Thank you.
My comments will be very brief and reflect what's in the formal submission.
Thank you, Mr. Chairman and members of the committee, for the invitation to appear here today.
In 2017, the domestic brewing industry employed 14,800 Canadians and paid $1 billion in wages. It also made 85% of the beer purchased by Canada's 10 million beer drinkers. Today, on average, the cost of a case of beer in Canada is 47% tax. Half the cost of beer is beer-specific tax.
In 2017, the federal government implemented legislation that raises the tax on beer automatically every year by the rate of inflation. The members of Beer Canada have been urging the government to repeal this automatic approach and replace it with a process that is sensitive to changes in the economy, a process that considers the circumstances of the brewer and the beer drinker.
In Canada, we have natural advantages in brewing beer: a large supply of fresh water, locally grown malt and barley that the federal government itself is investing in, and even locally grown hops, which are now making a return. These are the essential ingredients in beer. The fact that we can source them locally is a natural competitive advantage.
Beer generates a lot of tax revenue for governments in Canada. The federal excise tax remitted by Canadian brewers alone last year was $572 million. Adding in sales taxes, payroll taxes, corporate taxes, property taxes, and licensing fees, along with provincial liquor board markups, the sale of beer generated $5.7 billion in tax last year, according to a Conference Board of Canada report published in January. This represents a significant tax tab, ultimately shouldered by the Canadian beer drinker.
Since 2010, provincial governments have increased beer taxes 45 times, making beer less and less affordable with each increase. There are lots of changes taking place in the beer space, but high taxes are not helping brewers meet today's challenges. Per capita beer sales since 2010 have declined by 8.6%. The 2% increase to the federal excise duty announced in 2017 was a surprise, but it is the legislation to increase the duty rates every year that concerns brewers the most. Left as is, this tax mechanism will run in the background, eroding the competitiveness of Canadian beer with no process for considering market conditions or changing economic circumstances.
In our submission, we highlight several circumstances that have changed since the government's new tax policy was introduced.
The hot, dry summer has affected the quality and quantity of malt and barley coming from farms in Canada, the U.S., and Europe. This has pushed up the price of malt and barley, and upward pressure is expected to get worse in 2019.
The U.S. has imposed tariffs on Canadian aluminum, and Canada has retaliated with tariffs on aluminum cans made in America. Brewers are facing a tariff-on-tariff situation that is adding millions in cost to their companies. All the 473-millilitre cans used by Canadian brewers, especially popular among small brewers, are sourced from the United States.
In August, Statistics Canada reported that the annual inflation rate was running at 3%. That is 50% higher than the rate the government assumed when it modelled the revenue it would generate from its new policy on beer in budget 2017. The U.S. reduced federal beer taxes for American brewers as part of its Tax Cuts and Jobs Act. This rollback will benefit beer drinkers in the U.S., and it will make American brewers stronger and more competitive in export markets like Canada.
These are just a few examples of the economic variables that have changed since the government legislated automatic annual tax increases on beer. Tax policy needs to be sensitive to what is going on in the economy, sensitive to the things that are affecting the wallets of consumers and the business plans of producers. Legislating automatic annual tax increases is not the way to ensure Canada's competitiveness.
On behalf of Canada's brewers, I ask that the committee recommend repealing the annual inflation adjustment legislation set to increase the tax on beer every April 1. The specific sections are in our formal submission. In place of automatic annual tax hikes linked to inflation, I ask that the committee recommend that the federal government return to reviewing excise rates from time to time, taking inflation into account as a guide and proposing future tax increases to Canadians.
Thank you very much for your time. I would be glad to take any questions.