Finance Committee on May 26th, 2022

[The Chair, Liberal, Peter Fonseca]

Mr. Mangin, I paused the time. You were about two and a half minutes into your opening remarks.

What can we do? Is that your new headset?

[Jean-Marc Mangin]

That's my other headset. Does this make any difference?

[The Clerk]

No. It doesn't make any difference. There is no microphone attached to the headset. It's only a headset. We need the sound to be better, so we need a proper microphone.

[The Chair, Liberal, Peter Fonseca]

It may not be possible to have Mr. Mangin, because of our interpretation services.

[The Clerk]

Mr. Mangin, do you not have an iPhone device with earbuds?

[Jean-Marc Mangin]

I have. I could try that.

[The Chair, Liberal, Peter Fonseca]

As Mr. Mangin is trying that out, members, I would say that we'll move to our next witness and then bring Mr. Mangin back if he has everything in order with his device.

[Jean-Marc Mangin]

Thank you.

[The Chair, Liberal, Peter Fonseca]

We're moving to the Producteurs de cidre du Québec for up to five minutes, please, for opening remarks.

[Marc-Antoine Lasnier, President, Producteurs de cidre du Québec]

Good morning.

Thank you very much for welcoming us and allowing us to state our position on Bill C‑19.

My name is Marc-Antoine Lasnier, and I am the president of Producteurs de cidre du Québec. I'm also the owner of Cidrerie Milton, which is located in the Eastern Townships.

I am accompanied by Catherine St‑Georges.

[Catherine St-Georges, Director General, Producteurs de cidre du Québec]

Good morning, everyone.

My name is Catherine St‑Georges, and I'm the director general of the Producteurs de cidre du Québec.

First, by way of introduction, I would like to introduce our association. It was founded in 1992 and will celebrate its 30th anniversary this year. It represents all cider producers in Quebec. We have 81 voluntary members and represent the interests of all cider producers in our efforts to optimize Quebec's cider-producing potential and secure the industry's future.

I have some interesting numbers for you.

I told you we have 81 voluntary members, but there are 118 permit holders producing cider in Quebec, 84% of whom also grow apples in the province.

Cider volumes rose from 3.2 million litres in 2016 to 5.1 million litres in 2021, a net increase of 60% in 5 years. The cider industry is thus truly thriving. We calculate that 11% of all apples grown in Quebec are processed as cider, and that volume is increasing as the industry grows. The total value of cider sales in Quebec is $51 million.

There are 9,000 jobs in Canada's cider industry as a whole. If you include all production-related sectors, such as restaurants, transportation and agritourism, cider production represents tens of thousands of jobs.

[Marc-Antoine Lasnier]

What has caught our attention and brought us here today is the reinstatement of the excise tax. Here's a brief history of that tax.

In 2006, 100% Canadian wines were exempted from excise duty. Ciders fall into the wine class for excise tax purposes. As a result of a complaint filed by Australia, we lost our case before the WTO and the excise tax was reinstated in July 2022.

Our industry thus operated without that tax for about 16 years. Today, many owners don't even know that the tax was previously in force or that it could be again.

The tax is roughly equal to the current net margins on our products. From what we've heard, a compensation program is already being developed. We'd like to bring that program to your attention because, if it isn't generous enough, we can expect that businesses will shut down over the next few years. If businesses in our sector close their doors, that could affect related businesses and sectors, such as apple production and the tourist and restaurant industries.

We have very few diversification options in our sector. Regulation is very strict, and we operate on a vertically integrated apple business model.

I can give you an idea of the potential impact that reinstatement of the excise tax may have. The tax represents approximately $200,000 for my business, Cidrerie Milton. However, my net annual profit is less than $200,000. So I expect to operate at a loss unless a compensation program is developed.

Our demands are very specific, and Cider Canada has previously outlined them to the committee. We are making the same demands here today: that the government increase the budget allocation so the program can support the entire cider industry, extend the program until 2030, and provide a timeframe for the implementation of the excise tax so that it coincides with the program's coming into force and our tax disbursements.

Thank you very much for your attention.

That completes our presentation.

[The Chair, Liberal, Peter Fonseca]

Thank you.

Now we will hear from Wine Growers Canada. Mr. Paszkowski, I believe, is in the committee room.

[Dan Paszkowski, President and Chief Executive Officer, Wine Growers Canada]

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—

[The Chair, Liberal, Peter Fonseca]

Wrap it up, Mr. Paszkowski, please.

[Dan Paszkowski]

—job losses, and the loss of $425 million in total economic impact. That's only for grape wine. That does not include cider, mead or sake.

The addition of 52¢ per bottle will negatively impact the industry. We are simply asking the government to fix the error in budget 2021-22 and live up to its promise to provide adequate support for our industry when we need it most. If this isn't undertaken, the only winners will be the Australian wine industry and all other wines imported into Canada, at the expense of Canadian wine sales in our domestic market.

Thank you very much.

[The Chair, Liberal, Peter Fonseca]

Thank you, Mr. Paszkowski.

Before we go to the members' questions, I want to see an update on how Mr. Mangin's audio is working. My understanding is that the computer is not picking it up and we're not getting the headset.

[The Clerk]

From what I understand, the computer he's using does not pick up the mike. He bought his headset yesterday specifically for this committee, so it's unfortunate that it's not working.

We've called Mr. Mangin.

Mr. Mangin, I believe you've spoken to our IT ambassadors.

[Jean-Marc Mangin]

Yes, that's true.

[The Clerk]

All right.

We don't have a solution, sir, at this time. I don't know how to proceed.

[The Chair, Liberal, Peter Fonseca]

We understand the challenges, but I don't think we'll be able to proceed with Mr. Mangin due to the technical issues we're having with the headsets and then with interpretation. We apologize on behalf of the committee for that.

Mr. Mangin, I know you made efforts to be able to address the members and have your questions. If you can submit your remarks to the committee, that would be appreciated.

[Jean-Marc Mangin]

I will do so.

[The Chair, Liberal, Peter Fonseca]

Thank you.

Members, we are moving to questions.

In our first round of questions, members will have up to six minutes to ask questions of our witnesses. We are commencing with the Conservatives and MP Chambers.

You have up to six minutes, please.

[Adam Chambers, Conservative, Simcoe North, ON]

Thank you very much, Mr. Chair, and thank you to all of our witnesses. What a vast and rich panel we have here today.

Unfortunately, I won't have time to get to all the questions I'd like to, but after listening to your opening interventions, it seems to me that the government seems to be attempting to tax the country's way to prosperity. Whether that's with the wine industry, whether that's on manufacturing, I think that's a lesson we should be all taking away from this.

I'd like to start with a few questions to Ms. Anghel from the National Marine Manufacturers Association.

Ms. Anghel, you referenced potential job losses not just for your members but also across the industry. When this tax was proposed by the government, what kinds of consultation were there with your industry about the potential impacts? Did you feel that you were consulted?

[Sara Anghel]

We worked very closely with at the Department of Finance and had a lot of dialogue, but there was no direct consultation with our industry from the minister's office or others.