The federal budget was announced on Tuesday, bringing with it a change in tax excise that slated to greatly benefit craft brewers. There’s plenty of speculation about what the changes, which don’t come in to effect until 1st July 2019, will mean for consumers, with news headlines and many a beer blog going rife with speculation. A personal favourite, “Hipster’s rejoice! Budget to make craft beer cheaper,” presents not only a subtle grammatical error (hint: it’s the apostrophe) but also the likely misinformation that, sorry, beer is probably not going to be cheaper for me and you.
But, before we delve too much into the potential consequences, let’s take a step back and reiterate what we know:
- Currently, beer is taxed according to the ABV and the container size in a two-tier system. Any container smaller than 48L is subject to much more tax than a container that is larger than 48L. The change will reduce the 48L diving line between the two tiers down to 8L, so that only containers smaller than 8L will be subject to a higher tax rate. That is to say, containers above 8L will be subject to the same rate as containers above 48L are now. (For reference, the standard keg size in Australia is 50L, which is no coincidence.)
- Manufacturers can now claim a higher rebate from the excise tax they pay – it will go up to $100,000 from $30,000, meaning brewers will get an extra $70,000.
50L kegs are currently the industry standard.
Although it’s tempting to predict that the extra money will be handed to consumers, the consequences of these two little changes are much more far reaching than that and are most likely to provide economic relief within the brewery itself. To consider what might happen, I’ve discussed the likelihood of a few outcomes with my good friend Johnathan Hepner, qualified Cicerone, tax-payer, beer drinker and of most relevance, co-owner of bottleshop/bar Bucket Boys. Over to him.
Consequence: More money for brewers!
Likelihood: Definitely.
“It’s nowhere near the 350K that wine producers can claim back, but it’s a nice increase and will probably be used by most smaller breweries to invest back in to the company in the form of equipment, quality control measures and extra staff.”
Consequence: Cheaper beer for me!
Likelihood: Probably not.
“Don’t expect to see a change in Australian craft beer prices for a while, if ever. The change does not include packaged beer so there will be no relief for bottle shop pricing. The change in the rebate, while significant, is not going to affect retail pricing.”
“The reality is that many breweries operate very close to the line between breaking even and losing money, and this 70K will at least give them a bit of breathing room and hopefully help them have a healthier business. If the only outcome of this extra rebate is that small business owners can go through their day with just a little less anxiety and stress then it is a success.”
Consequence: A change in keg sizes!
Likelihood: Most probably.
“It seems as if the industry has already defaulted to this notion that 30L kegs are going to be the size used. Most breweries do not own any significant amount of kegs smaller than 50L. So for many, there will be an interim period where this extra money will need to be used to invest in smaller kegs.”
“Breweries will have to figure out how many large and small kegs to fill on packaging day. Breweries will also have some problems as small bars may start refusing to take large kegs, which means that the same sale which would have been a 50L sale might now only be 20L or 30L. There will be some things like this that will take time to work out and some adjustments will need to be made.”
“As a small bar owner I would like brewers know that we prefer the tall skinny kegs, as opposed to the short fat 30L kegs, as they take up less floor space.”
Consequence: More variety in bars!
Likelihood: Probably.
“Consumers can expect to start seeing more variety as venues will be much more willing to try beers they wouldn’t normally have purchased because there is less risk in buying a smaller volume of something more experimental.”
“There may also be a small positive change in the freshness of beer, especially in smaller bars, where the tap turnover rate is slower due to the large volume of a keg. Hopefully by having smaller format kegs, beers will be pushed through the taps faster and beer will be fresher.”
“For the Bucket Boys bar, we are already discussing the possibility of doubling the number of taps as a small space like ours will be much more likely to buy small format kegs. Being able to buy smaller volumes not only helps us by saving space in a small shop, but also allows us to keep the turnover at a high rate and keeps things fresh!”
Bucket Boys intends to double the number of taps at the bar if smaller kegs become more widely used.
Consequence: Cheaper imported beers!
Likelihood: Unfortunately, quite possible.
“Imported beer, which was traditionally much more expensive because it is typically packaged in kegs smaller than 50L, will now be much more affordable. The main reason for this being that 30L one-way kegs which are commonly used to import beer to Australia used to be taxed at the packaged beer rate, and with this change will be taxed at the lower rate.”
“That could have an impact on local breweries who have historically been able to compete with much more prominent brands on the basis that local kegs were much cheaper. The main reason for this being that 30L one-way kegs which are commonly used to import beer to Australia used to be taxed at the packaged beer rate, and with this change will be taxed at the lower rate.”
Consequence: More local craft beer in restaurants!
Likelihood: Maybe. Or maybe just more imported beer in restaurants.
“I can see a scenario where this would be the case. What I can also see is a scenario where the large multi-national beer companies take advantage of this change as well as their ability to invest large amounts to create some sort of restaurant tap system that includes equipment and beer contracts in the same way that coffee shops get their machine in exchange for using a certain brand of coffee. The simple fact is that indie breweries should start mobilising now as this is an untapped resource that could become a major factor in the coming years.”
So, there you have it. Unfortunately, while this change does seem to have provided some relief for brewers, it’s still a far cry from the benefits provided for wine producers. They’re able to claim an excise of up to $350K and are exempt from the new container deposit scheme in NSW. There’s also a few nuances here – like how are 2L growlers, which are often filled from 30 or 50L kegs (which have different excise rates), going to be taxed? While we applaud the definite progress, there’s still plenty to be sorted out. At least, that’s what the cynic in me says.