Canada: Government ties hikes in beer excises to the Consumer Price Index

Beer drinkers in Canada are going to pay more to slake their thirst every year going forward now that the federal government has tied hikes in the excise tax for beer to the Consumer Price Index, The Chronicle Herald reported on March 23.

In the federal budget announced on March 22, Prime Minister Justin Trudeau’s government slapped a two-per-cent hike on the excise tax for beer, wine and liquor.

That alone is likely going to hike the cost of a case of 24 beers by about a nickel. But industry insiders say the federal government’s decision to tie future excise tax increases on beer to the Consumer Price Index, starting April 1 next year, will mean the cost of a case of beer will keep going up every year.

“It’ll be passed right on to consumers,” Matthew Stewart, an associate director with the Conference Board of Canada, said in an interview on March 23. “The consumer will pay in the form of higher beer prices.”

At Nova Scotia’s largest brewer, Oland Brewery, the financial blow of this year’s two-per-cent excise tax increase on beer is likely to be about C$375,000 per year. The brewer cranks out the equivalent of 15 million cases of a dozen every year.

“It’s a significant cost . . . when you think of Oland Brewery and how much beer we produce,” Wade Keller, a spokesman for Oland Brewery, said in an interview on March 23.

In Nova Scotia, breweries typically sell their product to the Nova Scotia Liquor Corporation, which then retails the beer to consumers. On March 23, spokespeople for Oland and the NSLC were still trying to figure out what the hike in the excise tax on beer would mean for consumers and the price they will pay for their suds.

“It’s too soon to tell,” Jennifer Gray, a spokeswoman for the NSLC, said in an interview on March 23. “We’ll have to meet with our pricing partners . . . to determine what that will mean for pricing. The supplier could choose to absorb some or we could choose to absorb some.”

Luke Harford, the president of Beer Canada, says the industry was taken completely by surprise by the Trudeau budget.

“It’s ridiculous what they’ve prepared,” Harford said in an interview on March 23. “They’ll be putting their hands in Canadians’ pockets every year without telling them about it.”

A so-called escalator clause, which ties the excise tax on beer to the CPI, is expected to bring an additional C$11.7 million into the federal government’s coffers from beer sales in the first year alone.

In the second year, that amount in new revenues is likely to grow by another C$11.9 million, to C$23.6 million, because the growth in the excise tax on beer will be applied to a growing excise tax base of C$584 million per year, said Stewart.

This isn’t the first time a Trudeau government has tried to tie the excise tax on beer to the Consumer Price Index, claims Harford.

“Trudeau Sr. introduced a similar thing in 1981 and it was repealed because of the damage it was doing to the beverage industry,” he said.

The Beer Canada president also noted on March 23 the excise tax on beer has been increased substantially in the past, by 44 per cent in 1991 and then by another 11.6 per cent in 2006.

With this year’s excise tax hike, consumers picking up a case of 24 are likely to pay even more than the extra nickel-per-case cost brewers will have to shoulder because other taxes are then applied to the price of beer.

“The excise tax floats up through all the mark-ups at the liquor board and the HST and everything,” said Harford. “It will result in higher beer prices and lower sales . . . The brewers are very disappointed. Fifty per cent of the price of beer is taxes and now they want more.”

With beer sales generally flat across the country, the president of the industry association is worried this tax hike will hurt sales and make the Canadian beer industry less competitive.

“Federal excise taxes in Canada are double what they are in the United States,” said Harford. “If they want us to compete internationally and build our businesses, taxing us is not the way to go… It’s not going to be very positive.

“It’s like death by a thousand cuts,” he said.

At the Conference Board of Canada, though, Stewart said small price increases on beer probably won’t make much of a dent in beer drinkers’ buying habits. The think tank’s studies show a one-per cent increase in the price of beer only results in a tenth of a percentage point drop in consumption.

“Beer is considered an inelastic good,” said Stewart. “People will not respond to small price increases. They will drink the same amount and cut on other things.”

24 March, 2017