Winemakers have hailed tax changes in last night's Federal Budget that will go some way towards stopping the flood of cheap wine into the Australian market.

The government has introduced measures to stop wine producers 'gaming' a rebate system originally intended to provide assistance to rural and regional producers.

Under the Wine Equalisation Tax (WET), wine is taxed at 29 per cent of its wholesale value, and a tax rebate of up to $500,000 is available to wholesalers.

Under the changes, the rebate will be cut from $500,000 to $350,000 from July 1, 2017, and down to $290,000 the following year.

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Eligibility rules will also be tightened. Wine producers wanting to claim the rebate will have to own a winery or have a long-term lease on one, and sell packaged, branded wine domestically.

The government says the changes will "better target assistance and reduce distortions in the wine industry".

"The wine industry has called for reform of the WET rebate based on their concern it has moved beyond the original intent and is being gamed by some to the detriment of the wine industry," Assistant Treasurer Kelly O'Dwyer said.

The Winemakers Federation of Australia has long called for reform of the WET, and a recent Senate inquiry heard how the system was being rorted by wine cellar door operators and growers who went into wine making so they could claim the rebate.

Tony Battaglene, acting chief executive of the Winemakers' Federation of Australia, said many such operators ran online-only businesses. He said the WFA had been trying for two years to have the WET rebate fixed.

"A lot of people have been accessing the WET rebate where it was not originally targeted, and that's where the bulk of unbranded wine comes from," he told news.com.au. "The rebate was intended to help cellar door, regional producers."

He said the rebate structure had also incentivised producers to rort the system by creating artificial business structures to claim the $500,000 more than once.

"They will trade in bulk wine [up to the limit] and claim the rebate, and have another business packaging wine from the same vineyard of processing plant," he said.

Changes to the WET rebate are expected to save the budget $250 million over the next four years. The government will also provide $50 million to the Australian Grape and Wine Authority to promote wine tourism within Australia and Australian wine overseas.

The Foundation for Alcohol Research and Education, which has long lobbied for higher taxes on cheap wine, says the Budget changes don't go far enough.

FARE chief executive Michael Thorn said that by failing to address the manner in which wine is taxed, the government had passed up a golden opportunity to create a fairer tax system, better able to address the social cost of alcohol.

"The government is tinkering around the edges and pandering to the wine industry with its changes to the wine rebate, when what is needed is changes to the wine tax system," he said.

"Ten government reviews have called for the introduction of a volumetric tax on wine which would bring it into line with beer and spirits. Such a change would not only result in increased revenue, but would also save lives."

The current taxation system for alcohol in Australia is highly complex, with a range of various tax rates applicable to alcoholic beverages across 16 different excise categories.

Wine is unusual in that it is taxed by wholesale value, compared with beer and sprits which are taxed based on their alcohol content. In other words, the cheaper the wine, the less tax is paid.

According to the Australia Institute, cheap wine attracts just $3 in tax per litre of alcohol content. Bottled beer pays 10 times more at $35, while spirits are taxed at $80 per litre.

"Australia's taxation treatment of wine encourages bulk production of the lowest quality wine," it said in a report last year.

"This has placed downward pressure on the price of wine, and led to stagnation of the price compared to CPI. Cheap cask wine at retail is cheaper than the excise on beer, per standard drink."

The think tank said a volumetric tax would work to increase the cost of the cheapest wines, while having a positive effect on super-premium wines.

"By removing the privileged treatment of wine, the government could receive increased revenues in the order of $1 billion each year," the report said.

"This revenue is presently lost under the WET, and is in effect a subsidy to the wine industry, encouraging production of low quality grapes in hot, irrigation intensive regions."

Market research firm IBISWorld says bulk wine producers would see their profit margins decline if a flat volumetric tax on alcohol was introduced.

Those producers, who supply the big alcohol companies and supermarkets, would see their excise burdens increase significantly if cheap wine was taxed at the same rate as premium wines with similar alcohol content.

Beer and spirits are taxed on an excise system, with rates of taxation varying by the type and strength of the product, but all wine and traditional cider is taxed based on its wholesale value.

"An equal 10 per cent increase in tax across all alcoholic beverages, combined with a shift to tax wine on a volumetric basis, would result in a decline in total alcohol consumption of 9.4 per cent, and raise $2.9 billion dollars annually," said IBISWorld senior industry analyst Andrew Ledovskikh.