The tax that arrives before the barley

There is a number Australian whisky drinkers keep meeting, whether they have gone looking for it or not. From 3 August 2026 the federal excise on spirits is $110.15 per litre of pure alcohol. On a 700ml bottle at 40 percent, that is $30.84 before GST, which is then charged on top of the tax. The Australian Taxation Office publishes the rate. The trade has spent the weeks since arguing about what it does.

The figure is worth sitting with, because it is not a margin and it is not a story. A 700ml bottle at 40 percent contains 0.28 liters of pure alcohol. Multiply by $110.15 and the excise is $30.84, whether the liquid is a three-year-old from a shed outside Hobart or a 12-year-old that has crossed an ocean. GST is then applied to a price that already includes the excise. Tax on the tax.

On an entry-level bottle, the share is brutal. Distillery King’s September working put the tax take on a $45 bottle of vodka near 70 cents in the dollar. A $90 whisky at 40 percent still carries $30.84 of excise and, on their table, about $39 all up once GST is counted. The dearer the liquid, the smaller the tax looks as a percentage. That is the wrong way around for a category trying to build exploration.

Australia already sits at the top of the global table. The Australian Distillers Association calls the rate the third-highest spirits tax in the world. Iceland and Norway still charge more. Steven Fanner, executive director of the Spirits Council of Australia, said after the August rise that the tax was “six times higher than the United States and about double that of New Zealand.” Campbell Mattinson, writing in mid-August, put the decade in one line. A decade ago the rate was around $81 per litre of alcohol. It is $110.15 now.

Steven Fanner, executive director Spirits Council of Australia

The mechanism, introduced under the Hawke government in 1983, with Paul Keating as Treasurer, is implemented with twice-yearly inflation indexation. Drinks Trade magazine noted that the recent August movement was the 79th increase since that system began. The step itself was not dramatic in isolation: from $107.99 to $110.15, a rise of $2.16, or 2 percent, adding about 60 cents of excise to a standard bottle before GST. The industry keeps saying the steps never stop, and they don't stop when the stills are quiet.

Beer was treated differently. From August 2025, the federal government froze indexation on draught beer for two years, through to August 2027. Spirits were left out. The pub can of beer and the nip beside it are no longer on the same clock. Fanner called the spirits setting a system “on auto-pilot since the early 1980s,” and said it should not be set-and-forget. “Without reform, the government risks a myriad of unintended consequences, including driving demand for cheap, black-market alternatives. We have seen what has happened with tobacco.”

The illicit market is the part of this story that has moved from industry talking point to measured problem. A KPMG study commissioned by the Department of Home Affairs put illicit alcohol at 7.5 percent of total beverage alcohol consumed in Australia, and higher again for bottled spirits. Researchers looking at bottle shops in Victoria, New South Wales and Queensland have reported suspected illicit product in a substantial share of stores visited. Victoria Police have linked the trade to attacks on licensed venues. None of that is a whisky problem in origin. It becomes a whisky problem the moment a drinker cannot tell, from the label, whether the bottle in front of them paid the same tax as the one beside it. Kylie Lethbridge, chief executive of the Australian Distillers Association, said the issue had moved past the invoice. “This is no longer just a tax issue; it is a consumer confidence issue. Every excise increase makes legitimate Australian spirits more expensive while illegal operators continue to avoid tax altogether. Criminals don’t pay excise, don’t comply with food safety standards and don’t care what ends up in the bottle.”

Kylie Lethbridge, chief executive, Australian Distillers Association

The association’s other numbers are the ones governments usually like: a distilling sector it says contributes more than $15.5 billion a year, supports more than 100,000 jobs, and draws over 630,000 distillery visits. The visits matter. A cellar door is one of the few places an Australian distiller meets the drinker without a national retailer’s margin in between, and the tax still sits in the glass. A second mechanism is the one the Australian Taxation Office moved on in August. The Alcohol Manufacturers Remission Scheme lets an eligible producer reclaim excise up to a cap, now $400,000 a year after the lift from $350,000 on 1 July 2026. To qualify, a distiller must hold a manufacturer license, ferment or distill at least 70 percent of the alcohol at the licensed premises, and be legally and economically independent of another claimant.

After the early years, a still-ownership test applies. On paper it is a sensible way to let a small producer reach a shelf without the full rate on day one. In practice the cap has a cliff, and a cliff attracts people who are not distillers. Paul White at West Wind Distillers put the cliff in bottle numbers when the cap was lower. “Basically the way the regime is set up now, if you are larger than 11,000 bottles, you’re screwed,” he told Drinks Trade magazine. “I think it’s great to support Australian distilleries, but don’t make it a cliff. You make 11,000 bottles, and then, on the next bottle you sell, you pay full excise, so you can’t grow. We’re at a size where our excise is about $22 a bottle, and we’re competing with people who pay no excise.” The cap has since moved to $400,000. The shape of the problem has not. Grow past the remission and the marginal bottle suddenly carries the full rate. Stay under it, or appear to, and the rate is zero. That is an invitation.

West Winds Distillery, WA

The ATO’s answer, welcomed by the Spirits Council and the Distillers Association, is more checking. From September, targeted reviews before a new alcohol-manufacturer license is granted, and closer looks where premises, people or specialist distillers are shared. From October, more scrutiny in the first two years, including first-year reviews of remission claims. Fanner told AAP the announcement would “help crack down on a lot of the rorting and the shonks,” and that the scheme mattered, provided only genuine distillers used it.

The next indexation is already booked. The December quarter inflation figures land, and the February 2027 rate follows. Then August again. A distiller planning a 2027 release is planning inside a tax that has not been set yet, only promised to rise. What should be done is narrower than the speeches. Freeze spirits excise for the same window already given to draught beer, and use the pause to design something that is not a cliff. A taper, not a wall, so the bottle after the remission does not suddenly cost $20 more in tax than the bottle before it. Encourage growth. Keep the ATO checks and publish, in plain language, what share of a standard bottle is excise, so the argument happens in the open rather than in a comment thread under a price.