Canada: Contentious Alcohol Tax Escalator
The Canadian government’s budget bill is facing sustained resistance in the parliament 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 2% increase of the excise duty applied to the cost of alcohol. 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.
Most contentious issue
The most contentious issue is the automatic tax escalator linked to the rate of inflation every year. Some members of parliament have voiced their concern about it, citing fears for the alcohol trade, even though evidence shows that inflation-adjusted alcohol taxation helps protect public health and socio-economic development.
The Department of Finance conceded it had not conducted 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.
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.