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Penfolds Grange winemaker calls for higher taxes on cheap wine

Simon Evans

Penfolds chief winemaker Peter Gago is calling for higher taxes on cheap wine.
Penfolds chief winemaker Peter Gago is calling for higher taxes on cheap wine.David Mariuz

The man who makes Australia's most famous wine, and one of its most expensive, wants to make Australians drink better wine and lift its image overseas: by taxing the cheap stuff more.

Peter Gago, the winemaker behind Penfolds Grange since 2002, says the only way the $4 billion wine industry in Australia will thrive over the long-term is to promote higher-quality wine. ​Grange sells for $785 per bottle. "Premiumisation is the future," he says. "It's undeniable".

Penfolds is one of the 80-plus brands owned by Treasury Wine Estates, the $3.4 billion wine group. Treasury Wine Estates has joined forces with Pernod Ricard, which owns Jacob's Creek and spirits Chivas Regal and Absolut vodka, to seek changes to wine taxes to shift production from cheap, commercial wine to more expensive wines.

Grange sells for $785 per bottle.
Grange sells for $785 per bottle. Cole Bennetts
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They want all wine companies to pay a fixed tax per litre of wine, which would be around $1.65 for each bottle of wine regardless of its quality or price. But they want wine tax to remain separate to excise applied to beer and spirits, which pay a higher rate of tax. Under the current system wine producers are taxed on the wholesale value of the product using a 29 per cent Wine Equalisation Tax which means cheaper wines pay less tax on a sliding scale.

Federal Treasurer Joe Hockey released a tax discussion paper earlier this year which questioned some of the anomalies in the way alcohol is taxed, suggesting the government is open to changing the system.

Gago says he supports the push to overhaul the wine tax system, and points out there are premium grapes grown by some companies in the traditional heartlands of cheaper, commercial wine in Australia such as the Riverland region in South Australia, the Swan Valley in Western Australia and in the Murrumbidgee Irrigation Area and Riverina regions of NSW.

Gago says he is a supporter of the push by Treasury and Pernod Ricard for an overhaul, but acknowledges it is a complex issue.

"There has to be a happy compromise," he says. But the tax structures need to be formulated so they shift the momentum towards the premiumisation of wine in the Australian industry.

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This year's Grange to be 100 per cent shiraz

Gago was speaking after the official opening of a new $10 million-plus cellar door and casual dining area at Penfolds' "spiritual home" of Magill Estate in the Adelaide foothills designed by architectural firm Denton Corker Marshall.

Gago says the complex is another step in trying to lift Penfolds into a global luxury brand, and this will be pushed up a notch later in 2015 when the company does the official launch of the latest version of Penfolds Grange in Shanghai in China.

He says the shift by Treasury chief executive Mike Clarke to releasing Penfolds Grange each year in October instead of May, so that it can capture more of the pre-Christmas gift-giving market, has proven a winner in sales terms.

"It was a no-brainer and all it needed was the courage , and the pen of the chief executive to sign off on it".

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Gago says Australians generally aren't comfortable with the notion of luxury brands, because of the connotations of "elitism" which doesn't sit well with the Australian ethos.

"It's not part of the Australian psyche," he says. But Penfolds is attempting to position itself in the realm of "understated luxury" to capture a similar market to the well-known luxury lodges of New Zealand such as Huka Lodge.

Gago says the 2011 Penfolds Grange to be released in October, 2015 will be 100 per cent shiraz, which is the first time in 11 years it won't have other grape varieties in it. This has happened only five other times, in 1951, 1952, 1963, 1999 and 2000.

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