Trouble ahead in Canada's beer economy as 'escalator' tax takes hold

Ifbeer commercials areanything to go by in Canada, having acold oneis just as mucha staple as watching hockey.

But according to new figures released this week by a brewers' association, Canada's once-booming beer economy is facinggrowing challenges as consumersdown a glassof beer that the industry says is "already half empty."

Beer Canada says almost half of what consumerspay right nowfor the average price of beeris tax, and as the federal tax on beerincreases annually starting next April, consumers will have to pay even more for their suds.

The federal tax on domesticand imported beer rose bytwo per cent last year as part of the 2017budget. It will continue to increase every year in line with inflation starting thisApril.

"The federal tax on beer right now is $31.84 per hectolitre, and it will increase to $32.32 per hectolitre, and this will drive up liquor board markups, PST and GST," said Beer Canada spokesperson Brittany Moorcroft. The scheduled 2018 "escalator" tax amounts to a1.51 per cent increase.

Beer Canada, which represents the brewers thataccount for 90 per cent of the beer made in Canada, has launched a campaignthis week asking consumers to sign a petition calling on Finance Minister Bill Morneautoscrap the tax increase.

"Imagine being stuck on an escalator going up and up and up, and you cannot get off, and you cannot make it stop that's what beer lovers in Canada are facing with this escalator tax," said Beer Canada chair George Croft.

The group says tax on beer in Canada is already among the highest in the world.

Canada rankedthird of 28 countriesfor taxing beerin 2012, according the market researchfirm Impact Databank.

Drinking less

The question of taxescomes at a time when Canadians are already drinking less beer than they used to.

Beer consumption per capita has fallen by 10 per cent over the past decade, according a new study released by the Conference Board of Canada.

A number of factors such as demographic changes, more competition fromother alcoholic and non-alcoholic beverages andrising prices have contributed to the decline, the study suggests.

But even with a declining consumer base, the beer industry contributed $13.6 billion to Canada's economy in 2016, the study showed.

"No matter where Canadians buy beer, they support jobs across the country in a wide range of industries, including accommodation and food services, wholesale and retail trade, transportation and agriculture," saidPedro Antunes, economist at the Conference Board of Canada.

The study also found that:

• Beer is still the most popular alcoholic beverage in Canada, making up over 41per cent of alcohol sales.
• Beer supported nearly 149,000 jobs, generatinglabour income of about $5.3 billion.
• Almost 85 per cent of beer sales in Canada were from a local brewery.

Revenue generator

For federal, provincial and municipal governments, the beer industry generated $5.7 billion in tax and other revenues in 2016, according to the study.

Defending the move to increase the tax, Finance Ministry spokeswoman Chloe Luciani-Girouardtold Reuters that small brewers pay decreased rates on the first 7.5 million litres of beer.

"It's worth remembering that the last effective increase to the federal excise tax was over 30 years ago," she said, adding that the annual inflationary adjustment would provide brewers withgreater certainty in the future and is in line with actions taken by many provinces.

Provincial taxes on beer have increased by 58 per cent in Quebec since 2012, 18 per cent in Ontario and 28 per cent in Alberta, according to Beer Canada.

Employment

But Luke Harford, president of Beer Canada, said brewers are telling him that higher taxes will make it harder for them to sell beer and make it less likely for them to invest in their people, plants and community.

"We want to hold on to the big economic footprint that we have in this country, because it employs a lot of people," he said, referring to the market share that local brewers hold over importers.

"There aren't that many food industries that could say that 85 per centof what is sold in Canada is actually made in Canada. But, because of higher taxation, they [brewers] will have less resources to put toward that," he added.