Problems brewing for budget bill as senators take aim at annual alcohol tax hikes

The Liberal government's budget bill is facing sustained resistance in the Red Chamber from all sides, with a cross-partisan group of senators taking issue with provisions that would automatically raise taxes on alcohol each year in Canada.

Finance Minister Bill Morneau's budget bill includes a two per cent hike to the excise duty applied to the cost of wine, beer and spirits, and it would increase every year based on the rate of inflation. The government has said the cost to consumers will be minimal, adding only a penny to the price for a litre of wine, for example, seven cents for a 750-millilitre bottle of spirits, or five cents more for a 24-pack of beer.

But senators said this is a misrepresentation of the real costs that would be borne by consumers. When provincial mark-ups and HST are applied on top of the excise duty, the price of beer will actually increase by roughly 12 cents, with guaranteed increases each year in perpetuity without the need for the finance minister to table those increases in Parliament.

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Conservative New Brunswick Senator Percy Mockler said history suggests a modest increase to these "sin" taxes could have serious reverberations on the domestic alcohol industry, which is growing in many parts of the country with the advent of microbreweries and advances in Canadian winemaking.

'Shooting ourselves in the foot'

Former prime minister Pierre Trudeau indexed alcohol duties in the 1980s, Mockler said, and "the result was the closing of over a dozen spirits manufacturing facilities, almost exclusively because of the indexing that was taking place, with the loss of thousands of jobs and the diminished role of Canadian spirits, particularly of Canadian whisky, on the international scene."

Independent Ontario Senator Frances Lankin, one of Prime Minister Justin Trudeau's first appointments to the Senate, echoed Conservative concerns Tuesday.

"There was a major impact and downturn in the alcohol business," she said of the previous hike to excise duties. "I'm worried about the potential for a recreation of that."

Independent Quebec Senator Éric Forest, also appointed by Trudeau, said he too thinks automatically increasing duties each is year is a "bad idea."

"We will be shooting ourselves in the foot if we put small craft producers in jeopardy by forcing them to absorb these annual automatic excise duty increases. Our regions will suffer as a result," he said.

"If the government wants to increase the excise duties on alcohol, which is completely legitimate, then it should do so manually every year, in every budget. Automatic increases don't take into account the state of the economy, the situation of different sectors and macroeconomic issues."

Mockler said the prime minister should "show some leadership" and strike increases from the budget. There could also be an amendment introduced in the Senate to remove the increase from the budget entirely, which appears increasingly likely given the level of resistance.

Opposition to the excise duty comes as Independent Quebec Senator André Pratte moves to split the government's proposed infrastructure bank from the budget bill over concerns that legislation governing the $35-billion federal fund is being rammed through Parliament without adequate study.

No impact analysis on excise duty

The Department of Finance conceded it did not conduct an analysis of the impact of the escalator before it was introduced in the 2017 budget.

"No estimates were made because the effect was considered too small to have an impact," Gervais Coulombe, director of the sales tax division, recently told the Senate's finance committee.

"This admission is quite shocking," said Jan Westcott, president and CEO of Spirits Canada. "In fact, it is only after a thorough review of all impacts can one come to any conclusion as to whether the impact of these measures is small, modest or devastating. This omission demonstrates either incompetence or negligence and provides ample reason on its own to reject the automatic escalator measure."

Canadians already pay too much tax for their favourite drink.- Jan Westcott, Spirits Canada

Westcott said a tax hike would impact those who "already pay too much tax for their favourite drink," the thousands of Canadians employed in the liquor and tourism industries, and farmers growing corn, rye, barley and wheat.

Moreover, Sprits Canada, Beer Canada, and the Canadian Vintners Association weren't consulted on any tax hike.

"When the budget was tabled on March 22, we all got calls from our members who were dumbfounded by this decision," Asha Hingorani, director of government affairs at the Canadian Vintners Association, said.

Senator Peter Harder, the government's representative in the upper house, said in Senate question period Tuesday that the minimal annual inflation adjustments "will provide alcohol producers with greater certainty in the future."

"I would also point out that Canadian vintners will continue to benefit from a full exemption from the excise duty on wine produced from 100 per cent Canadian grown agricultural products."

He added while liquor industry groups were not consulted, Morneau did review with his officials the effect of the excise duty proposed in the budget bill.

Independent Senator Yuen Woo, who is sponsoring the budget bill in the Senate, defended the measure and said the escalator is intended to "maintain the effectiveness of the excise tax as prices change over time."

When alcoholic goods are manufactured in Canada, the excise duty is paid at the point of packaging, and is then generally passed along to consumers at the point of sale. According to the Public Accounts of Canada, the federal government collected about $1.6 billion in excise revenue duties on alcohol in the last fical year.