Federal government cuts beer tax increase ahead of looming deadline

The federal government is reducing its national beer tax that was set to increase on April 1, Finance Minister Chrystia Freeland announced Saturday.

For an additional two years, Freeland told reporters that the federal government will extend its inflation adjustment cap at two per cent for beer, spirit and wine excise duties.

The alcohol excise tax, sometimes known as the “beer tax,” was planned to go up by 4.7 per cent on April 1 this year.

“Today’s announcement is good news for Canadians and for the craft breweries they visit, which will now benefit from thousands of dollars in new tax relief every year,” Freeland is quoted saying in a press release Saturday.

The announcement comes after local craft breweries across the countries started raising the alarm over surging production costs.

Aaron Prothro, from Mascot Brewery in Toronto, said the hike could be a deterrent to customers.

“People are only going to pay so much for beer,” he said.

Kelowna-Lake Country Conservative MP Tracy Gray said last month that the 4.7 per cent hike would cost Canadians about $100 million extra in 2024-25.

She said in a post on her website that many small local businesses in her district are concerned about the tax and how it will affect their bottom line.

“This excise tax increase comes at a time when our local beverage producers and those in the hospitality industry, such as restaurants and pubs, are already grappling with rising costs of everything including raw materials, packaging, energy, rent, and transportation,” she said.

Prothro also lamented the supply chain issues already impacting the industry.

“Slim margins in craft beer, especially as our supply chain gets more strained, more expensive, so every little bit helps,” he said.

Freeland said Saturday that the federal government will also cut the excise duty rate by half 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.

“This is significant support and I’m glad to provide it,” Freeland told reporters.

The new measures will be effective for two years starting on April 1, 2024, she said.

1:56 Proposed alcohol tax increase could be tipping point for local brewers

The tax increase is tied to the Consumer Price Index and automatically goes up in line with inflation. However, that automation was set in 2017, before Canada saw record levels of inflation that in turn caused the tax to skyrocket. In 2023, the tax was set to go up 6.4 per cent but was capped at a two per cent increase due to industry lobbying.

Since the tax is an “escalator tax,” meaning it is automatically increased, there is no debate or vote in Parliament each time scheduled increases go ahead. Before the automation of its increases, the tax had to be approved by Parliament every time it was increased.

In an open letter to Finance Minister Chrystia Freeland in December, brewery, beer retail and distribution union workers made an “urgent call” for the federal tax to be cancelled.

“The impending 4.7 per cent federal beer tax increase poses a significant threat to the stability of the brewery industry, jeopardizing the livelihoods of unionized workers,” the letter stated.

Beer Canada president CJ Helie said piling on new taxes would have been “disastrous”, so today’s announcement was “really positive” news.

“A nearly five per cent increase would have been devastating to brewers and the hospitality sector,” Helie said.

Freeland said Saturday that the federal government is working hard every day to deliver for Canadians “from coast to coast to coast.”

“Our support for small craft brewers is just one example of our economic plan in action. A plan that is working. And I think we can all raise a glass to that. So, cheers,” Freeland said.

–with files from Global News’ Eric Stober