In 2017 the federal government introduced something new: a tax that would automatically increase forever every year in the future.
The federal government’s budget this year included a one-time increase in excise tax on beer, spirits and wine by 2 percent, but also a measure by which the tax is further increased every year on April 1, tied to the total rate of inflation.
Legislation doesn’t allow the tax to be reduced – it can only go up, go up and keep going up.
If you’re on the side of the coin that believes the government needs ever more sums of money from Canadians, then you probably think (or at least thought) the politics were brilliant. Governments can tacitly raise taxes on Canadians without having to discuss, review, or pass new laws every year. No must, no fuss.
Canadians who believe they are already adequately taxed may have a different attitude. According to industry associations, 47 percent of the beer price you pay is taxes, wine around 65 percent and spirits a whopping 80 percent. That adds up to about $ 20 billion worth of tax dollars that flow into our governments every year (based on 2018 numbers; it’s probably a little more today).
Few tax professionals, economists, or accountants would argue that automatic tax increases are good tax policies. There’s a fundamental reason taxes and budgets are discussed every year: times are changing, and Canadians need a say. If a government believes Canadians are under-challenged, it has to legislate, debate, and pass the tax hike. This is how Canadians are heard by our elected representatives and our collective will is implemented.
In 2017 it was suggested that future automatic tax hike legislation is inherently a bad idea as we had no way of knowing what the future would be and whether higher taxes would be the appropriate measure to help Canadians cope with the current Problems to help. At the time, the analogy proposed for the tax hike was an escalator: “Imagine you are stuck on an escalator that keeps climbing and you can’t get out and stop it,” said the former chairman of Beer Canada, George Croft then. With all due respect to our friends at Beer Canada, a broken cruise control would be a better analogy. Your car will go faster and faster regardless of the turns and red lights you come across on the road.
Now it’s 2021 and we have the benefit of a rearview mirror. Of course, nobody imagined a global pandemic on the scale that we are now facing COVID-19. Where we are today, however, perfectly sums up why the argument against automatic tax increases in 2017 was and is still correct today. As our Prime Minister said recently, this is not the time for higher taxes.
The food service industry – restaurants, pubs, bars and all of their suppliers, including breweries, farmers and their logistics companies – is currently the hardest hit. Successful restaurants have profit margins of four to six percent in good times. There is just no way to get the math to work when the indoor dining area is closed or significantly reduced.
2021 would not be the first time this tax has been increased either: from 2017 to 2021 this consumption tax has already increased four times, with a cumulative success of almost 250 million US dollars. Even in good times, that’s a significant amount of money. Now that restaurant sales are down 50 percent and this cruise control tax hike will soon make the math for Canada’s hospitality services even harder.
With the government now actively building its first budget for the pandemic, the Canadian Chamber of Commerce and our members hope that Ottawa will make this simple change to help Canada’s beleaguered hospitality industry emerge from the crisis. Now is clearly not the time for higher taxes, which would put even more pressure on these companies and Canadians.
It was and is time to freeze the alcohol tax.
Harrison Ruess is campaign manager at the Canadian Chamber of Commerce. Learn more at FreezeTheAlcoholTax.ca
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