Governments are responsible for bizarre taxation outcomes. In the case of the wine industry it is utterly reprehensible.

If Australia is a New World player in the international wine trade then it needs to give its domestic wine industry a healthy taxation base from which to prosper.

In 1950 Australia had a cottage wine industry but most of the wine made was fortified and there were only seven wineries in existence in Victoria. That meant high alcohol content stuff unsuitable in a modern wine society.

By the 1970s table wines had been introduced to the traditional British lunch table by migrants with their roots in southern European cultures. Many of these migrants made their own consumption wine and didn’t buy it from shops. Many of their descendants still make their own wine today-and quite drinkable at that.

At that time half the wine made in the country was fortified but that has dropped away as more grapes were planted for lighter table wine.

Originally this wine was not taxed: it was such a small industry yielding little potential income for the government while beer and spirits were the big earners. The tax eventually came as sales tax, and stood at a few per cent.

Now that has fast-forwarded to 2010 where the domestic industry is one of the most highly taxed wine sectors in the wine producing world at 29 per cent. That’s pretty dumb if governments wish it to be sustainable-which at the present moment it is not due to self-imposed overplanting.

The Henry tax review as reported last Sunday to be contemplating a new alcohol tax scale levied on alcohol thresholds at 3.5 per cent, 5 per cent, 7 per cent, 10 per cent, 15 per cent and 22 per cent. http://www.theage.com.au/national/tax-shakeup-to-hit-beer-wine-prices-20100116-mdj1.html

Clearly this is intended to include beer and RTDs at the lower alcohol end, table wine in the middle and fortified wine at the top end. Although it is done elsewhere Australian winemakers have never had a tax incentive to make wine lower in alcohol.

That could come as a reality now.

The wine industry has always successfully argued that changing to alcohol based taxation simply wipes out regional economies in the big wine producing regions along the Murray and Darling rivers where the majority of inexpensive wine is made and most likely to be punished by alcohol based wine taxation.

That argument is now being diluted by the excess production provided by these regions, led by the inspiration of the supermarket duopoly to sell wine at AUD 2.00 per bottle.

The health lobby is not happy with this pointing at cheap wine alcohol being a major contribution towards alcohol related health costs to the Australian community.

That is true when cheap wine is less expensive than mineral water, methylated spirits or coke on a litre basis.

However if this does come into play the Pure Food Act warrants amendments so that wine now with a minimum allowed alcohol of 8 per cent can be legally made with lower levels.