The 2016 budget revealed the cap on the WET rebate will be lowered to $350,000 from July 1, 2017 and then to $290,000 from July 1, 2018.

The reforms will also see tougher eligibility criteria for the rebate which has been welcomed by John Cassegrain, managing director of Cassegrain Wines.

`The good point is that they really have tightened up the ability of what we call `virtual wineries` taking advantage of the WET rebate that really was designed for producers of wine, whether it be grape growers or wine makers,` he said.

It`s going to do two things: it`s going to save quite a few million dollars to the government [in] giving rebates that were not justified.

`Also, it\'s going to take out of the market a lot of wine that is undermining the price structure of the wine industry.`

Medium-sized wineries will feel impact of WET

But Mr Cassegrain said the cap reduction of the rebate would hurt medium-sized producers who were above the $290,000 rebate threshold.

`For most boutique small wineries that are typically operated by the owners and employ very few people, it has no effect on those whatsoever because they`ve never maximised the WET rebate,` he said.

`But for medium-sized companies that employ 15 or 20 people, it`s going to have a serious impact on the profitability of those businesses and the ability of those businesses to continue employing people.

`So it will have a significant impact on Cassegrain Wines and a lot of other long-term family companies, whether it be Tyrrell`s in the Hunter Valley or Brown Brothers.

`First, we`ve got to talk to the government and make sure they understand the implications of what they`ve announced.

`I think this has been done by the Department of Treasury, the Liberal Party, who are a little bit removed from regional and rural Australia and I`m hoping through the National Party we can get our voice heard.

`I guess our alternative is to more focus our growth on exports and maybe walk away from the domestic market or we reduce employees and downscale the winery.`

Scrap WET and replace with volumetric tax

He said the WET should be scrapped altogether and replaced with a sensible volumetric tax.

`If a tax is such that a government has then got to give a rebate to a certain part of the industry, then the whole tax in the first instance is wrong,` Mr Cassegrain said.

`So the whole WET tax is an ill-conceived tax and what would much better suit us is a realistic and internationally competitive tax on wine volume.

`That\'s a hard one to put forward, but I\'m sure that\'s the right way to go.

`Most of our international competitors, wine producing countries, all have a wine tax volume tax, not a tax on alcohol but volume, and I think that\'s what the WET tax should be replaced with.`

Mr Cassegrain said Australia could learn a thing or two from the New Zealand wine industry.

`Over there, they are protecting their high-end industry [and] because they haven`t got a low-end industry, it`s very easy for them,` he said.

`What it means is that their volumetric tax makes cheap Australian wine more expensive comparatively to their higher end wine.

`Australia should take a leaf out of the Kiwis` thinking in this regard.`