Thank you, Mr. Chairman and committee members.
The beverage alcohol market in Canada could well be the poster boy for the theme of this year's pre-budget consultations, Canada's place in a competitive world—a poster boy, that is, of what not to do to create a dynamic and a competitive market.
This is the spirits industry's first appearance before the committee in many years. We have not joined the legions of business interests who have extended their hands for the ever-greater, taxpayer-funded handouts and subsidies. We believe instead in the virtues of a level playing field and competition. Competence should decide relative winners and losers in a free market, not tax policy.
We indicated in our formal brief to the committee that a glass of wine, a bottle of beer, and a spirit cocktail each contains an equivalent level of alcohol. Yet the Government of Canada imposes a federal excise duty of 9¢ on a glass of wine, 11¢ on a bottle of beer, and 20¢ on a spirits cocktail. In essence, the glass of wine is afforded a 56% subsidy and beer a 47% subsidy when compared with the duty rate imposed on spirits. In other words, the federal excise duty on spirits is approximately twice the rate imposed on competing beer and wine producers.
This huge variance in relative fiscal federal burdens under the excise duty structure, including directly competing and substitutable beverage alcohol products, is the economic equivalent of a direct subsidy. This is a subsidy with the same familiar negative economic consequences, including the misallocation of resources, lowered productivity, slower growth, and a less dynamic consumer marketplace. In fact, if the federal Department of Finance had mailed out $927 million in cash to the beer and wine industries, the effect would have been the same.
Surely there are more appropriate uses of federal taxpayer money than to distort the beverage alcohol market in this manner. Of course, the problems and inequities within the beverage alcohol market in Canada aren't confined to the federal government. A number of provincial governments have even more egregious behaviours and policies.
But the federal government has a leadership role to play, and instead of being part of the solution it is actually part of the problem. Since federal excise duties are the first level of tax applied within the value chain, any discrimination is magnified by compounding taxes on taxes before reaching its ultimate end point, the Canadian adult consumer.
October 17, 2006 is an inauspicious date in the history of Canada. On that day, the House of Commons approved a ways and means motion that implemented, retroactive to July 1 this year, even further subsidies to certain wine and beer companies, thereby increasing excise duty marketplace distortions. In respect of beer, the new excise amendments provide sliding-scale relief on the first 7.5 million litres of beer packaged annually in Canada. While the additional excise duty relief for beer was originally tabled in the spring budget as a small-brewer assistant measure, and was intended to benefit only those brewers whose annual production was less than 30 million litres, this already exceedingly high cap has been eliminated and the additional assistance is now available to every brewer in Canada regardless of size or circumstances. Coincidentally, October 17 this year was also the date that Sapporo Brewery of Japan, a $4.3 billion conglomerate, formally assumed control of Sleeman Breweries.
The same ways and means motion also exempts from any excise duty all wine made from Canadian grapes and fruits. So instead of paying the already low 9¢-per-glass excise duty, a vintner can reduce that to zero if the wine is made from Canadian-sourced agricultural products. From an economic and even political perspective, we have to ask why Canadian spirits manufacturers and our farm suppliers are not given the same opportunity to avoid excise duties on our own products, most of which are made from 100% Canadian-sourced cereal grains.
The spirits industry's signature product is Canadian whiskey. Canadian whiskey brands like Crown Royal, Canadian Club, Wisers, and Schenley are iconic symbols of Canada exported around the world, yet they are severely disadvantaged in their own home market by their own federal government.
As members will be aware, there have been no beer or wine retail price reductions as a result of the excise duty relief in effect as of July 1. This won't surprise members, since this was the evidence provided to the committee by the beer and wine industries themselves. Additional excise duty relief would be pocketed by suppliers and at least in part reinvested in the marketplace to compete—to compete, that is, against spirit suppliers and grow their market shares at our expense. Lower excise duties for beer and wine provide those segments with higher gross margins, which are used to compete in the markets.
Spirit suppliers are constrained from fully competing here and abroad for our fair share of the market by artificially low prices in our home markets. If Canada wants a competitive beverage market and a prosperous beverage alcohol industry, fundamental reform of federal excise duties is urgently required.
Thank you.