Tax lift deadly for wineries

Photo / Sarah Ivey

Higher excise costs next year could be the difference between survival and failure for some wineries, says an industry body.

New Zealand Winegrowers chief executive Philip Gregan said the industry faced an annual excise increase related to the rise in the consumer price index for the year ending March 31, which was being driven higher by the rise in GST.

"We are going to be facing a 5 per cent lift in excise on next July 1 because that's the Reserve Bank forecast for inflation for March year-end," Gregan said.

"If they can't pass the tax increase on, what's going to happen?" he said. "They're already stressed financially, you would have seen the receiverships in the industry - that July 1 tax increase we see as a very significant threat to the industry."

A 5 per cent rise in excise would be equivalent to 12.5c a litre or $1.17 a case.

Wineries could not pass on excise increases because retailers would not accept price rises, he said.

"If you think about the market structure, you've got [about] 700 wineries selling to a very small number of purchasers so all power lies with the purchasers."

Respondents to a wine excise survey this year showed 48 per cent had not increased prices of key product lines in more than five years.

"We've been concerned about it for a long time but in the current recessionary environment where markets are trading down, where banks are tightening credit lines, it's a big problem."

The excise tax applied to domestic sales, which were worth about $500 million to wineries, which were paying about $150 million in excise.

Excise increases normally came into effect on July 1 indexed to the consumer price index, although they were not obligatory and had to be signed off by a minister.

The intention was for the tax to be passed on to consumers, which was not happening, Gregan said.

"If you really want to hit the mark what you've got to do is make it a consumption tax so levy it at retail level."

The body had spoken to the Government about the subject, he said.

"From the discussions that we have had they are clearly taking the issue seriously."