Thank you very much, Mr. Chair and members of the committee.
I really appreciate the opportunity to participate in the legislative process on behalf of the 45 Canadian beer companies I represent. My members are large and small domestic brewers from all 10 provinces and one territory.
My members have two concerns with budget 2017. First, it imposed an immediate 2% increase to excise duty rates on beer. The abruptness was very disruptive to normal business operations. The second and most serious concern is the escalator, the mechanism that will increase excise rates automatically every year with no requirement to check on the health of the domestic brewing industry. The immediate 2% increase is not helpful, but it doesn't compare to the damage the escalator will do to our domestic brewers.
I will use the few minutes I have to offer four reasons for removing the escalator from Bill C-44. First, tying the consumer price index to excise duty rates is too rigid and ignores regional economic differences. Second, the escalator bypasses Parliament's role in approving tax increases. Third, Finance Canada has acknowledged that it did not analyze the economic impact of the escalator or what effect it would have on our industry. Finally, there appears to be a large discrepancy in Canada's public accounts that would make it difficult for policy-makers to say anything about the effectiveness of excise duties.
The consumer price index reflects the cost of a fixed basket of commodities over time. It tells policy-makers nothing about what is going on in our sector or in a particular region of the country. I'm going to use Atlantic Canada to demonstrate why linking excise duty rates to the CPI is too rigid and insensitive to regional differences.
Over the last five years, the total volume of beer in Atlantic Canada declined by 3.3%, while the CPI, or consumer price index, increased by 5.5%. If the escalator had been in place, the government would have increased the tax on beer every year while Atlantic-based brewers struggled to adjust to lower demand. The escalator would have made a difficult situation in Atlantic Canada worse.
The escalator means annual tax increases on Canadians and Canadian businesses with no parliamentary oversight. The escalator will run in the background, resulting in higher beer taxes every year. Section 53 of the Constitution Act, at least in principle, should cause the government to pause on introducing a tax policy like the escalator. It requires that bills for imposing any tax originate in the House of Commons. Finance Canada advised this committee last week that it did not analyze the impact that higher excise duties would have on the domestic beverage alcohol industry. It likely did not consider the impact on the hospitality industry, either. It reasoned that the tax increase would be small on a per case or per bottle basis. The department has ignored the compounding tax-on-tax implications of the escalator and the fact that Canadians already pay the third highest beer taxes in the world.
There's a bigger point. The budget plan highlights that the government anticipates taking an additional $470 million in excise duties over the next five years because of the automatic increases. I can tell you with absolute confidence that there is no one in the domestic beverage alcohol industry that agrees with Finance Canada's forecast that the government can anticipate the status quo holding while it takes an additional half a billion dollars out of the productive use of the Canadian beverage alcohol producers.
The 2016 public accounts report that excise revenues from beer were $584 million for the fiscal year. This appears to be an under-representation of what actually is collected in excise on beer. It's like this every year. For fiscal 2016, Statistics Canada reported total beer sales for the country at 22.9 million hectolitres. With excise rates at $31.22 per hectolitre, the total revenues should be closer to $713 million, a $130 million gap from what is reported in the public accounts. Budget 2017 talks about excise rates not having increased since the mid 1980s, and it rationalizes the escalator as a way to maintain the effectiveness of excise duties.
There is no explanation of what constitutes effectiveness, but looking at the volumes of beer sold and the rates of excise in place from 1985 to 2016, the amount of excise remitted to the federal government has increased from $385 million to $713 million, an 85% hike. Over this time period, per capita consumption of beer declined from 103 litres to 76 litres, a 26% drop.
The domestic brewing community is counting on the honourable members of this committee to remove the escalator and demonstrate that by “effective” the government does not mean higher taxes at the expense of a healthy domestic brewing industry.
My plan for this afternoon was to provide the committee with four reasons for removing the escalator from budget 2017. I appreciate the opportunity to present these arguments on behalf of my 45 brewing members and, indeed, the broader brewing industry.