Federal Budget Supports Canadian Wine
Today’s federal budget (April 19, 2021) contained $101 million for the Canadian wine industry, to be administered by Agriculture and Agri-Food Canada. Cue the lobbying. How this came to pass is likely explained by a new/old tax on domestic wine…
To resolve issues raised in Australia’s WTO challenge, the Canadian government announced in July 2020 that it would reinstate excise tax (presently 67 cents per litre) on domestically produced wine, effective June 30, 2022.
Not surprisingly, the industry did not react favourably. The exemption from paying excise duty on Canadian-made wine has been in place since 2006, and while it clearly is intended to support the domestic industry, it is equally clearly not trade compliant under GATT rules. The ~50 cent increase to the “landed cost” of a 750 ml bottle of BC, Ontario, Québec or Nova Scotia wine may or may not feel like much when it is passed on to the end consumer - who already pays a distorted (excessively taxed) price for that bottle. For producers, it can add up: for a winery producing 10,000 cases, that means almost $60,500 in excise tax payable. For a 100,000 case winery, that’s $605,000 in excise tax per year. The tax will surely be passed along - at least in part - to the consumer, meaning producers will not bear the full brunt of those numbers. However, a significant and fair concern is that the excise tax is now structured to automatically escalate on liquor sold in Canada, so it is material to Canadian wineries (and relevant to this post) that the “automatic escalator” will keep raising the rate of excise tax year over year.
Very quickly, the industry prepared proposals for “excise tax replacement” programs, which in effect would rebate not 67 cents per litre but in the range of 85 cents as a Quality Enhancement Program for wineries to use for various vineyard and wine production activities - not significantly different in structure from British Columbia’s QEP for VQA wines sold through BC government liquor stores. There are additional details in these proposals that had varying benefits to certain segments of the industry (e.g. whether the tax was levied at the tank or bottle stage of production, whether imported juice was eligible (grape and other fruit), how wine already produced but unsold prior to June 30, 2022 would be treated), and were therefore problematic for fairness and equity. In general, the broad contours of the proposals would have the federal government committing in the range of $60 million to the Canadian wine industry QEP.
The merits of these proposals are dubious in my opinion from a trade compliance perspective, and frankly from a fairness perspective too. While the automatic escalator is unfair and arbitrary, announced in Budget 2017 without industry consultation or parliamentary debate, the excise tax reimposition on Canadian-produced wine is an appropriate levelling of the playing field between Canadian and international wine producers. While there are a range of structural competitiveness issues for selling wine in Canada, let not a 50-cents-per-bottle tax be one of them!
Fast forward to today. The 2021-22 federal budget has committed $101 million over two years to Agriculture and Agri-Food Canada (AAFC) for unspecified programs that would “support wineries in adapting to ongoing and emerging challenges, in line with Canada’s trade obligations.” By coincidence, the program will begin in 2022, mere months prior to the implementation of the excise tax.
If the “ongoing and emerging challenges” are meant to include an adjustment to an increased tax, there is certainly no written wording to that effect (not hard to read between the lines). If AAFC is in charge of determining the purposes of the program and eligibility for the wine industry, the BC industry at least should be well-served by the long-standing research and analysis capacity of the Summerland Research and Development Centre (still known around the industry as “PARC”, its prior acronym).
Surely AAFC policy leadership will consult colleagues in the regions to develop programs that provide sustainable viticulture and enology investments than merely the tax-adjustment fund that was promoted by the industry. Not that government bodies should be the arbiters of the needs of private industry… but in this case the government has neatly sidestepped the tangle of a dubiously trade compliant rebate program in favour of what should be sensible and practical investments in further strengthening Canada’s dynamic wine industry.
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