Tax on booze enough to drive you to drink

For his sake, Premier Dalton McGuinty should have found some new advisors under his Christmas tree this week – the advice he’s been getting just doesn’t cut it.
Sure, he’s busy with the U.S.-led economic turmoil, but why, oh why is he messing with the price of beer?

With beer a part of the national identity – think of the resonance of those I Am Canadian ads – the cost is always a sore spot. But raising the minimum price heading into the holidays and prime sports-viewing times – think hockey and Bowl games – just reeks of greed and a loss of touch with the real world of the kind we saw with the backlash that followed the clampdown on young drivers.

Essentially, this is yet another public relations disaster for the government. Even those who don’t care for beer are familiar with the buck-a-beer promotions; it’s a catchy, easily remembered phrase, and now McGuinty has soured the tune by raising the minimum price that can be charged for beer, to $25.60 from $24 for a case of 24 bottles (a 6.7 per cent increase). Maybe it’s me, but “Just $1.0666666 a beer” doesn’t have the same ring to it.

The discount brands affected by the price hike represent approximately 30 per cent of beer sales in Ontario.

The province says it sets minimum prices to encourage responsible drinking, as if we’d all be pouring booze over our cornflakes each morning if it wasn’t for the high cost.
We all know, however, the real reason is money – higher taxes fill government coffers. So-called sin taxes are easy targets. And, better yet, they’re recession-proof, which is particularly relevant right now. Therein, of course, lies the rub: the government is raising prices even as we’re tightening our belts and economists worry about deflation for goods and services. No risk of that where taxes are concerned, however.

The timing, then, is insult on top of injury. It’s even more galling as most of us are aware we’re severely overtaxed where alcohol is concerned: Anyone who has travelled to the U.S. knows how much less expensive it is. When the Seagram Company was still operating in Waterloo, I would often remark how I could buy a bottle of whisky in the U.S. or overseas for half the price (or less) of what I’d pay at the LCBO store a mile from the plant.

The cost differences apply to beer, wine and spirits. It’s all about the taxes. With the new floor pricing for beer, Ontario has added to what is already the world’s second-highest level of taxation on beer: Canada’s 51 per cent tax is second only to Norway’s 65 per cent, according to the Brewers Association of Canada. By comparison, the U.S. rate is 19 per cent.

The country’s brewers estimate they paid $4.3 billion in federal, provincial and municipal taxes in 2005, the most recent years for which figures are available. Breaking that down, 51 per cent of the cost of a case of beer goes to taxes. The equivalent tax on gasoline, itself a touchstone of consumer dissatisfaction, is about 34 per cent.

When it comes to the price of beer, however, the brewers themselves bear some scrutiny, or at least that’s what Canada’s Competition Commissioner thinks.
Earlier this year, the Competition Bureau was stymied by the courts in its efforts to tie Ontario’s Social Reference Price for beer – the minimum cost set by governments as a deterrent to consumption – to an attempt by brewers to keep prices higher. Though shot down for demanding too much from the industry, the Commissioner was looking to see if the industry had any influence in setting the floor price – the higher the minimum, the higher other prices could go. That practice, the bureau argues, could reduce competition in the beer market.

If that assumption holds, then Ontarians are hit with a double whammy: increased taxes and overall higher prices due to what could very much be considered a nanny state rule.

While few would argue in favour of widespread drinking, there is precious little evidence we’d all become drunks roaming the streets if the price of alcohol was reduced to levels seen in other countries. In fact, it could prove a boon for the domestic production of beer, wine and spirits, a bonus at a time when jobs are being lost and Ontario businesses could use a boost.

In wine-producing areas of Europe, for instance, the practice of enjoying wine with meals is encouraged by the affordable pricing of local vintages. Even at $10 to $20 apiece, a bottle or two with the evening meal is not feasible. Reduce that to a few dollars each, and suddenly an integral part of the Mediterranean diet is in reach.

Whatever the cost, some of us will undoubtedly be lifting a glass of cheer on Wednesday night, in celebration of the pending New Year. Hopefully our governments resolve to give us all a break in 2009.