Canadian Taxpayers Federation director Franco Terrazzano bought two cases of beer, two bottles of wine and two bottles of liquor for his New Year’s Eve party this year. It came out to $208, of which $113 was tax.
One small portion of that tax, the excise tax, is set to increase by 4.7 per cent on April 1. The increase is equal to average inflation between September 2022 and 2023, and has been increasing each year since 2017.
While the excise tax is relatively small for individual consumers, it has attracted considerable industry opposition. Industry representatives say alcohol taxes like the excise tax exacerbate cost-of-living challenges for consumers and threaten the viability of beleaguered food and beverage establishments.
“I am writing to express our concern regarding the upcoming above-inflation 4.7% tax increase on beer, wine, and spirits the government has scheduled to take effect on April 1, 2024,” the Canadian Chamber of Commerce wrote in a letter to Finance Minister Chrystia Freeland in December.
“We respectfully urge you to re-think this decision, considering the significant negative impact it would have on Canadian consumers and businesses throughout the beer, wine and spirits value chain, including farmers, producers, retailers, and restaurateurs.”
On a typical 750ml bottle of wine, the excise tax — which is applied based on the volume of product sold, rather than its price — is $0.52. On a 750ml bottle of spirits, it is around $3.91.
The excise tax currently adds around $3.02 to a case of 24 beers. The increase this coming year will raise that amount to $3.16, and will collectively cost Canadian consumers an additional $33 million, according to Beer Canada, an industry advocacy organization.
While the increase represents only about two-thirds of a cent of excise tax on an individual beer, Beer Canada president CJ Hélie says that’s the wrong way to think about it.
“Measuring the impact of federal excise duties by the can is like measuring the impact of food inflation by the slice of bread or by a spear of asparagus.”
Some critics also point out that excise taxes are themselves subject to tax. Since excise duties get applied at the point of production, they increase a product’s final retail price, which is then subject to sales tax.
Escalator tax
The automatic excise tax increases — which give rise to the term ‘escalator tax’ — follow Ottawa’s decision in 2017 to legislate a recurring increase that takes effect each April. Since 2017, the tax will have increased a cumulative 18.97 per cent, inclusive of this year’s increase, according to Terrazzano.
“By law, alcohol excise duty rates are adjusted on an annual basis to account for inflation. This is an existing law and not a new provision,” a Department of Finance official said in a statement.
Last year, the excise tax was scheduled to go up 6.3 per cent, based on the previous year’s inflation numbers ending in September.
“There’s not a finance minister in the world who would’ve said the solution to our depressed hospitality sector was increasing taxes by 6.3 per cent,” said Hélie. “But we were in a position that unless something proactive was done, that’s what would’ve happened.”
Beer Canada, along with other consumer and industry advocates, lobbied to fight the increase. The government eventually backed down, capping the increase that year at two per cent.
They are trying — so far to no avail — to receive the same relief this year.
“An increase of 4.7 per cent [this year] is absurd. It will push the restaurant and bar industry into a corner, by forcing higher prices for alcohol down onto consumers,” said Kelly Higginson, President of Restaurants Canada, an industry advocacy organization.
The margins on alcohol are considerably higher than for food at restaurants and bars, Hélie says. So they rely on alcohol sales, specifically beer sales to be profitable.
“Patrons already feel like they’re paying a lot for everything in the establishment. The restaurants don’t feel like they can charge more, so they’re getting squeezed at both ends,” Hélie said.
Fifty-three per cent of restaurant operators in Canada are currently operating at a loss, compared to 10 per cent pre-pandemic, according to Restaurants Canada Chief Economist Chris Elliott.
“The industry has had to increase pricing continually over the last three years but has not been able to increase prices at the pace of inflation at the risk of losing customers,” Higginson said.
“We have seen an increase in payroll taxes, minimum wages increase. The governments at all levels need to recognize they cannot continue to tax businesses out of business.”
Easy target
“Alcohol is an easy target, because it’s considered a luxury which the government would in theory like to discourage,” said Dan Malleck, a professor in the Department of Health Sciences at Brock University.
When it comes to the excise tax though, he says it’s all about generating more revenue.
Terrazano agrees. “We’re already paying more than half of the price of alcohol in taxes. So if they’re going to discourage Canadians from drinking, you’d think that huge tax bill would already have done the trick. But of course, all it’s doing is taking more money from Canadians.”
According to Beer Canada, on average, 46 per cent of the price of beer, 50 per cent of the price of wine and 65 per cent of the price of spirits in Canada is tax.
Canada has among the highest alcohol taxes in the world and highest among G7 countries, according to Beer Canada. The Department of Finance disputes this claim, but did not provide its own figures by press time.
A finance department official said in a statement that the government knows cost of living is a “real concern” for Canadians.
“That is why the government is focused on making life more affordable, for example by calling on Canada’s major grocers to stabilize grocery prices and by implementing supply-side solutions, such as affordable early learning and child care,” the official said.
The Conservative Party has launched a petition to end the escalator tax on alcohol.
“Canadians are already suffering from the inflation and cost-of-living crisis the Liberals-NDP high-tax high-spend agenda has caused,” the petition reads. “[T]his tax hike will cost Canadian consumers and businesses tens of millions of dollars at a time when the cost of everything keeps going up.”
Terrazzano says the escalator tax, like the carbon tax, is a violation of the principle ‘no taxation without representation’.
“If they think Canadians aren’t paying enough taxes, then they should at least have the spine to vote on that tax increase.”
Just another scumbag liberal tax. Western Separation Now.