It comes as a small, pleasant surprise that I get to talk about excise taxes for the alcohol industry in a vaguely positive way for once, given the announcement today that a couple of changes are being made at the federal level that will support small brewers across Canada. After all, I was just explaining to the students in the online Beer One class at George Brown that this is something I’m periodically called upon to do. 

There are two things happening in conjunction, and it’s worth explaining them individually because the latter is somewhat dependent on the former. While large brewing lobby groups like Beer Canada and the Canadian Craft Brewers Association will certainly announce their support of the changes made at the federal level, they might not explain them to you in simple terms. I happen to be an English Major who took finite math as a bird course, so let me have a go.

The first thing that’s happening has to do with an annual Escalator Tax.

For two additional years, cap the inflation adjustment at two per cent for beer, spirit, and wine excise duties; and,

This is a fairly simple idea: The amount that beer is taxed at the federal level can’t remain static indefinitely without serious problems. Regardless of who is in power, leaving the taxation level static means that at some point it will need to be significantly adjusted. 

Imagine that you’re a person interested in buying beer. This shouldn’t be hard given that you’re reading this. The cost of a case of beer goes up very slowly for five years and then there’s suddenly a 10% jump in cost. The government had to increase the excise rate because they hadn’t touched it in a while. This is the kind of thing that makes people very angry and which is noticeable. 

An annual excise escalator is cumulative. If you increase the amount of tax by a certain amount annually, it’s not really all that noticeable. Instead of wasting time legislating that every year, an escalator tax just increases it based on a semi-predictable measurement of economic growth. In this case, the Consumer Price Index.

It’s a good idea that immediately ceases to be a good idea when you suddenly have to have the Bank of Canada raise the interest rates in order to prevent economic collapse in what is really a modernized extraction economy. Statistics Canada is telling me CPI looks like this on aggregate 2020-2023.

Annual average change in the Consumer Price Index (CPI) and the CPI excluding energy, 2009 to 2023, annual average % change

I’m periodically quoted about the escalator tax saying that it’s not a big deal, and it wasn’t right up until we had an elevated CPI measurement. The 6.9% CPI for fiscal 2022-2023 is particularly punishing.

Let’s theorize a brewery that makes a 1,000 hL a year. Most breweries in Canada are actually smaller than that. If you make that much beer, you’re in the lowest excise band. This is what your excise remanded per hL looks like:

At 1,000 hL, you’re paying a pretty negligible $3,719 in excise tax. However, CPI based excise tax increases are cumulative, meaning that without a cap at 2%, you’re paying an extra $170.12 annually. 

Not a big deal, right? Well, that’s the lowest bracket. Except that it’s banded, so the base rate for a brewery over 75,000 hL is ten times the rate of the 1,000 hL brewery. 

Let’s say you make 2,000,000 hL and you’re about the size of the Molson Carlingview plant (they’re bigger than that in total, but it’s a useful visualization), it ends up being $3.4 million. 

The most important part, which is going to be directly impacted by the second measure the federal government has taken, is for breweries between 5,000 and 15,000 hL. Their annual excise based on the cap vs CPI is approximately like this: 

It saves them about $10,207. 

Let’s talk about the second measure:

For two years, cut by half the excise duty rate on the first 15,000 hectolitres of beer brewed in Canada, to provide the typical craft brewery with up to $86,952 in additional tax relief in 2024-25.

There’s some spurious aggregation going on here in terms of what constitutes “typical,” based on my understanding of average brewery size, but let’s keep them sweet by ignoring that for the moment. 

If most of the craft breweries in Canada are under 2,000 hL and they’re paying $3.719/hL in excise that means this measure potentially saves them $1,859.50 annually for two years. That’s someone who can staff a Farmer’s Market or maybe a part time retail hand in the busy season. 

Since breweries pay the tax rate once they break into a new band at 2,000 hL to 5,000 hL you’d experience a rate reduction of something like $13,016.40. That’s maybe a part-time staffer. 

The breweries that are between 5,000 and 15,000 hL are the real winners here. It reduces the excise tax burden for two years by as much as $75,000 annually. At that point you’re talking actual personnel. Maybe two full time hourly employees in rural places or several part timers. That’s some tanks or a canning line.

It’s a pretty positive development at a time when we could use some.

I guess my concern would be for breweries over 15,000 hL, but if the excise is paid on a banded basis within a single organization, they get a nice alteration as well. That’s almost certainly $75,000 bucks in reduction for two years. 

It remains to be seen what the provincial government will do on the 26th of March when the budget is tabled, but if we can knock off that 9 cent provincial can tax or generate a similar reduction in excise on a banded basis for small breweries, I might just get to put away the red highlighter on the spreadsheet and stop taking things off the damn map.

Edit: Thanks incidentally to Mark Heise from Rebellion Brewing for confirming the progressive step in excise taxation here.