Australian subsidy unfair, say NZ winemakers

By SIMON HENDERY, liquor industry writer

New Zealand winemakers are fuming over an eight-figure subsidy being offered to their Australian counterparts which they say will hurt sales into our third largest wine export market.

Tuesday's election-year federal Budget in Australia included a commitment that the country's 1600 winemakers would each receive a wholesale tax rebate of up to A$290,000 ($331,000).

Until now wine producers have paid a 29 per cent wine equalisation tax, but their tax will now be reimbursed up to the first A$1 million of sales.

The chief executive of the New Zealand Winegrowers industry group, Philip Gregan, said the move meant about 90 per cent of Australian producers would end up paying no wine equalisation tax, giving New Zealand producers a severe disadvantage in the Australian market.

"Good on the Australian wine industry for getting it," Gregan said.

"But our concern is that if they don't extend that benefit to imported wines, particularly NZ wines, then what they've done constitutes a subsidy and is quite clearly a breach of CER.

"You can't treat domestic-produced products more favourably than imported products and that's exactly what they're doing."

New Zealand wine exports to Australia last year were worth $51.6 million. That figure is expected to double over the next four to five years.

Finance Minister Michael Cullen said yesterday that he intended to raise the issue with Australian Foreign Minister Alexander Downer when they meet today at the Australia New Zealand Leadership Forum.

Cullen said the rebate appeared to be a breach of the closer economic relations agreement with Australia.

"The rebate that the Australian Budget announced for Australian wine differentiates on taxation between Australian producers and New Zealand producers which, on the face of it, is a breach.

"I would hope that a way can be found that will preserve both the spirit and the letter of CER," he said.

Gregan said the rebate would mean Australian producers would be able to sell what had been a A$20 wine for A$15.

The move would hit NZ's small exporting wineries particularly hard because for many, Australia was their only export market.

Zirk van den Berg, a spokesman for Montana, the country's largest wine producer and exporter, said the move would make trading conditions tougher but the company did not necessarily expect huge price drops across the Tasman.

Montana makes about 10 per cent of its sales in Australia.

Van den Berg said small Australian producers, the beneficiaries of the rebate, were more likely to use it to boost their meagre bottom lines.

But Gregan said it would only take a few producers to discount their prices before the whole market moved down.

George Fistonich, the head of NZ's largest locally owned wine company, Villa Maria, said the logical solution was for the tax rebate to be extended to NZ wines sold in Australia.

It was important that ruling was made as soon as possible, so NZ wine marketing did not suffer a loss of momentum in Australia.

Neither Gregan nor van den Berg expected the rebate to lead to a flood of cheap Australian wines into NZ because the market was dominated by large players to whom the A$290,000 would be insignificant.