Brace yourself for the biggest alcohol tax hike in the last 40 years.
The federal beverage alcohol duty, which was expanded recently to include domestic wine, is set to increase 6.3 per cent on April 1.
It appears that (Prime Minister Justin) Trudeau will ignore an Opposition resolution passed by a majority in the House of Commons on Wednesday to cancel the increase and will proceed with raising the excise tax.
The increase couldn’t come at a worse time for B.C.’s independent wine (producers) who have endured recent calamitous climate change events, pandemic lockdowns, labour shortages, supply chain disruptions and soaring costs for everything from bottles to shipping.
On a litre of wine, the excise duty rate is increasing to $0.731 from $0.688, or a little over four cents. For a 750 ml bottle of wine, the increase would be closer to three cents. However, because the excise tax is imposed at the point of production and paid by the manufacturer (at the time of bottling or when product is removed from a bonded warehouse) there is a multiplier effect on prices ultimately paid by consumers.
The tax is built into the wholesale price of the product and magnified as it goes through the supply chain and LDB, LRS or Restaurant markups are applied.
Alcohol prices rose 5.7% in the last year, an amount higher than the overall inflation rate of 5.2%. The excise tax hike in April, along with other cost increases, could kick off another round of price increases this summer. Consumer demand as measured by volume is already shrinking.
Statistics Canada data shows even at the best of times, most small and under-scaled B.C. wineries (which is most of them) operated below profitability levels. Survival is getting tougher and tougher.
Many owners are approaching retirement age and looking for an exit. But current vineyard prices are exorbitant and with bank interest rates for loans to help fund acquisitions now reaching 7% or more, the pool of potential buyers in evaporating.
The mood at the recent industry Insight Conference was upbeat. But with growers awaiting bud break to assess the probably disastrous level of winter kill, I have no idea why folks are still upbeat.
I guess it’s just the fact you have to be an eternal optimist to survive in this business.
Al Hudec, Oliver