Canadian distillers fight automatic tax increases:
Canada’s federal government introduced an automatic, annually escalating excise tax increase on alcohol in its 2017 budget. Then, on January 1st this year, the United States lowered theirs. Canadians already pay among the highest alcohol taxes in the world and now the increasing tax burden on Canadian spirits is seriously eroding Canada’s competitiveness with the US and other international competitors.
Canada’s large and small distillers along with brewers and winemakers are opposing the federal government’s automatic escalation of alcohol excise taxes, as introduced in the 2017 federal budget. Under the terms of the escalation clause, excise taxes increase automatically every April without consultation and without discussion in Parliament. The distillers have launched an information campaign called Not On My Tab (link) to advise Canadians of the taxes they pay, and encourage them to join efforts to have the automatic escalation clause repealed.
It is not that Canada’s beverage alcohol producers oppose taxes. Rather, they believe that by relieving Members of Parliament of their role to review and approve tax rates, the government has short-circuited normal democratic processes. This change makes tax increases automatic without reference to prevailing economic conditions. Currently, those conditions are making Canadian spirits uncompetitive at home and abroad.
Taxes make up a significant portion of the price of alcoholic beverages in Canada, with spirits being taxed the most. Consumers may know they pay high taxes, but often don’t realize that when they buy a bottle of whisky, about 80% of what they pay goes to the government. Canadians pay one of the highest tax rates in the world for the simple pleasure of enjoying a drink with family and friends.
For over two centuries Canadian distillers have proudly turned Canadian grain into world-class whisky and other spirits. Canada’s nearly 200 distillers are an important economic engine for rural communities across the country, and for large and small cities in every province. Yes, whisky is an agricultural product and in Canada, 100% of the grain it is made from comes from Canadian farms.
However, spirit sales are very much price sensitive. So, the federal automatic escalator tax on beer, wine and spirits introduced in the 2017 budget threatens the 8,500 full-time jobs and $5.8 billion contribution to Canada’s annual GDP that distilling provides. With the new escalator tax, prices will increase on April 1st every year – forever.
The government tried this approach once before. In the early 1980s they introduced a similar escalator tax only to repeal it 5 years later after 11 major distilleries had closed permanently.
Reasonable taxes help support our society. However, excessive taxes harm local business owners and workers particularly in the hospitality and tourism sectors. Most bars and restaurants can’t simply pass along these tax increases to their customers. At the same time, Canadian farmers are facing difficult times. How will reducing demand from some of their best customers help Canadian barley, corn, wheat and rye farmers?
Coincident with the increase in excise duties on Canadian-made spirits, was a historic decrease of excise duties on American spirits. By this April, Canada’s excise rate for spirits will be an astonishing 85% higher than those in the United States, Canada’s largest international competitor. Canada’s tax and regulatory framework is making our distillers uncompetitive internationally, while the United States is busy creating a much more welcoming and efficient regulatory environment in which to do business.
Unfortunately, after years of growth, our international presence is declining and sales are down nearly 6% year-to-date, as companies are forced to throttle back on global promotions and new market development in the face of unreasonable tax burdens at home.
Canadians will always drink spirits, but unless we start to think longer-term, the 1980s will repeat themselves with spirits imported from abroad replacing those made here in Canada.
As a microdistiller in the throes of launching a new distillery told me this week, America is a much more welcoming environment for distillers today. He would like to launch his distillery in Canada, but right now it just makes more business sense to do so in the U.S. Pity.