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Beer tax hike to hit Cambridge craft brewers still in recovery

A 6.3 per cent federal beer tax increase will take effect April 1

Wave Maker Brewery in Preston opened their doors in March of 2019 and spent the subsequent year getting their footing and understanding the local market.

Their off and running start quickly became a slow crawl just one year later when the COVID-19 pandemic reduced their business to curb side pick up.

Now owner Scott Pautler and his team are preparing for a 6.3 per cent federal tax increase on beer sales as of April 1. It’s a tough pill to swallow after the way the last few years have impacted his business, he says

“I was a little stunned when I first heard about it,” Pautler said.

“It’s such a trying time for all small businesses right now. With things just starting to get back to normal after COVID, it’s going to take us a few years to get back to where we were.”

Costs were already beginning to soar before the news of the tax increase. The cost of grains needed to produce the beer and the shipping to get those ingredients have only risen in the past year.

“Our costs are up overall about 55 per cent,” Pautler said.

“We use a local distributor in Guelph, so were lucky their Ontario warehouse is close to us. But they bring in grain from Germany, the United Kingdom and Czechia where a lot of good barley is grown. We try to use local grains whenever possible.”

Pautler says his business has tried to absorb as much of the cost of inflation as they could but it hasn't been easy. He admits that his prices have gone up, just like they have for the rest of the market.

It’s made his team more aware of the impact rising costs will have not only on his business, but the consumers who support them.

“We do our best to keep our pricing as fair as possible, I never increase costs just for the sake of increasing them,” he said.

“We analyze every beer that we make, what the cost is and what we have to do to keep going.”

There has been help from the government. From a provincial standpoint, they were given a six month grace period on their taxes. The federal government also extended their business loan of $40,000 they were giving to small businesses for another year.

But it’s all still money that needs to be paid back, which can be tough in the current climate.

“We’re trying to get back to where we were,” Pautler said.

“We haven’t seen that return. Hospitality is still down 30 to 40 per cent. We were a tap room focused brewery to start but COVID forced everything to constantly be shifting.”

Knowing the hardships brewers have faced over the last few years, Beer Canada launched a campaign in the fall to draw awareness to the excise tax as Canadians struggle with the rising cost of living. 

The national association is opposed to any increases in excise taxation or the indexation of those taxes, and says beer produced in Canada is among the most highly taxed in the world, second only to Norway.

On average, it says, the tax on a case of Canadian beer accounts for 50 per cent of the retail price.

But Cambridge MP Bryan May says it’s important to understand how these taxes work and why they’re implemented the way that they are.

“The taxes we pay on almost everything are based on paying for a percentage of the good,” May said.

“The goods and services tax, provincial sales tax and harmonized sales tax have all been calculated this way. It’s important to understand the purpose of an excise tax and the issues with the previous system. Under the previous tax system, the tax amount was a fixed amount, not a percentage, resulting in the value of the tax decreasing.” 

Paying for a percentage of a good versus paying a fixed amount ensures that the value of the tax increases along with the value of the good. It allows the tax to remain relatively stable in regards to the price of the goods or services increasing or decreasing.

May points out that there are very few, if any, taxes in the country that are calculated using a fixed amount.

Alcohol has always been taxed federally, with increases being applied every few years. This is not new, May says.

“Connecting a product to inflation is meant to tax items accordingly,” he said.

“Tying the excise tax to this same formula simply makes it like almost all other taxes in Canada and provides tax fairness among excise taxes.”

Understanding the tax doesn’t necessarily make it any easier to handle for local businesses like Pautler’s. He’d like to see more of a focus put on how much businesses are struggling.

"I think there still should be more of a focus on small businesses,” he said.

“The government has done a lot to help the industries, but I wish there was a bit more of a recognition of the struggles we’re facing.”