6th April, 1927
PERSONAL & CONFIDENTIAL
My dear Prime Minister,
AUSTRALIAN WINES AND THE BUDGET
I regret that in my letter despatched last week I did not confirm my cablegrams on the subject of the wine duties, nor did I give you any information on the matter. I am now, however, able to give you a brief synopsis of the matter in a more complete form than would have been possible on the last mail day.
Sir Horace Hamilton, the Chairman of the Commissioners of Customs, asked me whether I could give him reliable information as to whether Australian dry wines, such as Burgundies of say 27 alcoholic strength, were fortified. He specially requested me not to sound any person in whose discretion I did not have complete confidence. After consideration, I told Sir Horace that it would be better to cable to Australia on the subject. He, after consulting the Chancellor , agreed. On March 28th therefore I drafted a cable which I showed to the High Commissioner  and with Sir Joseph's full concurrence, this was despatched to you in secret cypher, reading as follows:-
Following from McDougall-strictly confidential owing British Budget. Chairman Customs desires know whether any fortification used with Australian dry wines exported to United Kingdom. Anxious early information. States Burgoyne  says no fortification in burgundies 26 to 27 degrees but wine trade declares fortification used for such wines (stop) Believe question affects proposed change in alcoholic strength at which higher duties operative. Can you also indicate whether 25 or 26 degrees is the most suitable strength for the higher duties object obtaining for Australian sweet wines effective preference over cheap Spanish sweet wines.
On April 1st Sir Joseph received your reply, which he passed on to me, which read as follows:-
Strictly confidential. Your telegram March 29th from McDougall.
Australian dry wines exported to Great Britain are not fortified.
Burgundy 27 degrees are not fortified. No dry wine exported from Australia is fortified. Only fortified wine exported Australia to Great Britain is of strength of 34 degrees or over.
Representatives viticultural industry here suggest 26 degrees as most suitable strength for higher duty-Bruce.
I thereupon called on Sir Horace Hamilton. He was very pleased to receive so categorical a statement. He asked his two colleagues on the Customs Commission to join us and there followed a discussion in which it appeared that the Chancellor had in contemplation the idea of fixing different levels for the operation of higher duties on Empire and foreign wines, the objects being (a) to secure the largest possible revenue from the probable increase in the wine duties.
(b) to give an effective preference to Imperial sweet wines.
Sir Horace said that the Chancellor would, if he adopted this plan, desire to justify the differentiation on the grounds that the natural effect of climate and soil upon Empire wines was to produce a wine of high alcoholic content without fortification.
Sir Horace added that the Chancellor, if challenged upon this point, might desire to state that he was assured by the Commonwealth Government that Australian dry wines were not fortified. Your cable was of a categorical nature but I felt that you would desire to be advised of the action which the Chancellor might take and I therefore, with the concurrence of the High Commissioner, sent you the following cable on April 2nd:
Strictly confidential following from McDougall Your confidential cable April 1st Chairman Customs states Chancellor may under certain circumstances desire state that Commonwealth Government have assured him that Australian dry wines are not fortified (stop) Believe Chancellor considering fixing 24 or 25 degrees for higher duties on foreign wines and 26 or 27 degrees for higher duties Empire wines. He may require to justify this by reference to natural high alcoholic strength Empire wines.
Above plans advantageous Australia but consider you should be informed (stop) Took opportunity to urge that as higher duties all wines anticipated Empire preference on dry wines should be increased. Am unaware whether you discussed this point with Chancellor if not cable from you might be useful.
In explanation of the latter portion of this cable, I should mention that I received a clear indication of an intention to increase the duties on all wines and I naturally pointed out that, for the last three years, all our representations as to the desirability of a larger preference on dry wines had been met with the rejoinder that to reduce the duty of 1/6d. per gallon on Imperial dry wines would bring the duty below the excise on Beer.
I did not feel that Sir Horace was entirely sympathetic and as I do not think you told me whether you had discussed dry wines with the Chancellor, I felt it desirable to include a reference to this question in my cable.
Sir Horace Hamilton pointedly asked me if we regarded the so called British Ports as being in competition with Australian sweet wines. I replied that we had not made any representation on the matter as you had always maintained it was entirely a question for this country. Since, however, he asked the question, I could assure him that the 2,000,000 gallons of British-made sweet wines were in direct competition with Australian.
At the conclusion of the interview I mentioned that the newspapers were commenting upon a possible increase in the sugar duties. If such were in contemplation I gently suggested that other dutiable forms of foodstuffs such as raisins, might receive consideration.
Since writing the above, I have received your cable of April 6th which reads as follows:-
Strictly confidential-following for McDougall-Your cable April 1st. Assurance can be given that Australian dry wines exported to Great Britain are not fortified. Fixation 24 or 25 degrees for foreign wines and 27 degrees for Empire wines for higher duties would be of great advantage to Australian wine industry. This concession could be justified owing to high natural alcoholic strength Empire wines especially Australian. Increase in preference on Empire dry wines would materially assist Australian export. Have telegraphed Chancellor of the Exchequer as follows, begins:-
If in view of present financial position in Britain you find it necessary in connection with Budget proposals to include increased duties on wines would strongly urge desirability of maintaining proportional preference not merely monetary difference on Empire produced fortified wines and increasing preference on dry wines- Bruce.
I have informed Sir Horace Hamilton that, if the need arises, the Chancellor can give an assurance Australian dry wines are not fortified.
I hope very much indeed that the Budget will place the Australian wine trade in a more favourable position. This would, if it occurs, help the whole Murray problem and should enable South Australia to develop further vineyards in the Hills Districts.
Yours sincerely, F. L. MCDOUGALL