Canada: Perpetual beer-tax hikes not helping Canada’s economy to recover

As with all businesses, the past 10 months have proven to be anything but normal for Canadian brewing companies. As the first wave of lockdowns took hold, brewing companies were figuring out how to manage millions of dollars of untapped keg beer that was being returned by restaurants and bars, TheSpec.com reported on February 14.

Unlike spirits and wine, beer is perishable. Most beer does not get better with age. If a keg goes untapped for too long, it is recommended the contents be disposed of, rather than go into anyone’s mug.

Thankfully, many brewers had another option. They donated the alcohol in the kegged beer for use in the production of sanitizers to address shortages and help those fighting the pandemic on the front lines in the early days. When Canada needed resourcefulness, brewers were ready to contribute.

In the subsequent months, beer companies have had to respond to market changes that in normal times would occur over many years. Seemingly overnight, the market went from one where restaurants and bars accounted for nearly 30 per cent of all beer sales to a market where beer was increasingly being sold in cans for consumption at home.

As a result, brewers quickly saw a tightening of the can supply to the point where the cost of cans increased, and some had to pick and choose which beer brands to package and which ones to keep in the tanks. There are no signs of the situation improving anytime soon.

There are over 1,000 bricks-and-mortar brewing facilities across Canada, which produce 85 per cent of all beer sold in the country. Brewers directly support 15,000 good-paying jobs — many of which in the major breweries are unionized. Overall, the sale of beer supports 149,000 jobs across a long supply chain that extends all the way back to Canadian farmers. COVID-19 has shown the importance of having domestic production capacity, and at minimum governments should avoid harming domestic industries that are fully invested in Canada.

But as the nation emerges from COVID-19, the federal government is not making it easy for breweries and other businesses to do their part to contribute to Canada’s economic recovery. These difficulties stem from a rigid and inflexible tax mechanism introduced in 2017 by then-finance minister Bill Morneau. It automatically increases beer taxes by the rate of inflation, without a vote in Parliament, on April 1 of every year … forever.

Raising input costs for businesses is no way to help them recover from a pandemic, yet that is what the government will be doing by going ahead with another hidden beer-tax increase on this upcoming April 1.

If the government wants to increase taxes on Canadian beer drinkers and raise costs for restaurants and customers through higher beer prices, they should not hide behind brewers. It is why the industry is asking Finance Minister Chrystia Freeland to freeze the next beer-tax increase scheduled for April 1 to support the recovery of businesses that depend on beer sales.

All the new costs the government plans to layer on brewers in the coming years, including the automatic beer tax increases, come at a time when Canada’s neighbour to the south has decided to keep a reduced rate for beer taxes that was set to expire at the end of 2020.

For perspective, in 2021 Moosehead Breweries expects to remit more than double the amount of federal beer tax compared to a brewer of similar size in the U.S. This is a gap that will continue to widen as long as the federal government thinks it a good idea to increase beer taxes year after year.

Founded in 1867, the same year as Canada, Moosehead over several generations has grown along with the country, sharing in its challenges and opportunities. Over the last 154 years Moosehead has survived two world wars, the Halifax Explosion, Prohibition and 1918 global pandemic, Moosehead, like all of Canada, will rise after COVID.

But if the federal government wants to build back better and is serious about positioning Canada as a place where businesses have incentive to invest and grow and ensure they can compete globally, it can start with ending an unfair tax on an industry that is fully committed to Canada and determined to contribute to its future success.

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