Alcohol taxes are going up, that is certain

Tucked away in a remote corner of the Budget Implementation Act (BIA) was a surprising new tax on alcohol. As Canadians, we’ve come to accept our sin taxes as dutiful penance for universal health care, and probably rightly so. If we are going to drink or smoke ourselves into a critical care unit, there’s general agreement there should be some upfront payment into the healthcare system through the purchase of those things with which we are slowly doing ourselves in.

However, a recent new measure to raise taxes on alcohol raised eyebrows across party lines and in the Senate. Finance Minister Bill Morneau’s budget bill included a 2 percent increase in the excise duty applied to the cost of wine, beer, and spirits. That may not seem like a big deal, but here’s the kicker, it will automatically increase every year based on the rate of inflation, starting in 2018. Forever.

The government says the cost will be minimal, only a penny on a litre of wine, seven cents for a 750-millilitre bottle of hooch, and five cents more for a 24 of beer. But, that’s just the start, the Senators also noticed when provincial markups and HST are applied on top of the excise duty, the price of beer will actually increase by roughly 12 cents, with the added benefit of never-ending, guaranteed, built-in hikes. All this without any need for the finance minister to bother going back to Parliament.

When this bill hit the Upper Chamber, many Senators thought this was a terrible idea. At a time when many independent breweries and distilleries are trying to build a base, the federal government imposing a never-ending tax hike on their product seems, well, a little counterintuitive. Add to this the fact the Department of Finance admitted it didn’t do any analysis of the impact of the escalator and you have some rather poorly received legislation.

In addition, for some reason, nobody in the Department of Finance felt the need to talk to Spirits Canada, Beer Canada, the Canadian Vintners Association or any other group whose member’s livelihoods depends, at least tangentially, on the cost of liquor. Speaking to stakeholders might have been a reasonable place to start.

Supporters are saying it provides ‘certainty’ around increases. This, however, is not a particularly convincing argument especially given there is no economic analysis, no industry input, no market condition forecasts, and all other industrial factors are essentially ignored. The only thing ‘certain’ is taxes are going up.

Some of the ‘independent’ Senators put up a short lived fight, threatening to split this piece out of the legislation, however pushback from the government shutdown the resistance and with the majority of the Upper Chamber, the Liberal appointees passed it without amendment. The job now is convincing the government of the error of its ways, which is never an easy task. Rolling back Finance Department edicts takes powerful lobbying or changes in governments.

Small business has much at stake. Excise taxes are paid by manufacturers and while there’s been some speculation about how the tax increase will affect consumer prices, it is still unclear how manufacturers will be passing these costs along or how retailers will respond. What is clear is hospitality firms and consumers can look forward to an ever-increasing cost of alcohol, without the benefit of parliamentary oversight…that is certain.