You’re still angry about beer taxes, aren’t you? Despite the fact that I illustrated in my last blog post (in January! Remember when I used to review things? Now I just sit here with a fountain pen and a calculator debunking propaganda from lobby groups!) that the escalating federal excise tax might won’t actually cost anyone a dollar a case until 2041 or so? You are still angry? And you read The Sun? I read The Sun this morning and boy gosh howdy am I ANGRY ABOUT BEER TAXES!!!

Except, of course, Beer Canada is trying to pull a fast one again.

I’m going to lay this out for you because no one else, including journalists getting paid to report on things, seems to be interested in how the beer industry actually works from a financial standpoint. I’m going to re-use some material from twitter from Monday up here at the front, so feel free to skip ahead if you saw that.

On Monday morning, Charles Sousa announced that there would be some substantive changes to the Small Beer Manufacturer’s Tax Credit. It has to do with the amount of tax that small brewers pay to the Ontario government. Last time around, we talked about tax at the federal level, but this time it’s provincial. Got it? Great.

Basically, Ontario’s beer taxes look like this:

Let’s break that down. Manufacturers are any brewing company that makes more than 50,000 HL annually. Microbrewers are brewers below that threshold. Brew pubs tend to be vastly smaller even than Microbrewers, so they get a little extra decrease in provincial excise. There is also a basic volume rate around 17.6 cents per litre and an environmental tax you have to pay if you’re using non-refillable containers. You can find a list of who falls under what category here. It does need updating, though.

Now, the Small Beer Manufacturer’s Tax Credit basically allows any Manufacturer making less than 150,000 HL a year to claw some of that excise money back. Charles Sousa’s proposal suggests that the threshold will actually increase to 200,000 HL and suggests that there might be a threshold increase to the definition of Microbrewer. This means that the only companies paying the full amount are MolsonCoors, AB-InBev, Moosehead, Brick, and Sleeman.

Check it out. If you’re a Microbrewer (at 50,000 HL) assuming you’re split 50/50 draft/packaged, you’re paying something like ~$5,546,000 (more if you use cans) in tax but the Small Beer Manufacturer’s Credit works out this way:

(litres draft * 0.4999) + (litres packaged * 0.3649) = 1,249,750 + 912250 = $2,162,000 in credit.

If you’re a Manufacturer (at 75,000 HL) at this point, it’s a little different. The amount of credit is reduced slightly against more tax. Basically, you’re paying $7,402,125 but your credit works out this way:

(((litres draft * 0.4999)/total litres)) + ((litres packaged * 0.3649)/total litres)) * 5,000,000 = $2,159,750 in credit.

That’s not nothing.

Above 150,000 HL, you currently get nothing. There is a multiplier that looks like this:

(1 – (total litres – 7.5 million)/7.5 million)

Basically, as you approach 150,000 HL, you get less and less until you get nothing. If they make this cap 200,000 HL, the tax credit will decrease more slowly for brewers above 75,000 HL. Now, the “Manufacturer” definition doesn’t change unless the “Microbrewer” definition increases volume above 50,000 HL, which is not unreasonable.

Basically, every single brewer in Ontario is paying an effective tax rate that is SIGNIFICANTLY less than Beer Canada claims. They say it is 47%, but it turns out that out of something like 250 of the breweries in Ontario are not paying the full rate, reducing their tax burden. In some cases (Manufacturers) they are clawing back about 2/6ths of their excise burden depending on their packaging. (ed note: thanks to eagle eyed Mark Murphy, an actual accountant, for pointing out an error in this sentence which read as though every brewer was getting the credit. 50k-150k currently.)

Got it? The only people to whom Beer Canada’s argument is applicable are AB InBev, MolsonCoors, Sleeman, Brick, and Moosehead.

Here’s the really important thing that I want you to understand: Aside from Brick and Moosehead (for whom I have some sympathy in this situation), all of those companies are headquartered overseas. They are competitors for homegrown industry and they are attempting to weasel out of their taxes. If they don’t pay those taxes, that money will be extracted from the province and we will never see it again.

There’s another thing I haven’t mentioned before, but it bears some commentary. Have a look at this Toronto Star article from 2008. There is some suggestion there that the Federal Commissioner of Competition was looking into whether the big breweries had had influence on the Ontario government’s decision to institute minimum prices. I would never suggest any such thing without proof, but I would like you to follow me on something for a moment.

There is a price floor for beer in Ontario. It is prescribed by two formulae which you can find here. It is partially based on this table from 2010:

It is adjusted annually on March 1st by two formulae:

(((B/C) + (C/D) + (D/E))/3)-1

in which,“B” is the Consumer Price Index for the 12-month period ending the previous November 30, “C” is the Consumer Price Index for the 12-month period preceding the 12-month period mentioned in the description of “B”, “D” is the Consumer Price Index for the 12-month period preceding the 12-month period mentioned in the description of “C”, and “E” is the Consumer Price Index for the 12-month period preceding the 12-month period mentioned in the description of “D”.

Let’s talk about the CPI for a minute. The baseline for the CPI is from 2002. The 2002 value for the CPI is 100. The value for the CPI for 2017 in Ontario was 131.9. Based on the language in that structure it is unclear whether they are using the CPI value for Ontario or for the alcohol sector. I am going to assume it’s the generic Ontario value:

(((131.9/129.7) + (129.7/127.4) + (127.4/125.9))/3) – 1 = 0.0156

The second formula is

A + (A × I)

in which, “A” is the baseline rate in effect on the day before the annual adjustment date of the particular year, and “I” is the index factor determined in accordance with Schedule 1. Now, in order to game that out from first principles, you’d need to know the CPI rate back to 2002 and there would be a long series of calculations. Fortunately, we know that the minimum price went from 34.50 to 35.75 on March 1st of this year. So that’s $1.25. We know a case of beer is 8.184 litres.

$1.25/8.184 = $0.1527 per litre.

Now look. In a blog post in January, I have already established that the federal excise tax on beer (which hadn’t been adjusted since 2006, by the way) is worth about a penny a litre this year. The Ontario government is going to put the effective per litre tax on manufacturers over 200,000 HL up by six cents per litre this year.

Guess what? That means that the big brewers, the only ones who actually pay that rate, are still making an additional 8.27 cents per litre this year on their value brands. And they want more than that.

Let me translate that to reality. Let’s say you’re a blue collar beer drinker who is absolutely committed to the value segment of the market. You see something in the paper saying the beer taxes are too high! Well, you’re going to believe it, but you’re not going to be aware that the price of your beer goes up every year based on a formula tied to the Consumer Price Index. You’re not going to know that the price of the value brand beer you’re drinking has gone up 50% since 2008 because of that price floor. You’re not going to know that the Consumer Price Index is never going to decrease and that the price of your beer will increase proportionally next year. Next March 1st? $37.00 value brand beer which will, on an annual basis, shift the price of every other product upwards. Every year, the large brewing companies telling you their taxes are too high have a mandated excuse to charge you more and it has nothing to do with taxation. They’ll just tell you it has to do with taxation. You know, by misrepresenting the issue through a puppet with a populist talking point.

Three large multinational brewers, headquartered overseas and focused on extracting profit from Ontario, are trying to get out of paying their taxes and are using populist talking points to try and turn you against your own interest. They’re trying to convince you that you are being charged the taxes that they’re paying. You’re not. You’re being charged an escalating amount tied to the CPI which, I will remind you, the Federal Commissioner for Competition investigated their influence on.

Let me put it this way. In January I suggested that in order for you to be effected by the federal excise increase by ten dollars a year, you would need to buy 143 cases of beer. The price floor increase would cost $178.75 for 143 cases of beer and it escalates a hell of a lot faster. More than half of that has nothing to do with tax. Mandated profit.

I don’t know about you, but that sure seems like a hell of a reason not to buy their products to me.