Trudeau's 'booze tax' hike will cost restaurants an extra $30,000 annually: report

Residents will witness the most significant tax hike on alcohol in nearly 40 years as Ottawa gets set to increase the 'liquor escalator tax' on beer, wine, and spirits on April 1.

Trudeau's 'booze tax' hike will cost restaurants an extra $30,000 annually: report
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"Any increase at this very vulnerable time for our industry is just another blow while we're down," said Brenda O'Reilly, the owner of multiple restaurants and a brewery in St. John's, NL.

"It's like death by a thousand cuts."

First passed in the 2017 federal budget, the alcohol escalator tax automatically increased excise taxes on beer, wine, and spirits yearly with inflation without a vote in Parliament. Alcohol taxes are set to increase by 6.3% on April 1.

According to the Canadian Taxpayers Federation (CTF), taxes account for about half the price of beer, 65% of the cost of wine, and more than three-quarters of the price of spirits. 

"Distillers claim the taxation rate is 80%, but our estimates show this to be 20% to 30%," reads a government backgrounder. "Brewers claim the taxation rate is 47%, but our estimates show this to be 16% to 18%."

The Canadian Chamber of Commerce contends the country has among the highest alcohol taxes in the world. 

"On average, 47% of the price of beer in Canada is from federal or provincial taxes. Approximately 65% of the cost of wine is due to taxes. On average, 80% of the price of spirits is taxes," said Perrin Beatty, President and CEO of the Canadian Chamber of Commerce.

"Canadians already pay about $20 billion per year in alcohol taxes, [and] the escalator tax increases that tax burden even more."

Restaurants and bars across Canada have endured lockdowns, labour shortages, supply chain mayhem and soaring costs for everything from payroll to cooking oil.

According to the CTF, Canadians already pay about half the price of beer in taxes. 

"Our industry is struggling, and we can't absorb more increases," said Olivier Bourbeau, vice president of federal affairs with Restaurants Canada. 

Borbeau said restaurants are absorbing some of the higher costs due to inflation but "can't absorb any more price increases." 

"Restaurant margins are always thin, but right now, they're around two to three percent. But if they pass those costs to customers it could hurt their business. Consumers will only pay so much before they start to cut back."

The automatic annual tax increase is a long-standing irritant for the beverage industry, according to Beer Canada President CJ Helie, claiming it was "digestible" when inflation was around 2%.

Last month, alcohol beverage prices rose 5.7% compared to last February, according to Statistics Canada. Though that's only slightly higher than the 5.2% inflation rate, the April tax hike may cause alcohol inflation to rise faster than overall inflation later this spring.

"When inflation is through the roof, we need to rethink this automatic formula," said Helie. "The industry is already in dire straits. Using a rigid formula in a time like this is unacceptable."

According to Finance spokesperson Adrienne Vaupshas, alcohol excise duty rates are adjusted by law annually to account for inflation. She added that the increase next month works out to less than a penny on a can of beer.

On a litre of wine, the excise duty rate is increasing to $0.731 from $0.688, or a little over four cents, according to figures provided by the Canada Revenue Agency. For a 750 ml bottle of wine, the increase would be closer to three cents.

A Restaurants Canada survey uncovered that nearly half of the licensed restaurants operate at or below profitability levels, costing the food-service industry about $750 million annually. 

"Many of us haven't recovered from the pandemic, and now they want to raise this tax," said O'Reilly. "It's hard to get blood out of a turnip. We'll see more restaurant closures if this goes ahead."

The average casual dining restaurant will pay an extra $30,000 annually towards alcohol starting April 1.

"Tax hikes will give Canadians a hangover in the new year," said Franco Terrazzano, Federal Director of the CTF, who noted that while other countries are cutting taxes, Ottawa is sticking Canadians with higher bills.

He urged Prime Minister Justin Trudeau to "put taxpayers first and do the right thing" by cutting taxes.

He also urged Trudeau to respect an Official Opposition motion calling on the "government to cancel its April 1, 2023 tax increase on beer, wine and spirits." 

The motion passed 170 to 149 and received unanimous support from Conservatives and New Democrats. All but one Bloc Québécois MP supported the motion. 

"The only time members of Parliament got to vote on this tax hike, they overwhelmingly voted against it," said Terrazzano. "MPs want to see the alcohol tax hike scrapped in next Tuesday's budget."

"Trudeau must listen to Canadians and MPs and cancel this undemocratic tax hike that will increase the cost of living when Canadians are struggling to stretch our paycheques."

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