This brewery is not located in Alberta. Nor was it founded in 1845.

So Minhas Brewing, whom I recently took to task for their claim to be craft, seems to have earned the ire of a prominent political columnist. In the Canadian edition of the Huffington Post and in MacLean’s , David Menzies takes aim at the AGLC’s tax policy for brewers (thanks to the readers who pointed it out – see end of post). Smaller brewers pay less tax on their beer than the big boys. This is not an uncommon feature of beer tax regimes in Canada. Alberta has a four-tier system, the lowest rate for brewers who produce less than 20,000 hectolitres, a second for under 200,000 and then the full rate after that. An additional staggered rate applies to breweries not producing in Alberta.

Menzies’ focuses his ire on two aspects of the policy. First, that it has failed to produce a significant number of new breweries in Alberta. Second, that Minhas benefits from the tax break, even though at the moment all of their beer is produced in Wisconsin. He frames his position as Alberta tax dollars subsidizing jobs in Wisconsin.

Normally, Menzies and I don’t share a common opinion – our politics are quite different. However, in this case he has a point, but not necessarily the one he thinks he does. Let’s start with Minhas. I have long thought it odd that Minhas would be eligible for the lower tax rate for two reasons. First, they don’t actually brew beer in Alberta. And second, their Wisconsin brewery was in 2010 the 14th largest brewery in the U.S. It never made sense to me.

One confusion created by Menzies is his comparison of Alberta-based breweries and Minhas. The problem is that Minhas is NOT eligible for the small brewer mark-up, but they are eligible for what is called the “transition mark-up rates”. (read the whole Mark-Up Schedule here). The two small brewery rates only apply to Alberta producers. However the transition rate does not have that limitation. What is more irritating is that Minhas likely only gets that rate today because of the odd rule that eligibility is based upon volume at the time of entering Alberta, not today. I don’t know Minhas’ volumes, but I have a suspicion they are over 400,000 hectolitres. That category of mark-up feels suspiciously like the “Minhas rule”, because I can’t figure out who else would be eligible for it.

Menzies is mad that tax dollars are subsidizing jobs in Wisconsin. Fair enough. However, Minhas is about to deep-six that argument by opening up a new brewery in Calgary. But a bigger problem remains. My position is that the mark up policy is incoherent and simplistic.

I understand a lower tax rate is an important equalizer for small brewers. It addresses their lack of capacity to take advantage of economics of scale. That makes sense. But we make a mistake by isolating this one policy. What Menzies doesn’t realize is that it is the whole basket of policies around beer that have limited the growth of microbreweries. I won’t get into it all now (because I have done so before), but the combination of privatization, lack of enforcement of inducement rules, not staggering the tax rate, minimum production requirements and an inviting environment for imports are what are limiting the growth in craft beer. It is not the tax rate’s fault.

The main concern about the tax rate policy is its incoherence. What does it want to do? Does it want to create new breweries? I don’t think so. Does it want to promote employment in Alberta? It clearly doesn’t do that. What is the policy goal here? That is the problem. What we need is a tax rate designed to meet specific public interest goals. We want more beer production IN Alberta. So, the lower rate should apply only to breweries with operations in Alberta, with no odd “transition” rate. Global production volumes should count, so “off-shoring” can’t create tax benefits. The rate needs to be staggered, so that production under the threshold continues to be taxed at the lower level. Maybe the tax subsidies should be connected to employment, or percentage of sales in Alberta. Maybe they should only apply to craft breweries (although I am not sure how to operationalize that one). There are lots of options for designing a beer regulation system that can promote local production and sales of quality beer. But the Alberta government has no interest in that. Which is why Menzies is right, but for the wrong reasons.

By the way, I must note that loyal readers drew my attention to the Menzies piece. Actually in a 24 hour period, no less than 7 people independently emailed me with a link. Aside from that giving me a bit of a chuckle, it also humbled me. I am honoured that onbeer.org has readers serious enough to want to highlight things that might be of interest to me. So, I want to thank all of them for being considerate and thinking of me . And, second, I want to encourage all of you to feel free to send me links of interesting stuff. I am a busy guy and can in no way see everything that happens on the interweb. But if it is interesting to you, it might be to me as well.