LIBERAL BUDGET BEER TAX
Overreach upsets everyone: Ivison
It was widely noted that Bill Morneau’s spring budget imposed a two per cent hike in beer taxes, adding 5¢ to a case of 24 bottles.
Less widely noticed was that prices will increase on beer, wine and spirits every year thereafter at the rate of inflation.
Let that sink in.
The budget implementation bill, currently at committee in the House of Commons, contains an escalator provision that will increase taxes in perpetuity, without the need for the finance minister to table those increases in Parliament.
From the government’s perspective, it’s pretty sweet — you take a one-time reputational hit but reap the rewards forever. The Finance Department anticipates it will take in an additional $470 million in excise duties over the next five years, thanks to the two per cent escalator.
The suspicion is that, having gotten away with it once, Morneau will repeat the tactic on other goods in the next budget. The budget bill also includes a section that calls for the “modernization” of service fees, which will increase charges annually in line with inflation. The finance committee is set to wave through this provision, even though it has not been provided with a list of services covered by the new increase.
Parliamentary veterans have never seen the like — the last time an escalator tax was used on excise was under Pierre Trudeau.
Wayne Easter, the Liberal finance committee chair, was first elected in 1993. When the escalator was discussed with finance officials at committee, he was blunt in his disapproval about the idea of decisions being taken out of ministerial hands and placed in those of the bureaucracy.
“I come from a time when ministers needed to make those decisions and accept responsibility,” he said.
In this case, there are some substantive objections to the practice. Finance officials admitted to the committee they did not analyze the economic impact the escalator might have on the beer industry.
Dan Albas, the deputy Conservative finance critic, said the beer, wine and spirits tax feels rushed.
“When their health and dental benefits tax proposal got thrown under the bus, they quickly needed new sources of revenue. They’ve gone after what seem to be thriving businesses, but this could devastate the industry,” he said. Beer Canada, the industry lobby group, points out that beer’s share of total beverage alcohol sales has declined to 41.5 per cent in 2016 from 48 per cent in 2006. Given this is an industry that supports 163,000 full-time equivalent jobs, it would have been prudent to look closely at the impact of tying excise duties to an escalator that takes no account of regional or sectoral circumstances.
“I can tell you with confidence, no one in the domestic beverage alcohol industry agrees with Finance Canada’s forecast that the government can anticipate the status quo, while it takes an additional half billion dollars in tax out of productive use,” said Luke Harford, president of Beer Canada.
The tax hike has also raised the ire of the European Union, which is complaining that the increase in duty for imported wines will see the commercial advantage for duty-exempt 100 per cent Canadian wines grow every year under the escalator clause.
“The EU requests that such increases are not implemented,” it said in a submission last week.
The Americans, who have already launched a trade action against Canada over what they claim is discrimination in favour of B.C. wine, will also be unhappy — with predictable consequences.
There are good practical reasons to criticize to this tax.
But it is the principle that is most objectionable: the severing of the link between increases in taxation and ministerial accountability.
The beer tax is not yet a done deal. The Senate could still ride to the rescue, which is not a phrase that trips off the tongue lightly.
The independent senators, in combination with former Liberals and Conservatives in the red chamber, have already shown themselves willing to amend budget bills. Last December, Morneau was forced to remove changes to the Bank Act from his 2016 budget bill
THE EU REQUESTS THAT SUCH INCREASES ARE NOT IMPLEMENTED.
that were opposed by some senators, despite the government’s representative in the Senate, Peter Harder, calling it “an over-reach of the Senate’s role in parliamentary democracy.”
The Liberals in the House have tried to anticipate trouble by amending their own budget bill at committee to address concerns about the independence of the Parliamentary Budget Officer.
But the newly emancipated denizens of the upper chamber are looking for an excuse to flex their muscles.
Some senators have already talked about splitting the new infrastructure bank proposal from the omnibus bill, to allow more time to consider its design.
Others are upset at the beer tax and the idea of rolling increases that will make many businesses hostages to the rate of inflation.
The result could be the budget being put on ice — and Parliament sitting into the sweltering heat of July to resolve the issue.