But Young said the scheme allowed small distillers to undercut prices by up to $30 a bottle.

“This situation poses an existential threat for medium-sized distillers, especially in the current economic environment where consumers are extremely price sensitive,” he said.

Young’s submission was signed by a group of mid-tier distillers including Patient Wolf Distilling Co. founder Dave Irwin and Manly Spirits Co. chief executive David Whittaker.

Irwin said he backed the remission scheme, but said it was a barrier to growth because it left mid-sized distilleries less price competitive against smaller manufacturers.

The Melbourne-based gin distillery produces about 90,000 bottles a year and employs five people, down from 12 employees last year.

“If I had the choice of staying below the remission threshold and not taking on the considerable risk the never-ending excise hikes has created, I would have stayed under and put our efforts elsewhere,” he said.

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Whittaker said the scheme created a disincentive for distilleries to grow beyond the point where sales match the excise remission.

“Any sales beyond the remission cap are subject to full excise and significantly reduced margins.”

He said the tax breaks also impeded the growth of mid-sized distilleries, including his Sydney-based distillery, and made it more difficult to attract investment.

“The natural equilibrium for many of the new distilleries is to run their businesses to stay below the excise cap running in limited local distribution and markets,” he said.

Distillers are also concerned about the high rates of excise on spirits eating into profit margins.

“Australia has the third-highest spirits excise rate in the world,” Whittaker said. “Spirits are taxed significantly higher than beer and wine in Australia.”

The distilling industry also wants the federal government to beef up labelling laws to prevent misleading product descriptions and implement blockchain technology to reduce the illicit trade of spirits.

Young said he wanted the scheme changed to reduce the tax rebate to weed out “market entrants such as pub groups that never intended to distil, but were lured by a $350,000 windfall”.

“The allure to operate a still purely to game the excise remission would therefore be diminished,” he said.

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