VIC MICROBREWERS LOBBY FOR EXCISE RELIEF

Willie Simpson

Thinking of starting up your own microbrewery? Well, be warned - it requires unlimited passion and extremely deep pockets. “It’s my get-rich-slowly scheme,” quips Matthew Donelan, who operates the tiny St Peters Brewery in Sydney.

Others tell a similar tale. “We’ve been going for nine years, we’re reasonably well-known and our beers are pretty widely available but we’re still right on break-even,” says Cam Hines from the Mountain Goat Brewery, “which is pretty daunting for new players entering the industry.”

In fact, Mountain Goat is one of the pin-up stories in craft beer circles, having grown from an annual output of 30,000 litres to more than 300,000 litres, the original two-man workforce has expanded to seven, and their flavoursome, unfiltered ales are currently on tap at more than 50 outlets. And they’ve undoubtedly inspired many of the newer players among Victoria’s 25-odd microbreweries, around half of which have cranked up in the past three years.

So why is it so hard to turn a tidy profit from a supposedly thriving microbrewery like Mountain Goat? You could start by talking about the relatively high cost of brewing equipment, automatic bottling lines and good quality raw ingredients, then factor in rent, wages and distribution costs - but the real killer is the excise or tax on beer that goes straight into the federal government’s pocket.

When Mountain Goat sells a 50-litre keg of their Surefoot Stout or IPA (both 5 per cent A/V) to a publican for $190, Treasury has already creamed off $50.24 (or around 26 per cent of the wholesale price) in excise duty. By the time you deduct those other fixed costs, it doesn’t leave a whole lot in the way of a profit margin.

Because excise is levied directly on the alcoholic strength of beer, smaller scale producers are taxed at the same rate as big breweries. For fledgling brewers paying off equipment and facing higher unit costs, excise looms as an almost insurmountable obstacle to profitability.

Many microbrewers feel unfairly treated in comparison to boutique winemakers because the Wine Equalisation Tax (brought in with GST in July, 2000) currently allows a full rebate on tax from their first $1.7 million in annual sales. Wine is taxed on the wholesale price at reasonably high levels but WET generously refunds the first $500,000 paid each year; it means that many small winemakers effectively pay no tax on their annual production.

The Victorian Association of Microbrewers has led the way in lobbying the federal government for an equivalent excise relief scheme for beer that the wine industry enjoys under WET. Hines (who has is president of VAMI) and Paul Holgate, of Holgate Brewhouse, recently donned suits and spent a day in Canberra meeting with various federal politicians.

The pair made a presentation to the Coalition backbench committee on small business, tourism, sport and arts which included a growth forecast for the Australian microbrewing industry by 2010, both under the current excise regime and with their “WET equity” proposal. At present, the industry contributes some $295 million to the economy and it will grow to an estimated $500 million by 2010 but, with the proposed excise rebate, it could be worth around $783 million.

And while they were arguing for a short-term decrease in overall excise, they were quick to point out that the projected growth spurt in craft brewing would substantially increase the total tax paid by their industry segment. With many Victorian microbreweries situated in regional areas, the potential for more such small businesses, employment and tourism-related growth was also emphasized.

It was the second time Hines and Holgate have flown to Canberra in the past year to plead their case. “We know it’s not going to happen after one or two visits and we’ve just got to keep chipping away,” Holgate says. Since their visit, other state microbrewery organizations have been encouraged to start a “fighting fund” for ongoing lobbying and to help present a “national front” on the WET equity proposal.

In a sense, the wine industry stole a march on their brewing colleagues with WET, which they successfully argued would protect smaller winemakers post-GST (when sales tax on wine was replaced by a combination of excise and GST). Hines says many politicians aren’t even aware of the existence of microbrewers who still only account for around one per cent of total Australian beer production (in Canada and the US they make up to five per cent).

For battlers like Holgate, who kept working at his full-time “day job” for three years after starting the Holgate Brewhouse, an excise rebate would be a welcome relief. “It would mean a lot less stress in our lives,” he says. “We could pay ourselves a reasonable salary and employ more people instead of doing everything ourselves and working seven days a week.”

Hines echoes that sentiment. “We could pay our staff properly and spend money marketing and promoting our brands,” he says. “We might install some extra fermenters and look at exporting - we could also get ourselves out of debt!”

VAMI

The Victorian Association of Microbrewers was set up in mid-2003 with help from the state government’s Department of Regional Development (who have published two editions of a guide to Victoria’s craft beer producers). “Our primary focus is the excise issue but we hold cooperative stalls at exhibitions and festivals like Melbourne’s [Taste of Slow],” says Hines, who has been VAMI president for the past two years.

VAMI also provides advice and informal mentoring for new ventures and those thinking about entering the industry. “We discuss common issues like quality control and we’re currently working with Ballarat University to set up a microbiological training course for brewers,” he said.

Meetings are held every two months at the Mountain Goat Brewery and are followed by a forum session. “Last time Brad Rogers [Matilda Bay’s head brewer] spoke about judging at the World Beer Cup and [another presenter] talked about filtration systems for microbreweries. We all bring along our own beer for tasting afterwards and there are usually 30-plus different beers.”