Proceedings of the Standing Senate Committee on
National Finance
Issue No. 32 - Evidence - May 10, 2017 (evening sitting)
OTTAWA, Wednesday, May 10, 2017
The Standing Senate Committee on National Finance, to which was referred Bill C-44, An Act to implement certain provisions of the budget tabled in Parliament on March 22, 2017 and other measures, met this day at 6:48 p.m. to study the bill.
Senator Percy Mockler (chair) in the chair.
[Translation]
The Chair: Honourable senators, I see we have quorum; I now call this meeting to order. Welcome to the Standing Senate Committee on National Finance.
[English]
My name is Percy Mockler, a senator from New Brunswick, and chair of the committee.
I wish to welcome all those who are with us in the room and the viewers across the country who may be watching on television or online. As a reminder to those watching, the committee hearings are open to the public and available online on the Senate website at sencanada.ca.
All other committee-related business can also be found online, including past reports, bills studied, and lists of witnesses present and to come.
Honourable senators, I would ask each and every one of you to introduce yourselves, starting to my right with the deputy chair.
Senator Cools: My name is Anne Cools, and I am a senator from Toronto, which is in Ontario, where we are now. Thank you.
[Translation]
Senator Éric Forest: Éric Forest from the Gulf region, in Quebec, beer country, home of barley and malt.
[English]
Senator Eaton: Nicky Eaton, Ontario, where we have many wonderful artisanal beers.
Senator Marshall: Elizabeth Marshall, Newfoundland and Labrador.
[Translation]
Senator Pratte: André Pratte from Quebec.
[English]
Senator Oh: Victor Oh, Ontario, Toronto, the best city in Canada.
Senator Moncion: Lucie Moncion, Ontario.
Senator Woo: Yuen Pau Woo, British Columbia.
[Translation]
The Chair: I would also like to introduce the clerk of the committee, Gaëtane Lemay, to my left, and our two analysts, Sylvain Fleury and Olivier Leblanc-Laurendeau, who, together, support the work of this committee.
[English]
Today we continue our consideration of the subject matter of Bill C-44, An Act to implement certain provisions of the budget tabled in Parliament on March 22, 2017, and other measures, is what we call the Budget Implementation Act.
Honourable senators, we have four organizations before us this evening, and they have requested to appear. They are from the production and distribution of alcohol industry. They are here to present their concerns regarding Bill C- 44, which is in our binders at Part 3, Tab C, entitled "Amendments to the Excise Act, 2001, and the Economic Action Plan 2014 Act, No. 1.''
The committee would like to now have the presentations of the four organizations at the head table. I have been instructed by the clerk that the following roll call will be going forward: From Spirits Canada, Jan H. Westcott, President and CEO. He will be the first to make his presentation.
I'll introduce the others, if you permit me. From Beer Canada, Luke Harford, President.
[Translation]
From the Canadian Vintners Association, we have Asha Hingorani, Director of Government Affairs.
[English]
From Restaurants Canada, Joyce Reynolds, Executive Vice-President, Government Affairs.
Please make your presentations and your concerns to us in your opening statements, which should not exceed seven minutes, and then senators will be asking you questions.
The chair will now recognize, from Spirits Canada, Mr. Westcott; to be followed by Beer Canada, Mr. Harford; from Canadian Vintners Association, Ms. Hingorani; and from Restaurants Canada, Ms. Reynolds.
[Translation]
On that note, Mr. Wescott, it is over to you.
[English]
Jan H. Westcott, President and CEO, Spirits Canada: Mr. Chairman and members of the committee,The impact of the budget measures targeting alcohol excise duties will be felt well beyond alcohol manufacturers. The negative impacts will be felt by hard-working Canadians who already pay too much tax for their favourite drink; by the thousands of workers employed in Canadian SMEs providing key goods and services to produces; by farmers growing corn, rye, barley and wheat; and the tens of thousands of Canadians in the tourism and hospitality industry.
Based on the evidence provided to this committee thus far, members could be excused if they believe the 2017 budget measures propose a one-time 2 per cent across-the-board increase in federal alcohol excise duties with further annual increases automatically indexed to CPI.
The information provided to this committee is false and inaccurate. The actual effective excise duty rate increase on premium aged Canadian whiskies, those whiskies distilled prior to July 2006 and maturing in barrels across the country, are facing a 7.8 per cent increase. This punitive, retroactive tax increase targeted at the very heart of the Canadian spirits industry was, we understand, done for administrative ease, with little thought or concern for the thousands of hard-working Canadians depending on local spirits production.
However, as damaging as a 2 per cent to 7.8 per cent immediate excise increase is, our principal concern is with the proposal to automatically jack up excise duties year after year, with zero concern for the economic or business environment prevailing at the time and with no oversight by either the House of Commons or the Senate.
Department of Finance officials testified earlier that no economic modelling or forecasting was done to evaluate these proposals because in their estimation the increases were so small they did not warrant such analysis. This admission is quite shocking. In fact, it is only after a thorough review of all impacts can one come to any conclusion as to whether the impact of these measures are small, modest or devastating. This omission demonstrates, in our view, either incompetence or negligence and provides ample reason on its own to reject the automatic escalator measure.
The Department of Finance, in their testimony, alluded to the specific Canadian experience with the indexing of alcohol excise duties in place between 1981 and 1986. Even a cursory analysis of this period would have revealed the closing of over a dozen spirits manufacturing facilities. We closed 12 distilleries in that decade, almost exclusively because of the indexing that was taking place, with a loss of thousands of jobs and a diminished role of Canadian spirits, and particularly of Canadian whisky, on the international scene.
The testimony was that indexing at the time linked to the price of alcohol and not the general CPI, as is now proposed, would somehow generate different results. It wasn't supported by an analysis or modelling. It was just put forward as simple conjecture or hopeful thinking.
Members were also told that since alcohol excise duties are not imposed on exports, federal excise duties have no impact on the competitive position of Canadian producers in foreign markets. This allegation demonstrates a near total ignorance of the factors necessary to compete in international markets. The most fundamental prerequisite for success internationally is a strong, healthy and viable home market. Canada's domestic alcohol regime is the biggest factor in predicting the future of Canadian beverage alcohol exports, period.
Senators asked previous witnesses what the trade implications were of these measures, recognizing that these would exacerbate the discriminatory effects of excise duty changes adopted in 2006. No satisfactory answer was provided by Finance officials.
It is presumed, therefore, that Finance did not make the effort to contact their colleagues at Agriculture and Agri- Food Canada or Global Affairs Canada on the reaction that could be expected from Canada's major trading partners, including Australia, Argentina, Chile, New Zealand, the EU and the United States.
Last week a delegation of senior EU wine and spirits industry executives accompanying EU agriculture commissioner Phil Hogan on his high-level mission to Canada earlier indicated their most serious concerns with these measures with both Global Affairs Canada and Agriculture and Agri-Food Canada officials. This was entirely predictable.
Any trade action by any major trade partner that targets Canadian beverage alcohol products or other agriculture and processed agri-food products, for that matter, would be a self-inflicted wound that members should avoid by a simple amendment to the budget eliminating these excise duty measures, and in particular the automatic excise clause. Thank you for your attention.
Luke Harford, President, Beer Canada: Thank you very much, Mr. Chairman and honourable senators.
I am with Beer Canada. We are the national voice of beer for the country. I am grateful for the opportunity to appear here today to make the case for removing the never-ending excise duty increases the government has imposed on beer under Budget 2017.
I have 45 Canadian beer company members. Some are large, some are medium size, and many are small. Together they account for 90 per cent of the beer manufactured in Canada and cover 10 provinces and one territory.
Since Budget 2017 was tabled, I have met with small brewer provincial associations, prairie barley farmers, hop farmers, bottle and can manufacturers, malting companies and many beer drinkers to make them aware of the government's plan to increase excise duty on beer automatically, every year, without having to ask Parliament, with no regard for the condition of the domestic brewing industry or for the amount of tax Canadians are expected to pay for their pint of beer.
I can say with confidence that every Canadian business tied to the success of beer that I have spoken to over the last month will appreciate my asking the Senate committee to consider removing clause 42 from Bill C-44, which calls for the excise duty on beer to be increased every year on April 1 by the Consumer Price Index, a model that we're calling "the escalator tax.''
In the few minutes that I have, I want to explain what the excise duty is and why excise duty and CPI should not be linked together. I will then round off with a call for the government to look at how beer can help it to deliver on its economic plan through growth rather than never-ending tax increases.
Excise, by definition, is a duty levied at the moment of manufacture. On all beer a domestic brewer packages in a given month, it must remit the federal excise duty owing by the end of the month following, whether or not it sold the beer. Excise is an indirect tax. The brewer remits the excise duty it owes to the government, and it is expected to try to recover the loss by raising the price paid by the eventual consumer. The excise duty on beer is approximately 32 cents per litre today.
Because excise is an indirect tax, other taxes are layered on top of it. I would like to give you a quick example of what this means. In addition to the escalator, Budget 2017 imposed an immediate 2 per cent increase to excise. This increased the excise duty on a case of 24 bottles from $2.56 to $2.61 or 5 cents per case.
Now consider how this plays out in the province of New Brunswick, where you have a 90 per cent provincial markup on the wholesale price of beer, then an additional 15 per cent HST on top of that. By the time the 5-cent increase flows up to the final price, taxes have increased by 12 cents. This is before the brewer can factor in labour, material, packaging, shipping costs or any other costs that increase which it needs to try to pass on in its pricing.
The Consumer Price Index, or CPI, is an indicator of the changes in consumer prices. The index reflects pure price movements on the cost of a fixed basket of commodities but tells policy-makers nothing about what is going on in a particular sector.
Let me give you a very stark example to explain my point. In 2015, the world price of oil collapsed to below $35 U.S. per barrel. Using the methodology for calculating the escalator under clause 42 of Bill C-44, the inflation adjustment would be 1.7 per cent. If we extend the logic, the government is using to increase the excise duty on beer to oil, they would have automatically increased tax on an industry in crisis because the CPI suggested all was okay.
There are real challenges domestic brewers are working to overcome today. The government appears to have overlooked these challenges in setting the escalator policy. In looking at the data from Statistics Canada just published last week, beer's share of total beverage alcohol sales has declined from 48 per cent in 2006 to 42 per cent in 2016. Per capita beer consumption has declined from 84.3 litres to 76 litres over this time period. Imported beer has increased its share of beer sales from 12 per cent to 17.5 per cent in value terms, while the number of domestic brewers competing in a smaller market has grown from 268 in 2006 to 650. Layer into this provincial tax increases, labour cost increases, barley costs, the cost of packaging, the cost of hops, the cost of warehousing and shipping costs all going up.
It is not appropriate for the government to excuse itself from having to consider what is going on in a particular sector and to allow excise duty increases to run automatically in the background. The government needs to give thought to how these policy decisions affect businesses, both large and small. The escalator tax on beer fails in this regard.
To close, Budget 2017 has caused a real sense of unease among brewers. Domestic brewers employ 13,000 Canadians, with an average compensation of $71,000 per year, a solid middle class paycheque. The Conference Board of Canada found in a 2013 study that the sale of beer supports 163,000 full-time equivalent jobs across the country, close to half of which were found to be in the food service and hospitality industries, which is heavily tilted toward young adults, a demographic that needs more job opportunities, not fewer.
We buy 300,000 tonnes of barley grown in the prairies every year. We have breweries dotting hundreds of communities across the country, and Canadians enjoy our product. In today's global economy, beer still remains very local; 85 per cent of the beer sold in Canada is made here in Canada.
Rather than an automatic tax increase that darkens the outlook for the beer category, we believe we can help the government create more jobs, more wealth and more opportunities for Canadians, but it starts with eliminating the escalator tax imposed under Budget 2017. We are hopeful that the Standing Senate Committee on National Finance will help us secure this outcome.
Thank you very much.
The Chair: Thank you, Mr. Harford. Now we will ask Ms. Hingorani to make her presentation, please.
Asha Hingorani, Director, Government Affairs, Canadian Vintners Association: Thank you, chair and senators. It's wonderful to be here this evening.
While I represent the wine industry through the government relations work at the Canadian Vintners Association, I'm also a certified sommelier who works in the industry and has a strong appreciation for our wine culture. Thank you for the invitation to provide the Canadian wine industry's perspective on Bill C-44.
The CVA is the national voice of the Canadian wine industry. Our membership represents more than 90 per cent of annual wine production in Canada. We are engaged in the entire value chain, including grape growing, farm management, grape harvesting, wine production, bottling, retail sales, research and tourism. Our industry is made up of almost 700 grape wineries and 1,300 independent grape growers, contributing $9 billion to the national economy.
We produce two types of products, premium 100 per cent Canadian wines, which contribute a $4.5 billion economic impact, and value priced international Canadian blended ICB wines made from imported and domestic content, which also provide a $4.5 billion contribution. The 100 per cent Canadian wines that represent 20 per cent of wine sales in Canada are excise exempt, while ICB is 80 per cent of sales. The vast majority of Canadians drink value wines.
An annual tax increase is regressive because it will impact middle and low income Canadians. Grapes and wine are a prime example of the success for Canada's value-added agri-food industry. From vineyard development and grape cultivation to winemaking and bottling, our compound impact extends well beyond cellar door sales and employment, with strong linkages to tourism, retail sales, bars and restaurants across Canada. As a result, the domestic wine industry supports more than 37,000 jobs. The blended wine industry contributes 15,000 of those jobs and $768 million in wages.
Budget 2017 is sending a mixed message to Canadians. On one hand, it draws from the Prime Minister's Advisory Council on Economic Growth, which identified Canada's value-added agri-food industry as an engine of growth. At the same time, it proposes a 2 per cent increase in the excise duty on Canada's highest value-added products of wine, beer and spirits.
What is not common knowledge is that the government is proposing in the budget bill to amend the Excise Act to legislate the annual indexation of wine, beer and spirits excise duty by the Consumer Price Index, effective April 1, 2018, meaning that the rate is set to increase every year.
Budget 2017 states that excise duty rates on alcohol products have not effectively changed since the mid-1980s. This is not the case. Governments have increased the excise duty on at least 10 separate occasions since 1980. The excise duty on wine has increased by 125 per cent since 1980, with five excise duty increases since 1985. The last increase was in Budget 2006, when the excise duty increased 21 per cent, to 62 cents per litre.
Our industry is concerned that over the next five years, assuming a moderate rate of 2 per cent inflation, the excise rate will increase by a cumulative 11 per cent. Since the excise duty is at the front of the price chain, the impact in cumulative with an ad valorem liquor board markup, GST and PST adding to the consumer impact.
The GST already picks up inflation on the producer price and again through provincial markup which ranges from 70 per cent to 160 per cent. By indexing excise, the price chain would pick up double inflation and multiply it through the price chain.
Studies have shown that a 1 per cent increase in the price of wine will cause a decrease in the sale of that wine of between 0.55 per cent and 1.86 per cent, with lower price wines bearing the brunt of the impact. A drop in sales will have a long-term impact on local business owners and others in the value chain across Canada.
Further, inflation alone does not account for all issues impacting business in any given year, which will no longer be addressed without an objective review by parliamentarians. This legislated annual tax increase is too rigid. It will take away the role of parliamentarians. It will tie the hands of future governments. It fails to account for the 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. More than 20 per cent of Canada's grape supply is used for lower price blended wines, below $10 per 750-millilitre bottle. With an excise increase and its cumulative impact through the price chain, there is likely to be some movement of consumers toward the purchase of cheaper foreign wines, which are often highly subsidized by overseas governments.
With imports capturing 70 per cent of wine sales growth in Canada, import tariffs soon to be eliminated under CETA and interprovincial trade barriers restricting the direct-to-consumer wine delivery, the proposed annual excise tax escalator will seriously damage our ability to create jobs and spur economic growth.
With the recent challenge against Canada at the worldwide trade organization regarding B.C. wine sold in grocery and the renegotiation of NAFTA, it is clear that imports want more of our market and are willing to challenge us on all fronts.
The Canadian wine community is committed to adopting sustainable grape growing and winemaking, as well as complying with increasingly higher standards for air and water quality. The excise tax increase will make investing in these and other innovation practices more difficult and places Canadian vintners at a disadvantage to their foreign competitors.
Our industry is rooted in Canada. We simply cannot uproot and move our business elsewhere. Wine is one of Canada's signature industries and should be supported and promoted by our federal government, and not selectively targeted.
In the House of Commons Finance Committee'a eleventh report presented December 7, 2016, titled Creating the Conditions for Economic Growth: Tools for People, Business and Communities, recommendation 54 recommends 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 Canadian agri-food powerhouse, which would strengthen our competitiveness domestically and abroad. However, this excise escalator will put economic growth on pause. Therefore, we ask you to consider repealing the excise tax indexation from Budget 2017.
Joyce Reynolds, Executive Vice-President, Government Affairs, Restaurants Canada: Thank you, Mr. Chair, and honourable senators. I am also appreciative of the opportunity to be with you this evening.
I am here on behalf of the $80 billion restaurant and food service industry, an industry that employs 1.2 million Canadians. Restaurants indirectly employ an additional 250,000 people who provide the wide range of products and services required by the industry. More than two-thirds of Canada's 95,000 restaurants and food service businesses are locally owned and operated by independent entrepreneurs.
The restaurant and food service industry is a valued contributor to communities right across Canada, bringing jobs, investment, tourism and a focal point for people to gather. The rejuvenation of neighbourhoods is often led by the entrepreneurial restaurant scene. The infusion of new activity into neighbourhoods is critical for every community to thrive.
Restaurateurs are proud of the opportunities they create for youth and new Canadians, whether they are with the business for a year or for a career. We are also an industry with razor-thin profit margins, averaging 4.3 per cent, and lower for the pub and bar sector. As you are aware, sales and distribution of beer, wine and spirits are controlled by provincial monopolies. Alcohol is already subject to a bevy of duties, markups, fees and levies. After the restaurant markup is included, provincial and federal sales taxes are added on.
What most Canadians don't know is that licencees often pay more for a case of beer or a bottle of wine or spirits than consumers purchasing them at the provincial retail store. There are often surcharges to licencees that consumers aren't subjected to and there is little in the way of wholesale discounts.
Restaurants include their cost of service. This includes glassware, overhead, rent and staffing, which includes the training of all servers in the responsible service of alcohol. The list goes on. It becomes very expensive for the average Canadian to enjoy a glass of wine, a pint of beer or a cocktail with their meal. As a result, alcohol sales to licencees are stagnating.
You can imagine the surprise of our members when the government selected to add more taxes, not less, to alcohol, one of the highest taxed commodities in the country, and to increase this tax annually 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 business. These are real dollars that can't be used for hiring staff, investments, innovating and refurbishing their businesses, and in some cases remaining viable.
I listened intently to Mr. Coulombe from the Department of Finance on Tuesday during his testimony to this committee and to the House of Commons Finance Committee. I know that restaurants and pubs will be disheartened to hear that the department believed the excises were so small that it wasn't necessary to analyze the economic impacts.
A tax increase from $300 million to $470 million in five years is significant, when we consider that the tax will be part of the base price to which all other fees, levies, markups, and provincial and federal sales taxes will be layered on. The federal government is already getting inflationary increases from the revenue collected on the GST. Ultimately, the increased taxload on alcoholic beverages will make them less affordable for middle income Canadians.
Although we were not happy with the 2 per cent increase this year, we can accept it as a fait accompli. What we would like to see changed in the Budget Implementation Act is the removal of the excise tax escalator so that parliamentarians would have the opportunity to review any future increase based on economic impact and circumstances.
As noted earlier, alcohol prices in Canada have reached the point of diminishing returns with stagnating sales to licencees. A compounding increase in excise duties will only make things worse.
The Chair: Honourable senators, before we proceed with questions, I have been informed that Mr. Westcott will need to leave before 8 p.m. If honourable senators have questions to direct to Mr. Westcott before he leaves, please do not hesitate to identify that through the chair.
Senator Eaton: My question is addressed to Mr. Westcott and Mr. Harford.
I was reading yesterday in the newspaper of the effect of the legalization of marijuana, probably on beer and spirit sales, which is kind of pessimistic.
What I would like to concentrate on is: How will this escalator clause affect your businesses, both competing against imports and on the global market of exports? Where do you see that going?
Mr. Westcott: We are an export business. About 70 per cent of what we make in Canada leaves Canada. Our biggest market is in the United States. Our biggest competitor is the United States with its bourbon industry, straight whiskey industry and American blended whiskey industry.Right now, excise taxes in Canada on our products are 67 per cent higher than excise taxes on spirits in the United States, and we will see them climb every year in perpetuity. It is a recipe for disaster. It will kill us.
We had this experience from 1981 to 1986. We closed 12 distilleries. We took our eye off the ball in terms of international business. We were number two behind Scotch whisky in 1980. At the end of that decade —
Senator Eaton: Then the United States was number two.
Mr. Westcott: Canada was number two of the global whisky business. We were second only to scotch. At the end of that decade when we had indexation, it was the same thing. We slipped to number four.
It will have a catastrophic impact on our business. It is like everything else. Our competitors in the United States aren't facing this. In fact, the U.S. is going in the opposite direction. They are talking about lowering their taxes. This will have a tremendously damaging effect on our business. We had this experience in the 1980s. We absolutely can't repeat this, or we won't have a whisky business in Canada. It really comes down to this.
Senator Eaton: Or a vodka business or a gin business.
Mr. Westcott: That is right.
Senator Eaton: Beer, according to the sheet you handed us, is 56 per cent higher now than in the United States with how we are taxed.
Mr. Harford: That is right.
Senator Eaton: How will Canadian beer compete with American beer?
Mr. Harford: The best way to describe it is the exchange rate is adjusted. The difference between the federal excise rate in Canada is 56 per cent higher than the federal excise rate in the United States.
The way I characterize it is as a production tax, as a tax on manufacturing beer, the federal government is taking money away from the businesses that they could use to ladder up and grow both domestically and in export markets.
Senator Eaton: Do you feel that this escalator tax will start affecting you right away in terms of fighting against imports in the market?
Mr. Harford: It will, because for larger companies that are looking out five years and planning we have now increased the cost of production in Canada. They have to decide where they will make their investments and how they will recoup that cost.
For smaller companies, they also look at it and say, "I am working really hard, but I'm not making any more money. Every year my taxes are going up. Is this really worth my while?''
Senator Eaton: This may seem ignorant, but does Budweiser ship beer into Canada to compete against our beers or is it made in Canada?
Mr. Harford: Budweiser is made in Canada.
Senator Eaton: Can that be said for a lot of American beers? Are they made in Canada?
Mr. Harford: As I indicated, 85 per cent of the beer sold in Canada is still produced in Canada.
Senator Eaton: What Budweiser might say eventually is: "We will just ship it in.''
Mr. Harford: There is that possibility. The advantage that beer has to remaining local is that it is expensive to move around. It wants to be close to its home markets, but from the export standpoint and the investment standpoint we are leaving less money every year on the table for the brewer to invest in his or her business or brands.
[Translation]
Senator Forest: My question is for Mr. Westcott.
I am especially concerned about the gap between the big distilleries and the much smaller craft distilleries, which are popping up more and more, and the fact that brewers who produce less than 30,000 hectolitres are exempt from the excise duty. First, I would like to know whether that is true. Second, if memory serves me correctly, we were told that the increase in the excise duty would not affect exports. Are both of those things true?
I would like to know which measure is more detrimental to you. Is it the fact that the excise duty rate is being adjusted by the consumer price index, given that the budget proposes an escalator tax, whereby the excise duty will automatically increase every year based on the consumer price index?
[English]
Mr. Westcott: To answer your first question, 30 hectolitres is 3,000 litres. If you divide that by nine, that is the number of cases.
[Translation]
Senator Forest: The number mentioned was 30,000 hectolitres.
[English]
Mr. Westcott: If you divide that by nine, that is 2,000 cases. That is not a business. Most of the small distillers are in the 5 to 50 range and we have some in the 50 to 100 range. That is almost a de minimis amount. It is not relevant to anybody doing business. If you are only producing 30 hectolitres, you are not in business. That is a hobby.
With respect to exports, Canada is a very small country. All of your export promotion, your development and all of the work you have to do in those markets to keep your brand attractive to consumers in those markets has to be paid for by profits made in this country. When you don't make any profit in this country, you can't do that.
For them to argue that it has no impact on exports is absolutely crazy. You just can't describe it in any other way. If you don't invest in your export businesses, if you don't invest in those markets and aren't doing the marketing, advertising and those kinds of things in the export markets, you fail. You will not be a successful exporter.
We export $700 million of whisky every year. We are successful at exporting. That has to be given by profits in the business in Canada. Canada has the highest taxes on beverage alcohol in the world. They say this is just a tiny little increase, but when you are already starving a tiny little increase depresses your margins even more. It will have a dramatic effect on our export business at a time when the government itself recognizes the huge opportunity that agri- food and beverage processing has in terms of future economic activity, future wealth creation and jobs for people in Canada.
In the last four or five years there has been this discussion in Canada about why Canadians don't do more with our raw materials and our natural resources before we ship them out of the country. The people sitting in front of you today are like the poster children. We use Canadian resources. In our case, 100 per cent of our grains are grown by Canadian farmers and are processed by Canadian workers in Canada. Then we export it around the world. That is what we should be trying to do. The escalator will basically just sap it.
We are already seeing effects. Investors are saying to us, "Why would I put money into a marketplace where the taxes are going up, regardless of what is happening in the business, regardless of what we say?'' It is having an immediate effect.
Senator Marshall: I will start off with a general question. Were you consulted before the Budget Implementation Act came out? Was there no consultation process that you were aware of?
Ms. Hingorani: No, none of us were consulted. In fact, when the budget was tabled on March 22, we all got calls from our members who were dumbfounded by this decision.
Senator Marshall: When you look at it, as Mr. Harford was saying in his opening remarks, we are talking about 5 cents per case. It sounds like it is not very much, but when you look at how much in excise tax has been raised by the government a couple of years ago and then look at this, which is going to be almost $500 million over five years, you get a better appreciation of the magnitude.
You say the increase is 5 cents per case, but I'm also interested in how much excise duty is already there. Five cents is the incremental, which is not very much, but what's already there is substantial. I don't drink beer but I know there are different kinds of beer. For a bottle of beer, on average, the increase is 5 cents, but what would an average amount be before the 5 cents are levied?
Mr. Harford: I'm really glad you've asked that question because I'm a trade association executive and reach out to my members to help me understand what I am talking about here.
Watching the presentation from Finance Canada yesterday, I can tell you that it's offensive to the brewing community to trivialize a little 5-cent increase by saying we can just pass that on. The reason it's offensive is because the starting point is so punitive. A small increase on a punitive tax doesn't make it any less punitive. The Public Accounts show that excise on beer in 2016 was $584 million.
Senator Marshall: That's what I saw.
Mr. Harford: However, we think that number is quite low. There is customs duty, which is equivalent to excise, that is levied at the time beer is brought into Canada. When you put the two together, and just doing it with a calculator, the number is closer to $718 million paid to the federal government in excise tax, and they want to increase that every year.
I can't understand why they think they can take $16 million out of an industry every year and increase it every year and not think that will have an impact on consumer prices, on investment decisions our brewers are making and on their ability to plan for the future in the country as business people.
Senator Marshall: For me, what's missing is that we're looking at the 5 cents but I don't really have an idea as to how much is already paid. If the increase is 5 cents on a bottle of beer, how much excise duty was paid before the 5 cents was levied? I'm just trying to get a handle on that.
Mr. Harford: On a case of beer of 24 bottles of 341 millilitres it's $2.56.
Senator Marshall: That's about 10 cents, is it?
Mr. Harford: Right.
Senator Marshall: It's 10 cents now and you're saying the increase is 5 cents.
Mr. Harford: Five cents on a case. If we want to bring it down to what it is per bottle, we can make it seem really small, but the thing that I go back to is that we sell seven billion bottles of beer every year. It's a big number, and it's not the only tax that brewers have to pay.
Senator Marshall: That was my next question. In your remarks you said on top of that there was HST.
Mr. Harford: There are provincial taxes. Those are the commodity taxes. When you think of HST on an $8 pint of beer in a restaurant, they're making a lot of money off of that. A brewer also has to pay municipal taxes, payroll taxes and carbon taxes. Before they even get that product into the truck and out to the retailers, they've incurred a ton of tax.
Senator Marshall: I wasn't interested in property tax or the tax to municipalities. I was more interested in the excise duty and then the HST.
Ms. Reynolds used the phrase the highest tax commodity. I don't know if she was talking about beer or spirits or wine.
Ms. Reynolds: Alcohol.
Senator Marshall: Everything, so it's the highest tax.
I'd be interested in seeing a little breakdown so that when we're looking at this we don't say, "Oh, it's just 5 cents per case. Really, that's not very much.'' However, when we look at what they've collected and now what they're projecting to collect and compare the two, it really is a big increase.
Mr. Harford: Huge.
Senator Marshall: The 5 cents per case doesn't convey the significance of the increase.
Mr. Harford: Absolutely, that's right. It seems like we're being overly dramatic because it's this small 5-cent increase, but in fact there are the provincial taxes and the HST, and you have to look at the whole picture and the impact.
Senator Marshall: Right, because that's on top of it.
Mr. Harford: Correct.
Senator Marshall: When we look at the issue of the Consumer Price Index we may say that's not a really big amount, but then there are the HST and all the incremental taxes, right?
Mr. Harford: I'll go back to my comments. The Consumer Price Index is not an appropriate tool to set taxation policy. It's what's happening to a fixed basket of goods over time. It has nothing to do with what's going on in the beer sector. We can have a crop failure in Western Canada that triples the cost of malt. We can have a warehouse of hops burn down and short the supply of hops for three years. That happened in 2005. The brewers have to incur all those costs. They have to find a place for them, but in those years CPI might be 1 per cent or 2 per cent but says nothing about our industry.
Senator Marshall: We heard from witnesses yesterday. This CPI is something new. It's precedent-setting. I guess you're the first group it has been applied to.
Mr. Harford: We did look, and we can only find two other countries in the OECD with an index on beverage alcohol. Nobody else does it.
The Chair: On the second round, Senator Marshall.
Senator Marshall: Yes, I'll ask for the specific information I'm looking for.
Senator Woo: I want to probe a bit this question of potential trade actions that Mr. Westcott has raised, but to help me get to that I need to ask all of you a question first.
As to the percentage of your industry's product that is actually exempt from the excise tax, VQA, for example, we heard from Ms. Hingorani 20 per cent. I heard from your colleagues 30 per cent, but something like 20 per cent to 30 per cent is exempt from the excise tax.
What about for beer and spirits? Can you give us a figure?
Mr. Westcott: You heard the 30 hectolitres. If you are over 30 hectolitres, you don't get that.
Senator Woo: Is it only for the companies that produce 30 hectolitres?
Mr. Westcott: I believe so. It's not a scaled thing.
Senator Woo: Could you find that out for us?
Mr. Westcott: I will.
Senator Woo: That's really important. We know in the wine industry that 20 per cent to 30 per cent is exempt from excise tax.
Ms. Hingorani: Yes, 100 per cent Canadian grapes are exempt from that.
Senator Woo: It would be very helpful to get the comparable statistic for the spirits industry.
What about the beer industry, Mr. Harford?
Mr. Harford: Brewers pay excise from the very first drop of beer they produce. For Canadian producers, since 2006, there has been a progressive excise schedule. Recognizing that the hurdle rate, to my earlier point, to get into the beer business is so high, the government in 2006 brought in a progressive excise schedule. We've seen the number of breweries increase from 268 to 650. It will probably be more. Our data are coming out in the next couple of weeks.
As an indication of the success of lower taxes on driving investment and interest into the beer business, there is a very clear example right there.
Senator Woo: My brain is not fast enough to pick up your answer to my question. What share of beer production in Canada is exempt from excise tax? I know you said it was progressive.
Mr. Harford: Yes, all the beer produced in Canada pays excise. None of it is exempt. There is no exemption.
Senator Woo: Is there some sort of a scale?
Mr. Harford: There is a scale, yes.
Senator Woo: Could you provide us with some information so that we better understand?
Mr. Harford: Absolutely.
Senator Woo: It's not a single rate for all beer producers but it depends on the size of the brewery.
Mr. Harford: That's right. On your first 75,000 hectolitres of production there are progressive, tiered rates. I'd be happy to provide you with those excise rates.
Out of that $720 million in excise paid on beer in Canada, the value of it is between $9 million and $11 million that you would see as a benefit to the progressive excise schedule.
Senator Woo: That's very helpful.
The Chair: Please provide it to the clerk.
Senator Woo: I want to continue to get to the trade part of the question to understand where the trade problem lies.
Foreign imported beer, imported spirits and imported wine would also be subject to excise tax, so that is a level playing field. I know it affects your competitiveness, and it's a question of whether foreign producers absorb the market or they pass it on. That's a legitimate question.
I understand the potential problem with the trade action is that the gap between the number of exempted wine producers, for example, grows relative to foreign wines imported to Canada that are subject to the excise tax. Presumably, that's your concern as well, Mr. Westcott, even though you seemed to tell me that not many spirits produced are exempted from the excise tax. It's the gap you're talking about, right?
Mr. Westcott: It's the gap. Canada has had two significant trade fights on alcohol. One was with the Europeans in the late 1980s, a gap case which we lost conclusively. The second one was a beer fight in the early 1990s. I happened to be in the wine industry for the first one and I happened to be in the beer industry for the second one. I was at the table for both.
Senator Woo: Two-time lucky.
Mr. Westcott: Our policies didn't measure up to our obligations under the World Trade Organization. We said we would do certain things and we didn't.
In both of those, the industry that was directly threatened by the Americans was the whisky industry. Why? It was because we export a vast amount of whisky. When they want to send a message, it doesn't matter where the fight started. We're the ones they send a message to. We are very vulnerable when there is a fight, particularly in alcohol.
When there is a trade fight, other countries look to how they're going to put punitive measures on it. Our products wind up at the top of the list just because what we are and who we are. We're very sensitive to those kinds of things.
We've only had an embargo on our goods once in my lifetime. That was beer. Canada and the United States were in a beer fight. They each put a 100 per cent duty on and it lasted for about three weeks. We live in a world where if you're off the shelf in a store for one, two or three weeks that business is gone. You'll never get it back. You just can't afford to get it back.
Those are very significant issues for the spirits industry in Canada, as well as for the brewers and the vintners. We're two-thirds of the exports, so it's a major issue.
Senator Woo: I'm very sensitive to it. It strikes me that the root problem, though, is the differential pricing regime that already exists, regardless of the escalator. There already is a policy to exempt locally produced wine in this case from excise duties. The escalator may exacerbate the problem and may be a pretext for trade action, but you have an underlying issue that may also be cause for trade action. Is that fair to say?
Ms. Hingorani: Yes.
Mr. Westcott: When that happened Canada and Europe negotiated an agreement. It didn't make what Canada did legal from a trade point of view, but it settled it.
Senator Woo: I understand, yes.
Mr. Westcott: If there is another trade fight that all comes back up again.
Senator Woo: Finally, two of you mentioned that escalators are already built into GST. I want you to explain what you mean by that. I know GST is not indexed. Are you saying that because consumer incomes are rising that is how it is indexed? In what way is GST indexed already?
Mr. Harford: It's not that GST is indexed, but GST is a percentage of the final price at retail. As the price goes up, they automatically bring in more dollars.
Senator Woo: In that sense.
Mr. Harford: Yes, in that sense.
The Chair: Thank you.
Senator Moncion: What is the amount of excise that you pay to the province and the government? What's the difference between both of them?
You've been saying that taxes have gone up over the years. We were told yesterday that the government portion hasn't gone up for a while but that provincial taxes have gone up. I want to know the difference between those two, like the amounts.
Mr. Harford: Federal excise is a federal tax. A long time ago, the provinces were given the ability to have control over beverage alcohol. They apply things called markups to offset the cost of their retail and distribution systems, which they control, as well as to generate revenue for the government.
The problem I have with the argument is that the federal government is looking at the provinces that are taking a much larger share of the tax applied to our products. First, the federal government gave the provinces that ability and, second, that isn't a policy rationale that the federal government should be using. "We need to increase taxes because we're not getting our fair share'' is not an economic reason for increasing the tax on a business sector.
Yes, there is more tax at the provincial level than there is at the federal level. That is something that was agreed upon a long time ago. The idea that the government can justify increasing the tax because they don't feel like they're getting their fair share is not appropriate. They need to look at the economic circumstances of that sector before they decide to set in place automatic annual tax increases.
Senator Moncion: I didn't get the answer. What are the amounts?
Ms. Reynolds: I was just going to add to that. If the federal government wants a larger share of alcohol taxes, they increase their excise tax. It appears to me it's a naive perspective to think that somehow the provinces are going to drop theirs. We've never seen provincial taxes on alcohol drop. What we see is a bit of a windfall for the provinces, in fact, because they add the tax on top of the base price, which includes the excise.
Yes, the take from the provinces is much higher than the federal government. I can't give you percentages because there are so many taxes and levies. They vary from one province to the next and from one product to the next. It's hard to come up with a percentage. I can tell you that it is a lot more.
The federal government and the provinces also generate huge revenue from the sales tax on alcoholic beverages. The same day that the federal budget came down on March 22, Saskatchewan introduced their budget and increased their sales tax on beverage alcohol to 10 per cent from 5 per cent. It was a huge hit, a double hit for our industry that particular day.
We're not happy with the taxes the provinces charge. Believe me, if there was a way to reduce them, we would, but that is the reality.
Mr. Harford: I apologize for not answering the specific question. About one-third of the total commodity tax on a case of mainstream priced beer is the federal portion and two-thirds are the provincial portion.
Senator Pratte: At least both Mr. Harford and Ms. Hingorani have mentioned, contrary to what officials told us yesterday and what is in Budget 2017 about the excise tax having not effectively changed since the mid-1980s, that the excise tax effectively increased a couple of times, at least, and the latest time occurrence was in 2006.
There are some discrepancies here. Where is the truth? If in fact the excise tax has increased a few times since the 1980s, that means the officials have effectively misled this committee and the budget has misled Canadians, which is a serious thing.
Mr. Westcott: Excise was increased in 2006. It's in the records. It was part of that budget. It's easy to check. Go and look it up.
I'll speak only for spirits. We've all had slightly different experiences. If you look at public accounts, in 2006 we were paying this much excise. In 2016, 10 years later, the government was collecting almost 50 per cent more dollars from us in excise.
Senator Pratte: That's very different.
Mr. Westcott: Hold it a second, not really. Our business went up 14 per cent. Inflation was 17.8 per cent over that period. You're right. You're not getting the straight goods. I can give you the references and the materials. You can look at them but those are the facts.
The Chair: Mr. Westcott, on the question asked by Senator Pratte, can you provide us with that information?
Mr. Westcott: Yes, sir.
Senator Cools: Soon.
Mr. Harford: The answer to the question hinges on the word "effectively.'' In 1991, the federal excise rate was increased by 44 per cent on beer. In 2006, it was increased by 11.6 per cent.
Finance Canada will have an explanation for those increases. In 1991, it was because they were moving away from the manufacturing sales tax toward a broader based GST. They increased the excise rate by 44 per cent on beer so that with the removal of the manufacturing sales tax, the introduction of the GST and the excise rate increase their revenue would remain whole. They did the same thing in 2006. Their point is that they haven't increased excise effectively, but they have increased it. They don't think that they see it as effective.
Our position is: What do they mean by effective? Does it mean that we have to have fewer jobs in the beer category? Does it mean we have to reduce our investment in plants, equipment and training? Is that what they mean by effective? Why does it have to increase every year?
They need to do an analysis of the sector and come to the public or come to Parliament and say, "We think that this is the right increase this year.''
Senator Pratte: I want to go back to this idea of the escalator. I wonder which scenario is better. Effectively the excise tax is not increasing year over year over year. The last increase was in 2006. That means 11 years ago. What is better? In fact that means, as far as revenue generated, the excise tax has been decreasing in real dollars, right?
What is better? Is it better to have an escalator system linked to CPI, or would it be preferable to wait for 10 years and then have a 10 per cent increase, which would produce a shock to your industries that is probably worse than having a gradual escalator system?
Mr. Westcott: We take issue with the idea that excise is falling behind. In that 10-year period I talked about, inflation was 17.8 per cent. Revenues from excise went up 17.7 per cent. How were they falling behind? They may not be gaining. That's a slightly different argument, but I don't know how you can argue that they're falling behind. You matched inflation. You went up exactly as inflation did. Maybe you didn't gain, fair enough, but how can you say that you were losing because of inflation? You were not losing. It went up exactly the same amount.
It's a volume based tax. In our industry our volumes didn't grow, so they're collecting a lot more money. When they made the change in 2006, financial officials stood before us and swore to us, "Don't worry; it's going to be revenue neutral.'' It absolutely has not been revenue neutral since 2006. Our payments of excise have gone up, as I said, close to 50 per cent. Our business didn't go up anywhere near that and inflation didn't go up anywhere near that.
I struggle to understand how people can stand there and tell you that somehow it's falling behind. I'll give you those numbers. I will put them in front of you.
Mr. Harford: Just from the beer side, I'd say it's not that we're under any illusion we're not going to pay tax or that taxes aren't going to be increased. That's not the issue.
The issue with the escalator is that it's automatic. It runs in the background and there is nobody checking in to say, "How is this sector doing before we increase taxes?'' Right now, we have lower per capita consumption. We're losing market share. Imports are growing. It's a very competitive market. Is now the time to be looking at increasing taxes on beer every year? We would say no.
Senator Oh: For the last 10 years, have your industries increased their sales? What about employment? Has it gone up too?
Mr. Harford: Yes, we have seen a growth in employment in the beer category. As I mentioned, there were 268 breweries in 2006 and today there are over 650. Since 2006, we've also seen five post-secondary education programs start up at different universities that are geared toward and tailored to the brewing environment, whether it's brewing production, brewing management or brewing itself. We have schools in Niagara, in B.C., in Sherbrooke and in Durham. That's sort of a spinoff effect of what's going on in the category today.
Mr. Westcott: In the spirits industry we are slightly behind in the sense that we're only starting to see the creation of small distillers across the country. About three dozen, still very small, are emerging. It's quite possible we will get to the numbers the beer industry is seeing.
I started out in the wine industry just as Don Ziraldo and Karl Kaiser had started Inniskillin and Paul Bosc had started Château des Charmes. We've seen the same kind of explosion. I assume we're going to see the same kind of thing, but over the last 10 years our business has been relatively flat. Although there has been growth in the industry technology is actually taking jobs out of the business as we all try to become more efficient and more competitive. It's not quite as labour intensive as it used to be. There are more people on the technological side, so the businesses are much more sophisticated. There are more highly educated people on the operations side, not as much unskilled labour as there used to be. We're probably about flat.
Let's remember that having the highest taxes on our products in the world means you have the lowest margins. Those lowest margins have cost us a bunch of plants. A month ago, Bacardi, in Brampton, Ontario, a plant that has operated there for 70 years, decided to close because they don't make enough money in this climate.
Senator Oh: I passed them many times.
Mr. Westcott: At the end of I think it's June that plant will cease production.
Senator Oh: In Canada, which province has the cheapest beer and which province has the most expensive beer?
Mr. Harford: I think that's a rhetorical question.
Ms. Hingorani: If I may, I would like to just comment on the jobs. With some of our partners provincially, we put out an economic study in March on the grape and wine industry. Based on 2015 numbers, we found, as I said in my opening remarks, that the Canadian wine industry employs more than 37,000 Canadians.
I'd be happy to forward a copy of our economic study to the committee. It gives a breakdown of the provinces, as well as goes into detail on where those jobs are coming from. I'd be happy to provide that, if you'd like it.
Senator Oh: One last question, chair.
The Chair: On the second round, please, Senator Oh.
Before we go to the second round, the chair will recognize Senator Andreychuk.
Senator Andreychuk: Some of the questions have been answered, but I'm more concerned that we need growth in Canada. We need growth in all industries and in all efforts.
The most interesting thing we have done in Canada is expand the wine industry by not just going in and drinking. All of a sudden it is an experience. You go in and you eat food. It's now included in tourism. If you have delegations coming in, you take them to the wine country or to a craft beer operation. The spinoff of alcohol used to be "don't drink much,'' et cetera. Now it has become more cultural, a tourism and an economic driver.
I want a bit more expansion. Is that jeopardy? It is not only the actual old sales but there are all the spinoff jobs and interests for women. We are growing wine in Saskatchewan now. We have climate change. We have different opportunities and different markets. All of that is what we are talking about: economic growth and prosperity. I would like to hear more. Is that part of what will be at jeopardy? It isn't just your industry but all the other industries. That is one area that concerns me.
You talked about schools, and that's good. The overwhelming concern is that we are talking about accountability of governments. We want them to be more transparent. We want more involvement with Parliament. You say you haven't been consulted. Is there any link? Do you ever have conversations with the financial people or with the minister? Since this has come out, have you contacted the minister or the Prime Minister, and what is the response?
Ms. Hingorani: I will comment on your first remarks. The Canadian Vintners Association had our lobby day last week. We had our board of directors from across the country come in. This issue wasn't exactly what we wanted to talk about because it is so worrisome to the board and vintners around the country, but it was the main topic.
We are finding that government isn't really recognizing the Canadian wine industry as part of our heritage. They see us as a revenue driving commodity. We want to hammer that idea home in terms of what we are. We are farmers. That's really what it is. We employ people all through the value chain. On your comment about whether this will have a ripple effect, it certainly will. As I said in my opening remarks, we deal with the manufacturing, retailers, suppliers, and all that kind of thing.
Ms. Reynolds: In the federal budget there were increased dollars for marketing of tourism, which we are very pleased about. We think there are real opportunities when it comes to culinary tourism. We could compete with any country in the world in terms of the restaurants and what we have to offer.
We want more international visitors to experience it. We want more travel within Canada so people can experience all our wonderful cuisines. Because we have such a rich diversity within the industry, that is what has enriched our culinary culture. We are so proud that we have many different types of cuisines in Canada.
What is concerning is that our beverage alcohol price is so high. International visitors get sticker shock when they come here because it is so much higher than what they have to pay in their countries. We see that being a real problem when it comes to attracting tourists and getting them to come back.
In terms of your average Canadian, we have a situation where it is so expensive to have a beverage when you are dining out that people will have beverages at home first and then dine out. They are not enjoying them with their meals to the degree they used to and the degree that we would like them to.
I don't know if that answers your question.
Mr. Harford: In terms of the question around other industries, there are a few things. The beer industry as well as the farming community and the provincial and federal governments put a lot of money into investing in future varietals that will keep Canada competitive in the malting barley sector. It is a premium crop for farmers and one that Canada really excels at doing in a high-quality way. It's not going to have a direct impact, but it will not help when we have to pass on higher excise costs, higher malt and hop costs, and so on.
Regarding hop farmers, just prior to the budget getting tabled I met a gentleman from Chilliwack farms in B.C. He is the first commercial size hop farmer that they have had in B.C. in 20 years. He introduced me to the hop association of B.C. and the hop association for Alberta. There is one in Ontario, one in Quebec and one in Nova Scotia. They all came and said, "How do we help?'' They don't see beer as just an alcoholic beverage. They see it as something much more, something that is tied to barley, to hops and to our culture.
On the issue of transparency, as soon as the budget was tabled we requested a meeting with Minister Morneau. We had that meeting on Monday of this week with his staff. We made our case but they are very committed to what they have put in the budget, as you would expect them to be. We are trying to find every opportunity we can to elevate our cause because of the concern of the industry.
Senator Andreychuk: There were round tables, I am told, pre-budget round tables. I am always intrigued as to who shows up at these round tables. Were any of you invited to the pre-budget consultations at all or any of your members that you are aware of?
Mr. Harford: We participate in the pre-budget consultation every year. We recognize that governments are looking for information on different industries and different categories. They are looking for ways to help industries grow and create economic opportunities. We regularly participate both federally and provincially in those consultations.
On the escalator tax and the 2 per cent increase, we weren't consulted. We weren't expecting to be consulted, but what we would expect is for the finance department to have considered the escalator, in particular, as something that could in time cause quite an impact on the beer and wine categories, the domestic spiritsand the restaurant businesses.
Senator Andreychuk: You are saying you didn't make your case
Mr. Harford: Correct.
Senator Cools: I thank you very much for what I consider to be excellent and extraordinary presentations, awakening lots of things maybe that I haven't thought about for a lot of years. We are sitting here and I keep thinking, "What can we do? There is something wrong in all of this picture.''
I want to put that question to you: What can we do? What should we do and what would you like us to do if you were sitting here in our places?
The Chair: Mr. Harford, you have 60 seconds.
Mr. Harford: Please delete clause 42 from Bill C-44. That is all we want you to do.
Senator Cools: Please make sure that the people recording these debates got what you said because you were so fast.
Mr. Harford: I am sorry about that. It is in my remarks, and I could submit my remarks.
Senator Cools: I know. They can only type at a certain rate.
Mr. Harford: I appreciate it. I will say it slowly.
We will be appearing before the House of Commons Finance Committee as well. We are hoping we will get the support of this committee to put an amendment into the budget bill, Bill C-44, that would remove clause 42, which is the escalator tax on beer. Then, there are other sections that apply to wine and spirits and they would be requesting that those sections be removed as well.
Senator Cools: Thank you very much.
Ms. Hingorani: I want to echo what Luke said. Also, you asked us what we would do sitting in your chair.
I think consultations are extremely important with industry when making these kinds of decisions that will impact jobs. Also, in future budgets, it would be great to see what investment in the industry would result versus taking money out of our industry's pockets.
For instance, the wine industry has asked for a wine innovation program that will create a lot more revenue for you than the escalator would. I am happy to forward our proposal to you on that.
Ms. Reynolds: My perspective mirrors what they are saying. We are looking for this committee to hopefully introduce an amendment that would address the escalator clauses for all three alcohol bench products.
We would love it if you would talk with your fellow senators and members of Parliament to convey to them what you have heard from us and what you hear from restaurant operators, vintners, distillers and brewers in jurisdictions in your provinces about what the impact would be and encourage everyone to do that. I think you will get a very consistent message from all of them.
The Chair: As an information item to the witnesses, there will be a report tabled in the Senate on Bill C-44.
[Translation]
Senator Forest: One of the key issues we talked about earlier, when we were doing the math, was that, with the excise duty, a tax is being imposed on a tax. The excise duty is part of the price, and, at the end of the day, consumers in Quebec are paying the GST and QST on taxes imposed on the product originally. I would like to get to the bottom of this, because it's a complex issue. Mr. Chair, we have been studying this for two days now. The excise duty is part of your production cost. You pass it on to the distributor. Does the distributor take a margin? What is the progression of the excise duty, from the production cost to the consumer, who pays GST and QST on the initial taxes? I would like to know the progression of that tax.
[English]
Ms. Reynolds: I always think of going to the gas station and seeing that little chart that says how much of the price is excise tax. They are able to provide the chart so that you know that a high percentage of what you are paying for the product is taxes.
We have said, "Why can't we produce something like that?'' We have tried to do it but one of the challenges is that even within each of the beer and wine distilleries the taxes vary so much depending on the products.
We have tried to compare provincial taxes because every province has a different system. Some have environmental levies. They all have markups but then there is the gallonage tax. There are so many of them, how do you bundle them and give consumers that single explanation of how much of that product is taxes? We haven't been able to figure out how to do it. Maybe you have been able to do a better job. Part of the problem is that we have to do it for beer, wine and spirits, as opposed to trying to focus on one.
Mr. Harford: I can give you the breakdown by province, but looking at a national level, on average, about 50 per cent of the retail price for a popular brand of beer is tax. That is commodity tax. That is the excise; layered on top of that the provincial markup; layered on top of that any environmental levies; and then PST and GST on top of that. You take all those together, on average for the country about 50 per cent of the price that is tax for beer.
Senator Eaton: Are you including the profit? For instance, if they sold through the Beer Store or the LCBO, is that the profit and then there is a profit margin on top of that?
Mr. Harford: For each province we take the place where the product is sold most frequently, so we take the greatest volume and we look at all provincial markup as tax in that 50 per cent number. We don't accommodate for their costs. It's just a straight line for calculating the cost of tax.
The Chair: Can you provide a chart?
Mr. Harford: We can do that for you.
The Chair: Please do that as soon as possible, before you go to the other house to make your presentation or as witnesses.
[Translation]
Senator Forest: What I wanted to highlight was that the excise duty imposed at the beginning of the chain is taxed further down the line through provincial and federal consumption taxes. Taxes are imposed throughout the entire chain; there are taxes on taxes.
[English]
Mr. Harford: Excise is an indirect tax. The producer pays it. They try to build it into the price at which they ship it to the shipper, and on top of that there is tax on tax on tax. It is a hidden tax as far as the consumer is concerned.
Senator Marshall: What Senator Forest was asking for is what I was alluding to earlier. You are going to provide it for beer, but I would like to see something also for wine and spirits. I know that the prices vary and that it is different in every province, but perhaps you could give us an average or something.
I met with someone yesterday from one of the larger beer producers. He provided me with the breakdown for a couple of individual provinces. That is what Senator Forest was asking for. It's possible and it indicates the extent of the taxes. I would like to see that.
I have a few questions. I want to make sure I understand exactly your earlier answers. For the increase that was in the budget, including the indexing, you would have been aware of that only on budget day. Is my understanding correct?
Mr. Harford: Yes.
Ms. Hingorani: Yes.
Ms. Reynolds: Yes.
Senator Marshall: You were saying that consumption for beer is down, but is consumption for wine up?
Ms. Hingorani: I can get you some numbers on that, but what we know is that overall alcohol consumption is down. Our concern is marijuana, as well.
Senator Marshall: I would like confirmation as to whether consumption of wine is up or down, and the same for spirits. I would like that also.
Ms. Hingorani, you were saying you would like government to take a look at what is happening to the industry and to promote growth. The government has indicated or made a commitment, in both this year's budget and last year's, to evidence-based decision making. Hopefully they will look at what is happening with the beer, wine and spirit industries when they're making their decisions.
Ms. Hingorani: Yes, and all three of us will see if there is agricultural powerhouse, right?
Senator Marshall: Yes.
The Chair: The objective of the Standing Senate Committee on National Finance is all about predictability, accountability and transparency. You can rest assured that we will continue with those objectives in mind.
With that said, we want to thank the witnesses for appearing today.
Honourable senators, I believe it's a job well done. We also had with us Senator Woo, the sponsor of the bill. The presentations tonight have enlightened all of us to look at this going forward.
With that, honourable senators, I now declare the meeting adjourned.
(The committee adjourned.)