The number-crunchers in the federal Department of Finance are well on their way to drafting the next federal budget. Our goal? For decision-makers to put excise reform on the table.
The current excise schedule was established 17 years ago, dating back to 2006. Back then there were 40-50 craft breweries, and none were anywhere near producing the current top-tier excise level of 75,000 HL per year. Now, our industry has flourished to over 1,200 craft breweries with 20 approaching or well above the 75,000 HL level. A quietly introduced change to the Excise Act in the 2017 budget tied the excise tax rates to inflation, dubbed the “escalator tax.” This means that on April 1, excise duties are expected to increase around 6.3%.
The US, meanwhile, reformed their excise rates and are now half of what Canadian breweries pay: 16 cents per litre versus our 34 cents. To put it in context, a brewery operating at 25,000 HL per year would pay $410,000 in Canada versus $205,000 in the US. Starting April 1, add $25,000 to the Canadian bill. It’s also a barrier for growth for our smaller brewers. At 2,000 HL, for example, the increase will be an extra $440. For a brewery producing 500,000 HL per year, that’s an additional $1,000,000. No wonder Beer Canada has been heavily making their case, using Canada’s iconic Bob and Doug McKenzie in their pitch to freeze the escalator tax.
We are well overdue for an overhaul. A freeze on the escalator tax simply doesn’t go far enough.
That’s why we responded to the government’s request for concrete numbers by partnering with our larger brewery members who are also part of the Coalition of Canadian Independent Craft Brewers. Together, we worked with MNP to do the first ever Canadian Craft Beer Economic Impact Study. That study outlined major barriers to growth and included a proposal to reform the uncompetitive excise tax schedule. We built a business case to illustrate how that reformed tax schedule could be close to revenue neutral for government, comply with international trade agreements, create new jobs, and increase investment in Canada’s craft brewing industry.
We delivered our pre-budget submission mid-February, found here. It proposes a reformed excise tax schedule that favours small breweries under 5,000 HL, providing savings of 21%. We also proposed the top tier increase from 75,000 HL, that more tax brackets be added, and that the excise rates be increased for breweries over 500,000 HL.
We expect the federal budget to be released at the end of March or early April. During this critical period, we are continuing to reach out to ensure our business case is heard by the Department of Finance, the Finance Minister’s office and MPs on the Finance Committee, the Prime Minister’s Office, and members of the Craft Beer Caucus.
Our goal is for government says yes to excise tax reform. If that happens, there will be lots of opportunity to provide additional input and deeper number-crunching for us to get the best possible deal for Canada’s independent craft brewers. Who knows? Whatever we land on may be around for another 17 years.
Christine Comeau
Executive Director, CCBA
Cheers to beers,
Christine
Executive Director, Canadian Craft Brewers Association