On Friday, the province of Ontario announced it is freezing the 4.6 per cent scheduled increase in beer taxes, and will hold off on any tax increases until 2026.
This is great news for beer drinkers in Ontario, but because of similar policies at the federal level, the national excise tax on all alcohol is scheduled to increase by 4.6 per cent on April 1.
That tax, the escalator tax, is indexed to inflation and gives all Canadians every year an unwelcome April Fools gift.
Add this tax hike to the fact that taxes alone account for around 50 per cent of the price of beer, 65 per cent of the price of wine, and 75 per cent of the price of spirits. This is cruel punishment for the crime of wanting to enjoy an alcoholic beverage and socialize, or relax.
Rather than have the tax increase again this April 1, Ottawa should follow Ontario Premier Doug Ford’s lead and pause the escalator tax. The escalator tax removes policy discussion from the democratic process and eliminates consumers from the debate all together.
And by indexing taxation to inflation, it uncomfortably punishes consumers for inflationary pressures, and actually adds upwards pressure on inflation.
Ironically, having taxation automatically increase prices puts continued upward pressure on overall inflation, and the longer these inflationary times persist, the longer it will take for the Bank of Canada to begin cutting interest rates.
This is a vicious cycle where inflation indexed taxation fuels the problem of inflation, driving rates higher, making mortgages more expensive, and leaving everyone poorer in the long run, except the federal government.
And when we compare how alcohol is taxed in the United States versus Canada, it feels like we’re rubbing salt in the wounds of Canadian consumers.
For the average American, buying a case of beer has $4.12 in taxes associated with it. For the average Canadian, the tax paid on that same case of beer is over five times higher, at $20.31.
The federal tax rate on beer in Canada is 2.8 times higher than in the United States, while the average provincial tax rate is over six times higher than the average U.S. state tax rate.
Of course, there have to be taxes on alcohol, but do taxes really need to be this high? And do they need to be mandated to increase each and every year with an escalator tax?
In the announcement for Ontario’s pause, Ford said; “Our government is constantly looking for ways to make life more affordable for Ontario families by putting more money back into their pockets.”
Wouldn’t it be nice for Ottawa to do the same?
And what makes the prospect of a pause even more possible is the fact that Ottawa has shown an openness for giving consumers a break in the past. In 2022, Minister Chrystia Freeland’s office did the right thing and eliminated the excise tax on non-alcoholic beer, and last year the government capped the escalator tax at two per cent.
If there isn’t an appetite to follow Ford’s lead entirely, Ottawa could simply repeat what they did last year and again cap the escalator tax at two per cent. With general inflation currently sitting at 3.4 per cent, a two per cent cap would put downward pressure on the consumer price index, which is the Bank of Canada’s primary metric for deciding where its key interest rate should be.
Two per cent also happens to be the Bank of Canada’s target inflation rate, which begs the question: if it is good enough for the Bank of Canada, is that not good enough for any tax that is indexed to inflation?
Inflation has brought havoc across the Canadian economy over the past few years, and Ottawa has the opportunity to either pause or cap the escalator tax and give Canadians something to raise a glass to.
Originally published here
