Thank you, Mr. Chair and MPs.
I am grateful for the opportunity to appear here today and present the Canadian wine industry's perspective on Bill C-44, the budget implementation act.
My name is Murray Souter. I sit on the board of directors of the Canadian Vintners Association. I am also the president and CEO of Diamond Estates Wines & Spirits, located in Niagara-on-the-Lake, Ontario.
Diamond Estates is the home of a wide selection of top-selling VQA wines, including Lakeview Cellars, EastDell Estates, 20 Bees, FRESH, and the wines of Canadian acting legend Dan Aykroyd.
In the few minutes I have, I want to provide you with a snapshot of our national wine industry and Ontario's economic impact within it, as well as explain what the excise duty is and why the excise duty and the CPI should not be linked.
First, let me highlight some facts at the national level. The Canadian wine industry is made up of almost 700 wineries and 1,300 independent growers, contributing $9 billion to the national economy. We produce two types of products: premium 100% Canadian VQA wines, which contribute $4.5 billion in economic impact, and value-priced international Canadian blended wines made from imported and domestic content, which also contribute $4.5 billion.
In Ontario, specifically, the economic impact of the grape and wine industry equates to $4.4 billion, with Ontario being the largest wine grape-producing province in Canada. In 2015, it generated 18,000 jobs and over $750 million in federal-provincial taxes and liquor board markup. This is up from $600 million in 2011. For every dollar spent on Canadian wine in Ontario, almost $4 in GDP is generated across the province.
Budget 2017 is sending a mixed message to Canadians. On the one hand, it draws from the Prime Minister's Advisory Council on Economic Growth, which identifies Canada's value-added agrifood industry as an engine for growth, but at the same time it proposes a 2% increase in the excise duty on one of Canada's highest value-added products, wine.
The government is proposing in the budget bill to amend the Excise Act, to legislate the annual indexation of the wine excise duty to the consumer price index, effective April 1, 2018, meaning that the rate is set to increase every year.
Budget 2017 states that “[e]xcise duty rates on alcohol products have not effectively changed since the mid-1980s.” This, in fact, is not true. The last increase was in 2006, when the excise duty increased 21%, by 10.8¢ per litre, to 62¢ per litre.
Our industry is concerned that over the next five years, assuming a moderate, 2% inflation rate, the excise rate will increase by a cumulative 11%. Since the excise duty is a cost at the front of the price chain, the impact is cumulative, with ad valorem liquor board markup, GST, and PST adding to the consumer impact. The GST already picks up inflation on the producer price. By indexing excise, the price chain would pick up double inflation and multiply it through the price chain.
The impact on domestic wine pricing of adding the excise tax at a rate of 63¢ per litre is to add 90¢ to the retail price in an already price-sensitive, highly competitive market.
This legislated annual tax increase is also too rigid. It will tie the hands of future governments, and it fails to account for non-inflationary impacts facing the industry. It does not allow Parliament to do its job to ensure that all measures are considered for all future tax increases.
Wine is among the highest value-added agricultural products in Canada, yet many of our grape growers would face economic hardship due to this tax increase.
My company, Diamond Estates, is one of only two publicly traded wine companies in Canada. As such, we depend on the public markets in order to raise capital for expansion and growth. Just six months ago, our organization was able to conclude a significant capital raise to support our winery capacity expansion. This expansion was necessary to ensure continuity of supply for our fast-growing retail and export businesses.
However, today's capital markets have both well-informed and very savvy investors, and the contemplated changes in the excise tax regime are creating uncertainty and risk. That uncertainty is jeopardizing future capital raises necessary to support the planned doubling of our business over the next five years. More importantly, it jeopardizes the jobs that accompany that growth.
Imports represent 70% of wine sales in Canada, and with import tariffs soon to be eliminated under CETA, the proposed annual excise tax escalator would seriously damage our ability to compete.
With the recent challenge against Canada at the World Trade Organization, regarding the B.C. wine sold in grocery stores, and the renegotiation of NAFTA, it is clear that imports want more of our market and are willing to challenge us on all fronts.
Our industry is rooted in Canada, literally. We simply cannot uproot and take our business elsewhere. Wine is one of Canada's signature industries, which should be supported and promoted by our federal government, not selectively targeted.
Recommendation 54 in your committee's 11th report, entitled “Creating the Conditions for Economic Growth”, presented December 7, 2016, is as follows:
That the Government of Canada support innovation in the Canadian wine sector through improved operational and infrastructure investments.
The wine industry can be a strong contributor to the agrifood powerhouse that Canada is creating, which would strengthen our competitiveness domestically and abroad. However, this escalator will put economic growth on pause.
The Canadian wine industry can help the government to create more jobs, more wealth, and opportunities, but this starts with eliminating the excise escalator tax under budget 2017.