers Association (WABA) president Dan Turley sounded a note of caution over the decision to level taxation on all kegs over eight litres, warning it could put added pressure on the local brewing industry. He says the advent of one-way kegs that, unlike 50 litre kegs, can be disposed of after use could see overseas brewers look to bring more of their beer into the state.
“The reduced keg excise must be met with some caution," he said, "in that it may also potentially open the floodgates for cheaply produced imported beer packaged in smaller kegs, especially one-way disposable plastic kegs."
He said WABA was calling on the Federal Government to apply the lower rebate to returnable kegs only.
MEDIA RELEASE FROM SCOTT MORRISON MP
LEVELLING THE PLAYING FIELD FOR CRAFT BREWERS AND DISTILLERS
Craft brewers and distillers will no longer pay additional tax, allowing them to compete on fairer terms with large beverage companies.
As part of our commitment to unleash the potential of Australian small businesses, the Turnbull Government will increase the amount beverage companies can claim back on their excise and extend the concessional draught beer excise rate to smaller kegs, typically used by craft brewers.
The alcohol excise refund scheme cap will increase from $30,000 a year to $100,000, from 1 July 2019 for all brewers and distillers.
This additional tax relief, on top of the Government’s legislated tax cuts for small and medium businesses, will allow craft brewers and distillers to compete on fairer terms with large beverage companies.
This not only champions the craft brewers that we’ve all grown to love, it raises a very tantalising prospect for Australians: the likelihood of cheaper craft beer.
The extra help to craft brewers and distillers will drive competition in a sector currently dominated by large domestic and multinational brewers, opening the door to new products and will likely put downward pressure on prices.
Currently, draught beer sold in kegs exceeding 48 litres is taxed at lower rates compared with beer sold in smaller kegs. This is unfair for smaller brewery businesses. Extending the concessional draught beer excise rates to kegs of 8 litres or more will level the playing field for craft brewers, which typically use smaller sized kegs, to distribute their beer to pubs, clubs and restaurants.
There are around 380 craft brewers in Australia located across each State and Territory, employing the equivalent of almost 2,400 people. These brewers are predominantly small businesses and could benefit both from the increase to the excise refund cap and extended access to the concessional draught beer excise rate.
There are also over 100 domestic distillers, supporting around 1,600 jobs that could benefit from the changes.
This measure adds to the Turnbull Government’s support for small business over successive Budgets, including: an increase to the turnover threshold for access to the small business concessions, reduced tax rates and the $20,000 instant asset write-off.