For the past 150 years, enjoying a glass of wine, beer or spirits has become part of Canada’s lifestyle, culture and diet.  The value added production of beverage alcohol from farm to glass has evolved, but its linkages with gastronomy, history, tradition, origin, local quality products and social settings remain a part of everyday life for the vast majority of Canadians.

The beer, wine and spirits sector and its economic operators, make an invaluable economic, social, agricultural and environmental contribution to our nation.  Is this about to change?

Budget 2017, dubbed as “Building a Strong Middle Class” is sending a mixed message to Canadians.  On the one hand, it draws from the Prime Minister’s Advisory Council on Economic Growth, which identified Canada’s value added agri-food industry as an engine of growth, and at the same time proposes a 2% increase in the excise duty on Canada’s highest value added products –wine, beer and spirits! What is not common knowledge, is that the government is proposing in the Budget Bill to amend the Excise Act to legislate the annual indexation of wine, beer and spirits excise duty to the Canadian Price Index (CPI) effective April 1, 2018, meaning the rate is set to increase EVERY YEAR.

Budget 2017 states that excise duty rates on alcohol products have not effectively changed since the mid-1980s. This is not true, governments have increased the excise duty on at least 10 separate occasions since 1980.

The industry is concerned that over the next five years, assuming a moderate rate of 2 percent inflation, the excise rate will increase by a cumulative 11 percent. Since the excise duty is at the front of the price chain, the impact is cumulative with ad valorem liquor board markup, GST and PST adding to the consumer impact.  This will have a long-term impact on local business owners (restaurants, hotels, bars, wholesalers, etc.) and others in the value chain (servers, bartenders, delivery-truck drivers, etc.) across Canada. Further, inflation alone does not account for all issues impacting business in any given year, which will no longer be addressed without the objective review by Parliamentarians.  This inflationary approach to beverage alcohol taxes was tried unsuccessfully in the 80s and resulted in sales declines and job losses.

Beverage alcohol can move the needle on income growth and drive job creation.  We are a high potential sector that can deliver inclusive growth across the value chain, but a tax on beverage alcohol is a tax on Canadian farmers.  With import tariffs to be eliminated under CETA, the renegotiation of NAFTA, and longstanding barriers to interprovincial trade, and now an annual excise tax escalator, our future is at risk as is our ability to create jobs and spur economic growth.

The impact on Canada’s restaurant and hospitality industry will also be profound.  Restaurants are an integral part of Canada’s economy creating over 1.2 million jobs across the country.  Hospitality is Canada’s leading provider of first time jobs, employment for recent immigrants and other groups under-represented in the labour force.  It is dominated by small businesses and provides start-up opportunities for entrepreneurs.  A significant number of its jobs are derived from the sale of wine and beverage alcohol in licensed establishments. Restaurants enhance the value of these products through socially responsible customer experiences, generating hundreds of millions of dollars in revenue for the federal and provincial governments.

The business environment in Canada is much tougher than it was in the 1980s when inflationary excise duties on alcohol had to be abandoned.  Canada’s hospitality industry is already under severe strain from the pressures of rising food costs, labour costs and energy bills.  In most provinces, licensed restaurants and bars purchase their beer, wine or spirits at the same or higher price than consumers at a provincial retail store.

Restaurants operate on razor-thin margins with an average profit of 4.3%.  This is down from 8.4% in 1988 and the bar, pub, and nightclub sector of the industry has experienced the steepest decline.  Alcohol prices in Canada have reached the point of diminishing returns with stagnating sales to licensees.    The significant price increases that will result from this escalating tax will impact a broad swath of the agri-food industries and make matters worse for licensed operators, their employees, customers and visiting tourists.

By: Joyce Reynolds, Executive Vice President, Government Affairs, Restaurants Canada
Asha Hingorani, ‎Director of Government and Public Affairs at Canadian Vintners Association – ‎Canadian Vintners Association
Originally posted here, on the Hill Times on May 1st, 2017.