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 [1], agreed. On March 28th therefore I
drafted a cable which I showed to the High Commissioner [2] 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 [3] 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