An 80% tax on spirits — and the federal government wants more?

By: Jan Westcott, President & CEO of Spirits Canada

Finance Minister Morneau’s new “escalator” tax on alcohol, set to increase automatically on April first each year, is unwarranted, punitive for consumers, and deadly for the Canadian spirits industry. 

For 200 years, Canadian distillers have proudly produced world-class spirits including gin, rum, vodka, liqueurs, and the iconically Canadian rye whisky.

One hundred per cent of the grains are purchased directly from local Canadian farmers supporting 8,500 full-time jobs and pouring $5.8 billion annually into the GDP. The Canadian spirits industry is a significant economic contributor, and a strategic opportunity for growth, job creation and prosperity — unless it is literally taxed to death.

Buried in the 2017 federal budget, the escalator tax automatically increases annual excise duties (production taxes) paid by alcohol manufacturers, without ever going back to parliament for review or approval. Notwithstanding the undemocratic nature of such a tax, Finance Canada admittedly undertook no analysis of the long-term implications for distillers, farmers, consumers, restaurants and bars across the country.

Minister Morneau’s justification for this pernicious tax: the federal government was losing out on excise revenues due to inflation. Annual reports from Public Accounts Canada prove nothing could be further from the truth.

Prior to the 2017 budget, excise taxes were last adjusted in 2006, when then Finance Minister Jim Flaherty lowered the GST from 7 per cent to 6 per cent. The minister did not pass those savings along to alcohol consumers. Instead, he added the GST revenue from that 1 per cent decline to excise tax rates – about 30 cents on every 750 ml bottle of spirits.

Those additional 30 cents were magnified through subsequent levels of provincial and federal taxation. In 2006, Finance Canada assured the spirits industry that this change would be revenue neutral, meaning it would not result in the collection of more excise taxes.

In actuality, the 2006 excise tax change has been anything but neutral for spirits.

These facts dispute Minister Morneau’s assertion that the federal government’s excise revenue stream was lagging due to inflation. As the table shows, federal excise revenues for all alcohol, year-ended March 31, 2018, were 25 per cent higher than 2006. Over the same period, cumulative inflation rose by 22.4 per cent according to the Bank of Canada.

Looking solely at spirits, excise revenues collected in 2006 were $485.8 million, and a whopping $793.4 million in 2018 – a massive 63 per cent increase. People may assume Canada’s spirits industry experienced phenomenal growth over this 12-year period but in reality, spirit sales grew by a paltry 18 per cent.

Already burdened with a staggering overall 80 per cent tax rate, the Canadian spirits business cannot sustain automatic annual excise increases going forward nor can Canadian consumers, or the hospitality/tourism sector. We ask the government, how much is enough?

Minster Morneau’s new automatic annual tax increases pose a direct threat to the ongoing viability of spirits manufacturing in Canada. We know this, because it has happened before. 

Originally introduced by the Pierre Trudeau administration, the escalator tax of 1980 wrought financial havoc on the spirits industry, forcing 11 mid-sized Canadian distilleries to close, and resulting in thousands of lost jobs.

Compounding our concerns is President Trump’s historic decrease of excise duties on American spirits. By April 2019, Canada’s excise rate for spirits will be an astonishing 83 per cent higher than the United States, our largest competitor.

Canadian distillers are united in opposition through Spirits Canada’s NOT ON MY TAB campaign, a national initiative aimed at repealing their industry death knell. Drawing participants to, the campaign focuses on educating Canadians about the detrimental impact of automatic taxation on alcohol, and enables direct communication with Members of Parliament to support repeal.

Minister Morneau, hard-working Canadians deserve fair taxation on their favourite drinks. Please support our consumers, our hospitality, tourism and farm partners, and the survival of our award-winning products by repealing the harmful escalator tax on alcohol in Canada.