Analysis

Why the 'escalator' beer tax won't really hurt your wallet

A campaign has been launched to "axe the tax" when it comes to increases of a federal tax on beer. But will the increase cost to brewers hurt consumers? Experts say not really - at least not at first.

'In order for this to cost the average consumer a dollar a case, it will take until April 1, 2040'

The people who feel the pinch from the excise beer tax, which will go up each year, are those with low incomes, says Joe Lesica, an assistant professor of economics at Wilfrid Laurier University in Waterloo, Ont. That's because they tend to buy the bigger brands, which will be taxed more than craft brewers. (CBC)

Headlines about a new beer tax may have you worried about paying more for your next pint, but some experts say you won't even noticed the "escalator tax" — at least not for a while.

Just putting the words "beer" and "tax" side-by-side makes people nervous, said Toronto beer writer and expert Jordan St. John.

"People tend to freak out," he said in an interview with CBC News. "For the average beer drinker, it will not matter at all."

The federal excise tax — which means it targets beer makers specifically — is currently $31.84 per hectolitre (100 litres). It will increase to $32.32 per hectolitre this April and then will go up each year based on inflation.

Industry lobby group Beer Canada argues "runaway taxation" on beer will impact "beer lovers and beer makers from coast to coast."

"Imagine being stuck on an escalator going up and up and up, and you cannot get off, and you cannot make it stop — that's what beer lovers in Canada are facing with this escalator tax. We need people who love beer to help us axe the escalator tax," George Croft, Beer Canada chairperson and president of Kitchener-based Waterloo Brewing, said in a release.

But St. John said the numbers don't add up to it being a big deal.

"In order for this to cost the average consumer a dollar a case, it will take until April 1, 2040," he said.

"People who are not yet born will be drinking age before this costs anybody a dollar a case."

An tax that targets beer makers and which goes up each year will impact larger breweries, says Joe Lesica, an assistant professor of economics at Wilfrid Laurier University in Waterloo, Ont. That cost will be passed on to consumers. (Andy Clark/Reuters)

Costs passed on to consumers

It's not much money, agreed Joe Lesica, an assistant professor of economics at Wilfrid Laurier University in Waterloo, Ont.

But he said the larger brands of beer will pass on those costs to consumers.

"Who consumes more of those big manufacturer beers, like Molson and Sleemans? It's probably the poorer consumer, the lower-income consumers tend to consume more of the big brands and less the pricier craft beers," Lesica said.

He also warned a dollar in 2018 won't be worth the same in 2040.

"I wouldn't just offhand dismiss this as like, 'Oh, it's a nickel or a dollar, so it's not that big of a deal,'" he added, noting craft breweries have a lower tax, which benefits higher income people who tend to consume craft and microbrews.

The amount to the cost of a pint of beer would be about half a penny, which is less than what you can pay in actual currency.- Jordan St. John, beer writer

"It's not this year, but then eventually, because of the built-in tax increase, it may start reflecting on the shelf price of beer."

St. John agreed the larger breweries are the ones that will feel the pinch on this increasing tax.

AB InBev, which owns Labatt, and Molson Coors, will take one of the hardest hits.

"If you make a very large amount of beer, then that starts to add up," he said, but he also said there's no reason they need to pass the cost on to consumers.

"Molson Coors had a third-quarter net sales of $2.88 billion last year. I think they can handle it."

Taxes add up

Steve Innocente, president and head brewer at Innocente Brewing in Waterloo, said he will be able to handle the increase in the tax. Currently, as a craft brewery, he pays about $3 per 100 litres of beer in federal excise tax.

The provincial tax on the same 100 litres of beer is $403, and that was raised in the past few months, he said.

"That didn't raise anyone's ire," Innocente said of the provincial tax going up, adding all of their costs to make craft beer — already expensive to make — continue to rise.

"There's taxes on top of taxes, then there's payroll tax, then you have your HST on top of that. It adds up."

The brewery raised prices for bottled beer 18 months ago and Innocente said he's trying to avoid raising prices again, but he hopes customers will understand if his has to increase prices.

"People don't always understand what you have to do to keep the doors open," he said. "We're trying to find savings wherever we can."

Toronto beer writer argues the price of a pint of beer will go up about half a cent each year with the excise tax, which most people won't notice. (Nguyen Huy Kham/Reuters)

Tax won't change buying habits

Federal Conservative Leader Andrew Scheer has joined the Beer Canada call to "axe the tax." On his Facebook page, Scheer called the tax hikes "unfair" and said it will make it harder for "local breweries and producers to invest in their businesses and communities."

St. John said the tax has become an issue because of the lobbying by Beer Canada.

"It's a manufactured problem," he said, noting the excise tax was raised in 1991 and again in 2006 and breweries didn't see another increase until 2017.

If you're buying a pint of beer at a restaurant or bar, "even if it was a macro-produced product where the brewers are paying a lot of federal excise tax comparatively speaking, the amount to the cost of a pint of beer would be about half a penny, which is less than what you can pay in actual currency," St. John said.

Those small increases will add up over time, raising the cost of a case of beer. But while people may grumble about the price going up 10 or 15 cents, Lesica said it won't be enough to stop people from buying beer.

"That's probably what the government is thinking, you're not going to change your beer buying habits and the tax is going to get collected," he said.

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