I was recently talking to Jorg and Anette Engel of Maple Leaf Spirits, a small craft distillery in Penticton.
Theirs was one of the first craft distillers in the region and has taken advantage of the bountiful fruit of the Okanagan to produce award-winning brandies and other liqueurs.
As their business grew over the past 20 years, they saw other small distilleries establish in the region and that strong growth in the craft distillery sector has been exceeded by the growth in the number of craft breweries and small wineries.
Like many businesses, this sector has been hard hit recently by soaring inflation—the cost of almost everything that goes into their products has been rising. But they also share another inflation-related challenge that no other sector has to deal with—an excise tax that automatically rises as inflation rises.
Since 2017, this tax has gone up every year without any legislation or parliamentary debate and this year will increase by a whopping 6.3 percent, the largest one-year increase in the last 40 years.
Distillers like the Engels are going to struggle to to stay in businesses.
I don’t often dive into the details of tax changes in my column but I hope you’ll bear with me this time as this sector is particularly important in South Okanagan-West Kootenay. These businesses, many of them small, family-owned companies, have combined two traditional pillars of the local economy—agriculture and tourism—to create a powerful new centre of growth for the region.
I want to be clear, all these businesses are fine with paying an excise tax on beer, wine and spirits. But they are concerned about the fairness of how this tax is now structured and calculated. On top of the escalator feature, excise taxes on alcoholic beverages produced in Canada are treated differently depending on whether it’s beer, wine or spirits, and very differently when compared to excise taxes levied by our biggest trading partner, the United States.
Excise taxes are much lower in the United States and are structured so that small producers pay much less on a sliding scale than bigger producers. In Canada, only beer excise tax is scaled by the size of operation, but the average tax is still twice that paid in the United States.
The wine sector is in a special situation because most wineries in Canada never had to pay excise tax until last year when Canada eliminated an exemption for wines made from Canadian grapes after a trade dispute with Australia.
After strong lobbying from the wine industry, the federal government did step up with a support program to help wineries adapt to this new reality, but that support is set to disappear next year. Craft distillers are the hardest hit in many ways. The excise tax on a one-litre bottle is $5.22, and when you add provincial taxes that goes up to about $9.
That makes it very difficult for local producers such as Jorg and Anette Engel to compete with imports from other countries that are taxed at a fraction of that rate.
The House of Commons Finance Committee has recommended the government freeze the excise tax rate at 2022 levels for at least the next two years until inflation comes down to normal levels, and I hope that the government takes that advice in the budget coming next Tuesday.
I also hope that they will listen to Canadian producers of beer, wine and spirits and restructure the excise tax to make it fairer for small producers so that this sector can continue to make fine products and a very important contribution to our local economy.
Richard Cannings is the NDP MP for South Okanagan-West Kootenay
This article is written by or on behalf of an outsourced columnist and does not necessarily reflect the views of Castanet.