Thank you, Chair Easter, and members of the committee.
Ladies and gentlemen, I'm here today representing my company, Devonian Coast Wineries, the largest winery in Atlantic Canada and the seventh-largest in Canada, as well as the Winery Association of Nova Scotia and its growers—in all, approximately 125 farm-based businesses. We appreciate the opportunity and invitation to share our perspective on Bill C-44.
The wine industry of Nova Scotia has been a shining light contributing to the revitalization of several rural communities in the province. The immensely positive contribution to the region is manifest across the agriculture, manufacturing, retail, and tourism sectors. Indeed, a recent study in 2016 revealed that the annual economic impact of the wine industry on the province has surpassed $216 million and is growing. That's massive for our region.
We are the newest but fastest-growing wine region in the country, attracting investment and excitement in parts of the province where agriculture and tourism had long been in decline.
With the level of upfront investment required and the long gestation period for vineyard, wine, and market development, many of our business models would be fragile if burdened with additional costs and regulation.
The decision to increase federal excise duty rates on beverage alcohol undermines the government's own objective of creating a business environment where manufacturers, particularly agrifood processors, can thrive and export abroad successfully.
The budget proposal to automatically adjust federal excise duties to CPI is a return to the failed policies of the past. Between 1981 and 1986, annual automatic adjustments to alcohol excise duties resulted in massive job losses and plant closures across this country.
We elect MPs to protect us and debate tax increases. This budget proposal takes their ability away and risks other taxes being implemented in a similar fashion.
The logic of attaching an annual increase to consumer price index is also fundamentally and particularly flawed, as this excise is an input tax and not a sales tax. This means that the real inflationary impact of applying the excise escalator on the raw material would translate into making our industry sectors' inflation rate approximately five times that of the national CPI every year going forward.
Domestically alone, this rampant indexed super-inflation would seriously damage our industry, as consumers would shift to lower-priced imports and away from Canadian-made wine. Canadian producers like our company would be faced with the choice of increasing prices to offset the input-cost increases or absorbing the increase in order to hold market share. Neither option is sustainable for any manufacturer, let alone one that deals with the inherent variability and uncertainty of agriculture. But that's far from the biggest threat to the Canadian wine industry.
International trading partner countries that have supported the 100% Canadian content exemption since 2006 are now giving notice that while the exemption is perfectly legal, if this escalator goes into legislation it, as well as other industry measures, would be challenged at the WTO level. Should the outcome be the likely reinstatement of the excise tax for 100% Canadian wine, almost immediately there would be operations shuttering, as the tax on the finished wine would be the equivalent of a 50% increase in the cost of our grapes. That is massive. Layoffs would be abundant throughout, planting would come to a halt, and the industry would end its tremendous growth trajectory.
In the case of my own companies' operations, I would likely lay off about 30% of our collective employees, terminate many grower contracts, and try to sell two of my three wineries—if there would be any buyer available under these conditions. In Atlantic Canada one of our few successful agricultural industries would be crippled. Having made a sizeable investment to enter into this industry five years ago, acquiring the largest winery in the region, we continue to invest every year and have doubled our volume in those five years.
We compete in our own backyard with global wine corporations whose governments do not tax them at home, but instead subsidize them to the hilt. At the same time our provincial monopolies' retail markups, along with the HST and excise, make us the highest domestic tax jurisdiction in the world. The only subsidy in our wine industry is coming from the owners themselves—owners like me.
The data supports the known fact that the Canadian wine industry punches well above its weight class in economic, cultural, and overall quality of life in Canada. Our growing presence abroad not only represents the best example of value-added agriculture, but it also enhances the perception of the entire Canadian brand. Our economic impact now tops $9 billion.
For our federal government to unwittingly place our industry at such risk is disturbing, to say the least; but to persist in legislating an annual indexation on our costs after learning of those risks would be unconscionable.
We ask that you repeal the indexation of the excise tax from the budget implementation act, 2017.
Thank you, Mr. Chair and committee members, for your time and attention today.