Thank you, Mr. Chair, and thank you to all members of the committee for the invitation to discuss budget 2022.
Wine Growers Canada represents the national and international interests of the Canadian grape wine industry, which consists of over 700 grape wineries and 1,800 independent grape growers producing 75 million litres of grape wine in six provinces. We support over 37,000 high-paying jobs and contribute more than $9 billion annually to the national economy. As a result, every dollar spent on Canadian wine sold in Canada generates over $3.50 in gross domestic product.
For over 16 years, I've been meeting with parliamentarians and government officials to talk about the tremendous growth and job creation opportunities in Canada's wine industry, driven by investments in capacity, quality research, innovation and experiential tourism infrastructure. The major challenge is that wine is subject to excise duty and other agricultural products are not.
I'm not here today to deliver a positive message. Today, like the cider industry you just heard from, I'm here to tell you that Canada's wine industry is at a crossroads.
In addition to the challenges of postpandemic recovery, skyrocketing inflation on the cost of goods, and supply chain disruptions, the long-standing excise duty exemption that fuelled investment and industry expansion will be repealed on July 1. As you may know, 16 years ago, the 2006 budget established the federal excise duty exemption on 100% Canadian wine to incentivize strategic investments to modernize, grow and enhance the quality of wines produced in this country. As a result, 400 new wineries were constructed, increasing the quality and quantity of Canadian-produced wines while increasing annual production of 100% Canadian wine by 45 million litres. This growth helped generate an additional $4.8 billion in annual national economic impact in return for $42 million in forgone excise revenue—a fantastic return on investment.
Between 2006 and 2017, the excise exemption on 100% Canadian wine was not a major concern for import producers as they watched their sales grow across Canada. However, this all changed when the 2017 federal budget legislated annual alcohol excise duty increases indexed to the consumer price index. Legislated inflation indexation, better known as the excise escalator, raised the ire of major wine-producing nations around the world, prompted a WTO challenge from Australia and led to the pending repeal of the excise exemption through a negotiated settlement to end the trade dispute. Effective July 1, all 100% Canadian wine, including non-packaged wine produced prior to this date, will become subject to excise duty.
Canadian wineries agreed to the terms of the negotiated settlement with the Government of Australia, based on advice from Global Affairs Canada and the Liberal government's promise, made by then finance minister Morneau, to ensure the long-term success of grape growers and winemakers. However, budget 2021 announced funding for a limited 18-month support program, which we immediately confirmed was insufficient to address the loss of the excise exemption and the remaining 100% Canadian wine inventory that was produced excise-free. Clearly this was an error in the budget.
Between budget 2021 and, most recently, budget 2022, Wine Growers Canada repeatedly stressed that the only way to grow the industry was to increase the $101 million in funding announced in the budget, extend the program beyond 18 months to encourage investment and bank financing, and zero-rate the excise duty payable on all wine inventories produced before July 1, 2022, all of which were produced in a legislated excise-exempt environment.
While budget 2022 did not respond favourably to Wine Growers Canada's request, the budget reported $390 million in forecasted federal excise revenue over the next five years as a result of the repeal of the excise exemption, with $135 million of that for year one and two, or $34 million more than was provided in budget 2021.
Excise duty on Canadian wine is not a consumer tax but a production tax, because we cannot pass it on to the consumers. This is because imported wines represent over 70% of Canada's domestic wine sales market, forcing Canadian wines to be price-takers in our home market.
Investor confidence has waned as successive trade agreement concessions have benefited imports and has stalled since the 2020 negotiated settlement with Australia. The excise exemption will be repealed in four weeks, and wineries, grape growers, employees, investors and creditors remain uncertain of the industry's ongoing viability or the results of the wine support program, which has not been announced yet.
Without an adequately funded wine support program, the lost revenue will have dire economic impacts on the entire supply chain. Wine Growers Canada's research estimates that the loss of the excise exemption would result in a 12% drop of total industry sales, the closure of over 300 wineries, 2,400—