(Photo: Press Association/AP Images)

The Canadian government is coming under fire with the newest alcohol increase set to begin on April 1. Many Canadians are criticizing the government for continuing to increase taxes despite the industry recovering from the effects of covid and inflation continuing to rise. 

In a few weeks from now, Canada will implement a new alcohol tax which will see taxes increase by 6.3%. Restaurants Canada said this will be the largest alcohol tax increase in 40 years. While Retail Insider called it the highest increase ever. 

“We are calling for a deferral as the restaurant sector cannot absorb another federal tax increase at this vulnerable time,” said Restaurants Canada.

Beer Canada said, “With sky-high inflation pushing prices higher for food, gas and housing at the fastest pace in decades, the last thing Canadians need is another beer tax increase. We believe our governments should do their best to keep life affordable, not make it more expensive.”

In 2017, the Canadian government, under the leadership of Prime Minister Justin Trudeau, initiated indexing taxes on alcohol in order to align it with inflation. This is called an escalator tax. 

Recently, Retail Insider highlighted that Canada has the highest alcohol taxes when compared to France, Germany, Italy, Japan, the United Kingdom and the United States. Furthermore, there are claims that Canadian alcohol taxes account for around 50% of the cost of beer, 65% of the cost of wine and 75% of the cost of spirits.

A 2021 peer-reviewed report examined claims by distillers that as much as 80% of the price of alcohol is a result of government taxes. This study found that the percentage was actually between 20% and 30%. This is still a significant amount and has already increased since then. 

Another report on the effectiveness of federal policies relating to the reduction of alcohol-related harms and costs in Canada found that the current escalator tax on alcohol was ineffective. The report called for a volumetric tax, rather than the current “flat tax” scheme on alcohol. The volumetric taxes are meant to increase taxes on higher ABV alcohol. 

While the World Health Organization argues that raising alcohol prices has the strongest impact on alcohol consumption and alcohol-related harm, this is arguably a narrow view. 

The question is if these policies could potentially stifle competition since using higher ABVs is one of the main strategies of craft distillers and other alcohol producers for competing with large producers because it can result in unique products that stand out. Large producers are more likely to keep their products around 40% ABV, whereas other producers may keep their ABV at 43% or above. Often the purpose is not to simply have a higher-proof spirit but to produce something with greater complexity and less dilution of flavor components. 

With the tax increase looming Canadians have raised loud and passionate complaints but it is hard to tell if the government will listen or just charge ahead despite the public’s concerns.

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