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What’s Up with Excise Duties Going Up?

Is the price of your favourite beverage going up?

It’s not news at this point, but in case you hadn’t heard federal excise duties on beer are going up. And up. And up. I have been meaning to turn my attention to this issue for a while but have been distracted by other projects (more on that soon) to do any research or thinking about it. But while I am still not as boned up on excise as I would like, I have spent a bit of time digesting different things to offer some thoughts.

First, I have noticed there has not been a lot of independent analysis of this, meaning maybe my post isn’t so late after all.

So, to quickly catch you up. In the March federal budget, the Trudeau government announced a 2% increase to beer excise. Further they announced that from this point forward the excise amount will automatically increase by inflation every year, something that has become known as the “escalator tax”. Here is a story on the federal budget announcement.They also increased excise rates on wine and spirits, but that is the job of some other website.

Excise on beer is charged per litre (per HL, officially, but who’s counting?). It has six tiers based on production volume, ranging from 3.2 cents per litre for the first 2,000 HL up to 31.8 cents after 75,000 HL. For most prairie brewers (Big Rock and Great Western excepted) they are likely paying between 6 and 10 cents per litre averaged out, depending on how big they are.

At first all you heard about the change were crickets. But then in May Beer Canada, along with its equivalent organizations for wine and spirits, started raising concerns. They launched the Cork The Tax campaign earlier this month opposing the change. They are hoping to persuade the Senate to block passage of that element of the budget.

(I will leave aside the strange feeling I get when I hear people call for the UNELECTED Senate to overturn legislation passed by the ELECTED House of Commons, and just stick to the issue at hand.)

I will start my commentary by saying that I can understand why the beer industry is upset. This comes on the heels of mark-up increases in many provinces, including Alberta, Saskatchewan and Ontario, and at a time when beer sales, at least for the corporate breweries, are declining. It must feel like a death of a thousand cuts. The increase hits the value segment particularly hard.

I also understand if consumers’ first reaction is frustration. It does seem like every time we turn around taxes are going up. It isn’t true, but it can seem that way. There is a natural desire to want our beer to be as inexpensive as possible. I get that.

But, to be honest, I can’t get all that worked up over this one. Here are a few reasons why.

First, due to the tiered structure, the increase is much harder on the big boys than on craft breweries. If you are paying six cents per litre, a 2% increase amounts to .12 of a cent. That barely registers. Even for the big boys, the increase amounts to less than 5 cents for a 24-pack.

I appreciate an automatic increase is frustrating, but it is not unprecedented. Currently both Ontario and B.C. have automatic escalators to their mark-ups (B.C. to inflation, Ontario to a set amount). I respect the principle of accountability and transparency in taxation policy, but on a practical level, the Liberals are hardly breaking new ground.

Besides, once again, we are talking about small numbers. Let’s say inflation averages 2% over the next decade. The cost of that 24-pack of corporate beer will have gone up by 50 cents. Hard to get worked up over those numbers.

Mark-ups and sales taxes comprise a much bigger portion of the price of beer than excise, which is a fairly minor irritant. And don’t even start on the goofy provincial rules. In all the years I have spoken with breweries, the excise duty never comes up as a problem needing to be fixed.

I also struggle with arguments that it makes beer in Canada less competitive. The excise is applied equally to all breweries, regardless of origin. The fact the U.S. has lower excise rates is irrelevant because beer is a domestic market – consumers (for the most part) buy their beer from local liquor stores. And I am sure not going to run across the border because my favourite 24-pack now costs five cents more!

I have one final point to make. It is beer, people. Sure it is the greatest elixir there is, we all share in that knowledge. But it is discretionary, a luxury even. There is no right to cheap beer in the Charter of Rights and Freedoms. I choose to also recognize the other side. This increase is reported to raise an additional $480 million in government revenue this year. For me that is an additional half billion that can be used for health care, infrastructure, child care or any of the many important services the federal government provides (or funds). Those things are more important than whether I have to fork out a few more pennies (if they still existed) for my favourite brew.

If you are of the ideological persuasion that government spending is bad or the money will be wasted I can see that any tax increase would raise your ire. But if you believe that we all benefit from many of the things government provides, then it gives a different perspective to the excise increase.

Those are my thoughts. What are yours?

 

 

4 comments to What’s Up with Excise Duties Going Up?

  • Andrew I

    I am happy to pay taxes on liquor. It means my surgeries and hospital visits are free. Tis a wonderful trade 🙂

  • Taxation is a fact of life in Canada. We desire the quality of life, education and health we have, and that funding must come from somewhere. The only taxation that truly bothers me is taxation that stifles competition or innovation. This tax does neither from your description – so it’s just a cost of doing business.

    Happy to move along, drinking from Breweries that will pay less than than foreign multinationals.

  • AC

    If I’m not mistaken Beer Canada is run by the big 2/3, and represents their interests not necessarily those of the craft beer movement.

    Look for a National Independent Brewers Association in the near future, it was the topic of the Keynote Address at this years Canadian Brewing Awards and Conference.

    • beerguy

      The organization argues it presents the interests of the broader beer industry, and some craft breweries are involved, including being board members. Is it the BA? Not a chance. That is all I will say.

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