Evidence of meeting #90 for Finance in the 42nd Parliament, 1st Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was industry.

A video is available from Parliament.

On the agenda

MPs speaking

Also speaking

Luke Harford  President, Beer Canada
Murray Souter  Board Member, Canadian Vintners Association
Carl Sparkes  President and Chief Executive Officer, Devonian Coast Wineries
Joyce Reynolds  Executive Vice-President, Government Affairs, Restaurants Canada
Jan Westcott  President and Chief Executive Officer, Spirits Canada
Frank Rider  Chairman of the Board, Canadian Association of Mutual Insurance Companies
Normand Lafrenière  President, Canadian Association of Mutual Insurance Companies
Nicholas Rivers  Associate Professor, University of Ottawa, As an Individual
Marc André Way  President, Canadian Taxi Association
François Pepin  President of the Council, Transport 2000 Québec
Maëlle Plouganou  Secretary of the Board, Transport 2000 Québec
Louis Marcotte  Director General, International Business Development, Investment and Innovation, Department of Foreign Affairs, Trade and Development
Roger Ermuth  Assistant Comptroller General, Financial Management Sector, Office of the Comptroller General, Treasury Board Secretariat

3:35 p.m.

Liberal

The Chair Liberal Wayne Easter

Order, please, members.

This is meeting number 90 of the committee. We're approaching 100. Will we get to 150?

Pursuant to the order of reference of Tuesday, May 9, 2017, our hearing today is about Bill C-44, An Act to implement certain provisions of the budget tabled in Parliament on March 22, 2017 and other measures.

We have five witnesses, including Mr. Luke Harford, president of Beer Canada; Mr. Murray Souter, board member, Canadian Vintners Association; Mr. Carl Sparkes, president and CEO of Devonian Coast Wineries; Ms. Joyce Reynolds, executive vice-president, government affairs, Restaurants Canada; and Mr. Jan Westcott, president and CEO of Spirits Canada.

I know that a couple of people went out of their way to change their travel arrangements.

I believe one person was supposed to be in Spain, so we appreciate that effort, Mr. Sparkes, to get here to give your information to the committee.

Try to hold your comments to about five minutes. Then we'll go to questions.

We will start with Mr. Harford.

3:35 p.m.

Luke Harford President, Beer Canada

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.

Thank you.

3:40 p.m.

Liberal

The Chair Liberal Wayne Easter

Thank you very much.

Mr. Souter, go ahead.

3:40 p.m.

Murray Souter Board Member, Canadian Vintners Association

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.

Thank you.

3:45 p.m.

Liberal

The Chair Liberal Wayne Easter

Thank you very much.

Mr. Sparkes.

3:45 p.m.

Carl Sparkes President and Chief Executive Officer, Devonian Coast Wineries

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.

3:50 p.m.

Liberal

The Chair Liberal Wayne Easter

Thank you very much.

Ms. Reynolds, the floor is yours.

3:50 p.m.

Joyce Reynolds Executive Vice-President, Government Affairs, Restaurants Canada

Thank you, Chair Easter, and committee members. I really appreciate the opportunity to speak to you this afternoon about part 3 of Bill C-44, on behalf of Canada's $80-billion restaurant industry.

This industry is a vital part of the country's economy. Canadians operate restaurants in every corner of Canada, from large metropolitan centres to remote communities. We are the fourth-largest private sector employer in Canada, with 1.2 million employees who interact with 18 million Canadians daily. A significant number of these jobs are derived from the sale of wine, beer, and beverage alcohol in licensed establishments. We are most proud to be the number-one, first-time creator of jobs in the country. We open the door of opportunity to youth, new Canadians, and those facing barriers to employment. Every dollar spent at a restaurant generates an additional $1.85 in spending in the rest of the economy—well above the average for all industries in Canada.

We indirectly employ more than 250,000 Canadians. More than two-thirds of Canada's restaurants are locally owned and operated by independent entrepreneurs. Our 95,000 restaurants, cafeterias, coffee shops, and bars are gathering spots for people from all walks of life to celebrate, to do business, to spend time with family and friends. Restaurants are also one of the top three reasons for tourists to make Canada their chosen destination.

However, you also need to know that we are an industry with razor-thin profit margins. The average restaurant in Canada takes home a mere 4.3% before taxes. According to Stats Canada, drinking places—that would be the bar and pub sector—have experienced sales declines in six out of the last eight years. Since 2000 the number of drinking places has plummeted by 40%. Beverage alcohol is an important input for restaurants and food service operators, who purchase approximately $3 billion of these products each year, but alcohol prices in Canada have reached the point of diminishing returns with stagnating sales to licensees.

What most Canadians don't know is that licensees often pay more for a case of beer, for a bottle of wine, or a bottle of spirits than consumers purchasing them at their provincial retail store. Once restaurants include the cost of service, glassware, overhead, rent, staffing—and staffing includes training on all service and responsible service of alcoholic beverages—it becomes very expensive for the average Canadian to enjoy a glass of wine, a pint of beer, or a cocktail with their meal.

You can't imagine the surprise of our members when government elected to add more taxes, not less, to alcohol, one of the highest tax commodities in the country, and to increase the tax in perpetuity. We've heard from small-town restaurant and pub operators who are struggling to keep their businesses afloat with rising labour, food, utility, and rent costs. The cumulative effect of the new excise duties will take another big chunk out of their businesses. These are real dollars that cannot be used for hiring staff, investments in innovation and refurbishing their businesses and, in some cases, remaining viable.

Last week we heard from Mr. Coulombe from the Department of Finance during his testimony to this committee. I know that restaurants were disheartened to hear that the department believed that the excise taxes would be so small that it wasn't necessary to analyze the economic impacts. A tax increase from $30 million to almost half a billion dollars in five years is not insignificant, particularly when you consider that the tax will be part of the base price to which all other fees, levies, markups, and provincial and federal taxes will be layered on. The cascading nature of provincial markups and PST, GST, or HST application will mean price increases of up to three times the amount of the federal excise tax for those who purchase alcohol.

This year's federal budget identifies agrifood as a potential growth sector, but a very broad swath of agrifood industries will be hurt by this compounding tax. The hospitality industry, together with the vintners, the brewers, the distillers, the grape and grain growers, and our related supply chain partners, is seeking this committee's support for the repeal of the annual excise duty escalator in Bill C-44 to ensure that all tax increases have oversight by parliamentarians, and that the economic impacts and considerations are factored in.

Thank you.

3:55 p.m.

Liberal

The Chair Liberal Wayne Easter

Thank you.

Mr. Westcott, the floor is yours.

3:55 p.m.

Jan Westcott President and Chief Executive Officer, Spirits Canada

Thank you, Mr. Chairman and members of the committee.

My name is Jan Westcott, and I'm the president and CEO of Spirits Canada.

Spirits Canada is the sole national organization representing Canadian spirits manufacturers, exporters, and consumers. My remarks today are expressed not only to these affected parties but also to the thousands of Canadian SMEs providing critical goods and services to spirits producers. I am also addressing Canadian farmers of cereal grains such as barley, corn, rye, and wheat, which are intrinsic to the domestic production of distilled spirits.

Given the limited time today, I'm going to focus my comments on the ill-conceived suggestion that we return to the failed policies of the past and reintroduce the automatic indexing of excise duties on liquor.

As my colleagues have said, members have heard testimony from the finance department that no—and I underline no—economic analysis or modelling was undertaken to support the indexing of excise duties on beer, wine, and spirits, since in their view the changes were too minor to warrant such an effort. Thankfully, it's extremely rare that we hear such misguided hubris from public officials here in Ottawa.

The department's own supplementary budget information indicates that these measures will expropriate in excess of $470 million between now and 2022, a calculation based solely on the direct increase in excise duties. In what bubble is an additional $470 million lifted from the wallets of hard-working Canadians, trivial or de minimis?

The department, however, has provided no estimate of the overall impact on Canadian consumers of the proposed indexing measure, taking into account the compounding effect of a subsequent cascading of ad valorem provincial and federal taxes such as the GST.

Finance has a worrisome penchant of looking at liquor excise duties in isolation, disregarding liquor taxes imposed by other levels of government and their impacts on employment and investment, while ignoring the ultra-competitive nature of the international whisky trade and dismissing the windfall gains to the treasury thanks to the GST, particularly on sales through on-premises channels like bars and restaurants. By the way, the excise in Canada is 67%—that's right, 67%—higher than the excise on spirits in the United States.

Best practices in other jurisdictions include the issuance of white papers, consultation papers, transparent decision-making processes and, above all, rigorous economic analysis. All these best practices have been noticeably absent from the process of introducing the automatic indexing of excise duties on Canada's liquor.

Our own internal analysis indicates an overall impact in excess of $1 billion by 2022—not the $470 million you're hearing. That's more than double the amount identified in the supplementary budget papers. It amounts to $1 billion hijacked from your neighbours' pockets, whether they enjoy an occasional drink at home or in the tens of thousands of licensed bars, restaurants, and lounges in every city, town, and village in Canada. However, it's still not worthy of a formal impact statement, because—stunningly—it's viewed by some as too small.

Perhaps it's more accurate and to the point to state that no formal analysis is required, since we already know the impact. We have lived through this same nightmare before. Canada experimented with automatic indexing of liquor taxes between 1981 and 1986, with devastating consequences for Canadian workers. The spirits industry alone shuttered a dozen production facilities across the country in that decade, putting those Canadian workers out of jobs.

Those plants never reopened and those jobs never returned to Canada. We downsized our businesses, reduced our grain purchases, scaled back our investment in foreign markets, eviscerated our innovation budgets, and tried to hold on for survival.

Eventually, after the imposition of devastating harm by our own government and the loss of the only livelihood available to thousands of Canadian families, it was recognized—even here in Ottawa and in Parliament—that the automatic indexing of excise duties on alcohol products, in accordance with a rigid formula such as the CPI , was completely inappropriate, and indexing was abandoned.

The automatic indexing of excise duties on alcohol, in accordance with a rigid formula such as CPI, was not appropriate then and it is not appropriate now.

It is said that only a fool learns from his own mistakes, and it is a wise man who learns from the mistakes of others. I have little doubt as to the wisdom of the honourable members present, and I hope we can count on your support for an amendment to repeal the proposed automatic indexing of excise duties.

Thank you for your attention.

4 p.m.

Liberal

The Chair Liberal Wayne Easter

Thank you, all, for your presentations. You obviously called it as you see it.

Turning to the first round of questions, we have seven minutes for Mr. Sorbara.

4 p.m.

Liberal

Francesco Sorbara Liberal Vaughan—Woodbridge, ON

Thank you, Mr. Chair. Welcome, everyone. Happy Monday, I guess.

To give my view of the landscape, I look at the wine industry in Canada as a Canadian success story. Call it what you may, it's bigger than that. It's about culture, tourism, engaging people, and having U.S. visitors come to Canada. From my vantage point in Vaughan, driving down to Niagara-on-the-Lake for the weekend—which I probably did before I had kids; after you have kids it changes a little—I understand the importance of the industry and such.

You've expressed some fears and concerns about the impact the the escalator would have on the industry. I specifically want to zero in on what the investment environment would be, because people are making decisions to employ, whether it's your grape growers, your bottlers.... We know that the Ontario food and beverage industry is the largest manufacturer and employer in the province, even larger than the automotive sector, so we know it's a very important industry. I'd like to get a sense of what you think would be the impact on investment and employment from the escalator.

I'll put that out there, please.

4:05 p.m.

Board Member, Canadian Vintners Association

Murray Souter

Thank you very much for the question.

As you know, it is a huge economic driver in our province. You mentioned Niagara-on-the-Lake, near Niagara Falls, which is where I am from. The number one tourist attraction now in Niagara-on-the-Lake or Niagara Falls is no longer one of the natural wonders of the world, but the wine industry that people are touring.

We see the escalator as having two impacts. One is when it would be applied against the ICB business, which is about 50% of the sales in Ontario of domestically produced wines. It would make them uncompetitive in a highly competitive market. We face importers who flood into the country, who are subsidized by their governments, and we see very little support when you have an escalator at this level.

It waves a red flag in front of the importers who already have 70% of the market share in our province, as I said in my remarks. They would go after the subsidy or the excise exemption we have for VQA wines. If that were to happen, it would wipe out our business. In Nova Scotia, as Carl said, but in Ontario as well, we would be forced to significantly reduce employment. I'm one of the few publicly traded companies and my public market would not be able to sustain the working capital growth we need to be able to grow our business beyond where it is. It's in the public domain right now. We plan to double the size of our business over the next four to five years.

4:05 p.m.

Liberal

Francesco Sorbara Liberal Vaughan—Woodbridge, ON

To get this straight, your concern is the exemption that's in place now for 100% Canadian wine, not the blend—

4:05 p.m.

Board Member, Canadian Vintners Association

Murray Souter

No, for both.

4:05 p.m.

Liberal

Francesco Sorbara Liberal Vaughan—Woodbridge, ON

There would be a WTO challenge for both.

4:05 p.m.

Board Member, Canadian Vintners Association

Murray Souter

Absolutely.

4:05 p.m.

Liberal

Francesco Sorbara Liberal Vaughan—Woodbridge, ON

Mr. Sparkes, you commented that you have indications that would happen?

4:05 p.m.

President and Chief Executive Officer, Devonian Coast Wineries

Carl Sparkes

Yes. I understand that both the EU and the U.S. in particular, along with a couple of other countries, have made that statement, but to add a little weight to my colleague's comments, we're a highly leveraged industry. I grew up on a farm myself, and this is farming at its roots. It's value-added nonetheless, but we are asset rich, if you want to call it that, but cash poor.

Given that my businesses are leveraged, if the WTO infringement challenge resulted in the excise tax being applied against 100% Canadian wine, my bottom line would be cut in half. I would be breaching bank covenants immediately. I would be in serious turnaround mode to really correct my business from being in serious jeopardy.

Two of my three wineries are 100% Canadian, 100% Nova Scotia wine, but the largest of the three, which really helps fund the development of vineyards.... Vineyards have about a 10-year payback. It's not a really smart industry to be in for a lot of investors. We have a lot of patience; banks do not. At the end of the day, if our business model gets challenged to that degree, the whole game changes.

My largest winery is fifty per cent 100% Nova Scotian or Canadian, and the other 50% is actually the blends. This really keeps the lights going and keeps the overheads intact. For us to have an escalator against that excise on that part of the business with an indefinite period, the banks won't look at us very favourably going forward. So investment in the industry—not just from investors, but the actual ability to secure funding—would dry up.

4:05 p.m.

Liberal

Francesco Sorbara Liberal Vaughan—Woodbridge, ON

Thank you.

How much time do I have left, Mr. Chairman?

4:05 p.m.

Liberal

The Chair Liberal Wayne Easter

You have time for another question. Go ahead.

4:05 p.m.

Liberal

Francesco Sorbara Liberal Vaughan—Woodbridge, ON

You threw out the number of a billion dollars of negative impact on the industry. I take it this is from coast to coast to coast. How was that number reached?

May 15th, 2017 / 4:05 p.m.

Liberal

The Chair Liberal Wayne Easter

Mr. Westcott.

4:05 p.m.

President and Chief Executive Officer, Spirits Canada

Jan Westcott

In 2006 the government adjusted excise and it told us in 2006 that it was going to be revenue neutral. Between 2006 and 2016, that 10-year period, excise on spirits went up almost 50%. Our business grew by 14%. Inflation grew by 17%. I have little confidence in the analysis that is being promulgated by the department. We looked at the wider picture, because it's not just excise. When excise goes on, as someone said, it has a cascading effect. The government makes five points on the GST on all of the excise changes, so it's a tax on a tax. When you factor all that in—and those are burdens on our business and our customers—it comes to a billion dollars. I'd be happy to provide the committee with a detailed analysis of that.

I have one more point on the trade file. Many members will recall that Commissioner Hogan, the agriculture commissioner from the EU, visited Canada last week with 160 people. A number of those people were spirits representatives from Europe for Scotch whisky, spirit syrup, and the Polish spirits association.

We and they met with Agriculture Canada. They met with Global Affairs. They made it very clear to the government that they would not sit still, that there would be trade repercussions if this went through and their taxes continued to go up while those of others didn't. That is going to be a critical issue going forward.

4:10 p.m.

Liberal

Francesco Sorbara Liberal Vaughan—Woodbridge, ON

Thank you.

Thank you, Chair.