Australia: Government downgrades expected revenue from alcohol excises over next four years

The Australian Government has dramatically downgraded its expected revenue from the alcohol excise tax over the next four years as price rises dent consumer demand, the Drinks Digest reported on December 20.

Spirit excise proceeds, for example, have been revised downwards by A$1.7 billion over the four years to 2027-28 (a drop of 8%).

The Australian Government’s Mid-Year Economic and Fiscal Outlook 2024–25 (MYEFO) shows a significant decline in forecast revenue since the previous estimates in the May budget.

Beer, spirits and “other alcohol” excise revenues are expected to be down A$330 million on estimates for 2024-25, with 2025-26 predicted to be down A$380 million.

Australian already has one of the world’s highest alcohol excise taxes and it was increased yet again on 5 August 2024 to A$103.89 per litre for spirits and as much as A$61.32 per litre for beer.

The CPI increase was the 75th tax hike on alcohol since automatic indexation was introduced by Paul Keating in August 1983, in his first Budget as Treasurer.

Bootlegging has been another by-product of the surging tax burden. The ATO estimates that in the 2022-23 tax year it lost A$800 million due to contraband alcohol.

Victorian police, for example, uncovered a billion-dollar liquor substitution racket in April 2024 that was providing dangerous, bogus liquor to 80 licensed premises.

The Age reported that organised crime has moved onto bootlegged booze to avoid the high spirits excise.

An ATO spokesperson said: “The ATO is obviously concerned about the tax leakage and the unfair impact on businesses that do the right thing, as well as the broader community threats, including the health and safety risks inherent in the consumption of illegally manufactured alcohol.”

Executive Director of Alcohol Beverages Australia Alistair Coe told the Australian Financial Review: “It is plausible that Australia’s high tax settings have created opportunities for compliant businesses to be undercut by illegal, dangerous and untaxed products.”

“In contrast, the illicit alcohol which is produced and sold does not comply with Australia’s rigorous product safety regime.”

The Labor Government’s first Federal Budget in 2022 predicted spirits and RTDs would add an extra A$400million in excise tax to the Treasury’s bottom line.

The forecast in the Budget for excise on spirits and RTDs was up 13% compared with the pre-election budget forecasts. However, excise from beer was forecast to fall by A$30 million to A$2.62 billion, a drop of 1%.

“The outlook for alcohol excise receipts has improved, driven by stronger consumption of higher-taxed spirits and pre-mixed beverages compared with lower-taxed beer,” page 160 of Budget Paper No. 1 read.

Spirit tax collected A$3.2 billion in the 2021/22 financial year and was expected to grow to A$3.8 billion in 2025/26 as Australians continue to switch from beer to spirits.

Spirits and Cocktails Australia noted in December 2023 that the MYEFO revealed a projected A$170 million shortfall in revenue from spirits excise in 2023-24 alone, as the combination of high spirits excise and inflation continued to dampen consumer demand.

Spirits and Cocktails Australia Chief Executive Greg Holland said: “Declining spirits sales are now being reflected in the Federal Government’s tax coffers.

“The rate of spirits excise has increased, yet revenue is down. This tells us everything we need to know about the appropriateness of this tax in the current economic climate.”

The news follows The Independent Brewers Association announcing earlier this week that it will not be running its BrewCon conference or Indies Awards in 2025 due to the challenging economic climate experienced by independent brewers over the last year.

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