Press pause on alcohol tax hike
The proposed federal alcohol tax hike, may be “only pennies a bottle” but it will have a devastating impact on hard working Canadians running local businesses.
That’s because too many brewers and licensed bars and restaurants in Canada are still struggling after the pandemic lockdown. A survey of Restaurants Canada members done in January found that 33 per cent of licensed restaurants are operating at a loss, while 14 per cent are just breaking even. This is up from seven per cent and six per cent respectively prior to the pandemic.
That’s a massive increase and a warning signal governments should be paying close attention to.
Hoping for brighter days around the corner, many of these local businesses took on significant new debt to keep their doors open through the worst of the COVID-19 pandemic. In fact, 75 per cent of licensed restaurants remain in pandemic-related debt.
As these businesses reopened, they were confronted with increases in key operating costs not seen in decades, quickly followed by higher interest rates — a double whammy making their recovery even more challenging.
One in four independent table-service restaurants report their business is not expected to recover unless current conditions improve soon.
The other reality is that beverage alcohol taxes in Canada are already among the highest in the world. We recognize and appreciate that taxes are essential to fund the essential services we expect from government. That’s why we are asking for a temporary freeze to alcohol tax hikes and not a cut or a handout.
The impact of successive increases in federal alcohol taxes each year contributed to the largest drop in beverage alcohol sales volumes in over a decade last year.
Federal and provincial alcohol tax revenues, however, continued to rise reaching $13.6 billion, accounting for a staggering 64 per cent of the price paid by consumers.
Given that the formula used to increase federal alcohol taxes is based on inflation, we are now faced with a 6.3 per cent increase effective April 1. This will be the largest alcohol tax increase imposed on Canadians in 40 years.
Prices and costs have climbed faster than the market can bear, and we need some breathing space. Out-of-home beer sales in pubs, restaurants, sporting venues and festivals, for example, remain 25 per cent to 30 per cent below pre-pandemic levels.
The tradition in Canada is that commodity tax hikes are brought forward for a debate and vote in the legislature prior to implementation. Automatic legislated annual increases bypass this corner stone of democracy. Tying the annual tax increase to CPI is especially damaging in a period of peak inflation. Higher taxes push up retail prices which adds to inflation. The Bank of Canada’s response to elevated inflation is to raise interest rates. This is a vicious cycle that must be stopped before it becomes entrenched.
In talking to individual members of Parliament across all parties, we know there is strong support for a freeze on alcohol taxes. The influential House of Commons Standing Committee on Finance recommended a freeze on federal beer, wine, and spirit excise duties at 2022 rates for fiscal years 2023 and 2024, and until inflation returns to the Bank of Canada’s one to three per cent target range” in their March 2023 prebudget report “Responding to the challenges of our time.”
We don’t want to see the government take the risk of allowing the increase and dealing with the negative consequences afterwards. The smarter move is to be proactive. To avoid making a difficult circumstance worse.
The best solution is to freeze alcohol taxes until inflation normalizes and we return to a healthier business climate.