BUSINESS

A taxing burden for distillers

LINDA DIEBEL May 23 1983
BUSINESS

A taxing burden for distillers

LINDA DIEBEL May 23 1983

A taxing burden for distillers

It came as no surprise to the liquor industry last week that the Ontario budget raised the sales tax on alcoholic beverages by two per cent. Indeed, it has become increasingly rare for any government to pass up the opportunity to skim revenues from alcohol sales in any way it can. The methods vary: Quebec, for instance, did not include tax hikes in its new budget last week, but the province’s liquor board had more than compensated for that fact with a recent markup on spirits from 111 to 113 per cent. What industry representatives find most disturbing is that federal and provincial levies keep raising the price of a bottle of liquor at a time when sales are weakening, small plants are closing and industry employees are losing their jobs across the country. Explains Dennis Stoakes, vice-president in charge of marketing for Hiram Walker and Sons Ltd.: “The old myth that the industry is recession-proof is being quickly and completely shattered.”

If present trends continue, the situation for Canadian liquor producers can only worsen. Alex Bell, director of technical services for the Association of Canadian Distillers, reports that production is running at only 46 per cent of operating capacity and sales of domestic spirits have decreased by more than one million cases (to just under two million cases) in the past year alone. Already, 300 people have lost their jobs in an industry that sustained only 5,500

workers in the best times. Like most industry insiders, Bell lays a major portion of the blame on revenue-hungry governments, although the shift to wine drinking is clearly a major part of the problem. Wine consumption rose by nine per cent last year while per capita spirits consumption fell by 3.5 per cent in the same period. As a result, Canadian distillers have not raised their prices in over a year, but the restraint has had little effect on what the consumer pays. As proof, Claude Brochu, marketing head for Joseph E. Seagram & Sons Ltd., cites the breakdown of the cost of a bottle of rye whisky sold in Ontario: of the consumer’s $12.65 cost, the distiller’s share is $2.37; the federal government takes $2.42 in excise duty and a 58-cent sales tax; Ontario receives a markup of $5.93 and an additional 12-per-cent sales tax of $1.35. In sum, on each bottle of whisky, the distiller gets 18.8 per cent, the federal government 23.7 per cent and the province 57.5 per cent. With minor variations, the tale is the same across the country. “Ultimately, the big loser is the consumer,” says Brochu.

Another industry concern is Ottawa’s insistence on indexing its excise tax to the alcoholic component of the consumer price index. If the average price of spirits, beer and wine goes up as a result of increased provincial taxes or hikes in the price of imports, the federal government’s excise tax automatically increases as well. That tax burden has compounded since Ottawa introduced the practice in the fall of 1980, and another excise tax increase from 13.1 to 15 per cent is projected for next September. “It is a terribly unfair tax, and, so far, attempts to coax Ottawa to change the formula have failed,” says Stoakes. “Indexation means that these increases just never stop.”

While this bevy of assorted federal and provincial taxes may seem like a windfall to hard-pressed government coffers now—Ottawa alone takes in $500 million annually from taxes on alcohol-critics predict that the boom cannot continue. In the short run, they say, the increased markup and consequently reduced consumption affects only distillers. But as the results of reduced sales filter down the pipeline, they damage such related industries as farming, glass and paper production. And in the end, decreased sales mean reduced revenues for federal and provincial governments. “Clearly, it is the law of diminishing returns,” explains Stoakes. “The logical extension is that one day a bottle of spirits is going to cost $500 million, and there will be one person in the entire country with the cash to buy it. What will the governments do then?”

-LINDA DIEBEL in Toronto.