Distillers are feeling the hangover as the spirits excise tax curtails growth.
Australia’s wine industry has forged a pathway to international renown over many decades.
And while the quality of its product is the primary element behind this success, it has benefited to a degree from a favourable excise tax regime.
The state’s nascent distillery producers have had no such luck, however.
Across the state, artisan distillers are jostling for a foothold in a spirits market with a distinctly local flavour.
For players spoken to by Business News, Australia’s excise tax system presents a hurdle to business growth, with mid-sized producers and exporters saying they are paying a price for success.
Australia’s twice-yearly CPI-indexed hike on spirits has unified distillers in their calls for reform.
That’s because the federal government currently imposes the third-highest spirits tax globally (behind only Norway and Iceland) at $104.31 per litre of pure alcohol, compared with $101.85 in 2024.
Unlike wine and beer, which benefit from different (and lighter) tax treatments, spirits are subject to a system that critics argue punishes growth and discourages scaling beyond the micro-distillery size.
This is not a new phenomenon. Australia’s spirits excise tax has its roots in reforms dating back to the early 20th century.
Following Federation, the Distillation and Excise Acts of 1901 were introduced to regulate local production and protect Australian manufacturers from foreign competition (all while raising government revenue).
By the 1960s, however, with tariffs on imports falling and local excise rates climbing, the system began working against its intended purpose.
Since 1983, the excise has been tied to Australia’s consumer price index, resulting in automatic increases every February and August and creating an environment where nearly half the retail price of a locally made gin, rum, or whisky is made up of federal tax.
Earlier this year, distillers were hit with their 76th excise increase, a rise of 42 cents.
Comparatively, wine is subject to a wine equalisation tax (WET) that is equal to just 29 per cent of a bottle’s wholesale value.
Photo: Mandala Partners
The system has, unsurprisingly, caused concern, especially as the cost-of-living crisis drives up the price consumers pay at the bar (no matter what they’re drinking).
For Tom Martin, one of three self-proclaimed ‘gin heads’ behind Shenton Park distiller Spirit of Little Things, the ever-rising levels of taxation don’t pass the pub test.
“If you go to a bar nowadays and buy a gin and tonic, that’s $1.30 in tax,” Mr Martin told Business News.
“[Tax on] a schooner of beer is forty-five cents. A glass of wine is twenty-two cents.
“A drink’s a drink, but there are very different excise levels.
“We understand the need to pay tax; all we’re asking is how we can make the industry fairer for distillers?”
Spirit of Little Things co-founders Josh Krueger and Mick Seah are equally frustrated.
“I’ve had it put to me this way,” Mr Krueger said. “If you have a few drinks and get pulled over for a breathalyser test, it doesn’t matter if it was a wine, a beer or a spirit.
“You get measured equally. So why isn’t the excise tax the same?”
Reform
The distillers’ calls for change have led to some response from Canberra, with the government proposing some modest relief for the industry in February.
From July 2026, the government has pledged to lift the excise remission cap – a full refund on any excise a distiller pays – from $350,000 to $400,000 annually.
At the current tax cap, a distiller can make around 11,000 bottles of gin, vodka or whisky a year and avoid paying much of the spirits excise. That has proved sufficient enough an incentive to encourage many microdistilleries to enter the fray. are needed to unlock the economic potential of Australian spirits.
Industry leaders have begun to protest publicly, lobbying for a two-year taxation freeze to provide breathing space for investment and development in the space.
That’s the core idea behind the Bundaberg Distilling Company’s ‘Rum-bellion’, a marketing campaign the Queensland-based producer launched in early 2024 to urge government reform.
At the time, 63 per cent of the shelf price of a one-litre bottle of Bundaberg Rum went directly to the federal government in tax, when the excise duty was $103.89 per litre of pure alcohol; that figure is seven times higher than in the US and significantly more than what Bundaberg paid in New Zealand or the UK.
Bundaberg Distilling chair Amanda Lampe said consumers were becoming increasingly aware of the rising costs impacting the spirits industry, especially as they flow through to bars and restaurants.
“Some have told us they’ve stopped going to the pub on a Friday night because it’s too expensive, others can only afford water when they go out for a meal,” she said.
And while some spirit makers have welcomed the move, critics argue that the upsized remission cap will further stifle mid-sized producers, given the significant recent growth in Australia’s craft distilling scene.
In 2014, there were fewer than 30 licensed distilleries in the country. That number is now more than 700, with almost half of these located in regional and rural communities.
At first glance, it’s a remarkable success story. But as microdistilleries continue to proliferate, it’s left many questioning whether the model is sustainable at scale.
Research from the Australian Distillers Association shows that 88 per cent of distillers employ fewer than 20 people, while many others report difficulties reinvesting profits or attracting foreign investment as tax liabilities chew into their operating margins.
To that end, scaling production beyond the remission limit often proves unviable.
James Young is the distiller behind Old Young’s: one of the state’s best-known mid-sized gin and vodka brands.
He believes the excise cap has unwittingly propped up a cottage industry.
“The settings that the government has put in place, ostensibly to help the industry, are, in fact, incredibly destructive,” Mr Young told Business News.
“There is a ridiculous and artificial ceiling to growth that was created by a well-meaning incentive.”
Mr Young said the tax remission was effectively choking mid-sized distillers, and that there was little incentive for emerging players to grow.
“I think that the valley of death right now is having between eight and forty staff,” he said.
“It’s a really wide chasm … there’s a giant, uncompetitive area in the middle [of the industry].
“You’re either a small producer who’s not paying tax, or you’re big and you’ve got your costs down to bugger-all with international money behind you.
“I was at the Australian Distillers Conference in February and the conversation wasn’t about who’s thriving, it was about who’s surviving.”
James Young is planning to build a $30 million ‘Cathedral of Gin’ to bring day trippers to the Swan Valley.
Photo: Old Young’s Distillery
Rum-bellion
Many distillers argue that, while tax remission is a necessary lifeline, broader structural reforms such as freezing the biannual excise hikes and rethinking the taxation model
Distillers are also looking to establish a new peak body, to be called Spirits Australia, to drive innovation and champion regulation across the industry.
The Australian Distillers Association wants Spirits Australia to mirror the existing wine watchdog; an organisation Mr Young considers to be a driving force behind wine’s success in the international market.
“The Australian wine industry didn’t have to say French wine is bad,” Mr Young said.
“All they had to say is, ‘how come you’re not drinking Australian?’
“Nowadays, close to ninety per cent of the wine consumed in Australia is made in Australia.
“That is the opportunity we have for Australian spirits.”
ADA president Holly Klintworth told distillers in January that a document known as the Spirits Export Accelerator Strategy would provide the scaffolding for a future spirits watchdog.
“We will continue to advocate for conditions that allow our Australian spirits industry to thrive,” Ms Klintworth said.
“[We want to] encourage small distilleries to grow beyond the remission threshold and further support medium and large distilleries in their growth aspirations.
“We know that with targeted and coordinated support, we can provide the conditions for all Australian distillers to grow and thrive, whether they export or not.”
Ms Klintworth’s vision for the new distillation body includes a broad remit of initiatives.
She wants it to offer upskilling tools for Australian distillers, provide trade promotion resources to build the brand abroad, and implement measures that protect the integrity of Australian spirits.
The association is also lobbying for an export tax credit to help get Australian spirits into international markets.
Closer to home, ADA chief executive Paul McLeay believes the industry has what it takes to become an economic success story.
“There is enormous potential for Australian distillers to create jobs, exports and attract foreign investment to rival Australia’s proud wine industry,” Mr McLeay said.
“But we need the right policy settings.
“There are so many exciting, innovative spirits distillers popping up across the country, but their businesses need relief from these automatic, inflation-linked tax hikes.”
Opportunity
Australia’s spirits export market is currently a modest $210 million; a stark contrast to the $2.4 billion wine industry.
According to modelling by research firm Mandala, if regulatory barriers were eased, Australia’s spirits exports could reach $1 billion by 2035.
Distillers argue that the key ingredients for export success are already in place, but they are running a race against competitors from Ireland, Japan and Mexico, all of which operate under more favourable tax regimes.
They believe Australia’s global reputation for quality (fuelled by a brand of clean and green production), a proximity to fast-growing Asian markets, and a strong local tourism and food culture dovetails with what the overseas market is looking for.
Greg Holland, chief executive of Spirits & Cocktails Australia, argues that it’s impossible to build a globally competitive export sector while paying a tax rate five times higher than that applied to wine.
“While [the government’s] flagship policy is currently devoted to unlocking opportunities in green energy, we know that the spirits manufacturing sector can help deliver on its ambitions for export growth and job creation,” Mr Holland said.
“Ours is a manufacturing sector that exists here already. It won’t take decades and billions of dollars for us to achieve our potential.”
Mr Young believes the Australian spirits industry can find its feet and grow into an internationally renowned brand.
“Hundreds of millions of dollars are spent on spirits in Australia every year,” Mr Young said of current demand.
“There are just some really dumb settings that are making it much harder than it should be [for businesses to grow].”
For WA distillers and their counterparts nationwide the next few years will be critical.
Without reform, many fear a slow fade into a boutique industry servicing only domestic tourism, ensuring the excise remains less a tax on luxury and more a tax on ambition.
With the right levers pulled, however, they see a future where Australian gins, vodkas and whiskys sit alongside the great spirits of Ireland, Scotland and Japan.
As the industry sees it, they have all the ingredients they need to spotlight Australian spirits.
They just want the government to help them pour.
