01/22/2018 13:24 EST | Updated 01/22/2018 13:27 EST

Let Me Break Down What Canada's Escalating Beer Tax Will Really Cost You

Get the calculator out before running for the torches and pitchforks.

By now you may have seen the hashtag #axethebeertax on Twitter and wondered what that's about. Just putting the word "tax" anywhere near the word "beer" is enough to make most people develop pretty strong opinions. That's what Beer Canada, the lobby group behind the hashtag, is betting on. Their position is also reliant on you not knowing how excise taxes work. I can fix that for you.

Beer Canada is a voluntary organization that represents 48 brewers within Canada. At last count, the number of brewers in Canada hovers somewhere around 700, so it is probably fair to say that they don't speak for everyone. The membership does, however, include Labatt (owned by AB In-Bev), MolsonCoors (headquartered in Colorado) and Sleeman (owned by Sapporo). It would probably be naive to think that much of their lobbying policy is dictated by the comparatively tiny Yukon Brewing or Dominion City Brewing, although both of those companies make some tasty beverages.

Beer Canada would sure like you to be angry about taxes, because the very large brewers that they represent don't want to pay them. Having seen brewing industry lobbying over the last decade or so, my instinct — when presented with a lobbying group that represents a very small number of brewers anchored by some very large brewers, indeed — is to get the calculator out before running for the torches and pitchforks.

The fact of the matter is that there isn't a single Canadian paying 47 per cent in beer tax. That's an irrelevant number that they are trying to distract you with. In reality, the level of taxation on beer varies from province to province. There are two kinds of excise tax on beer: provincial and federal.

Every province's excise rate should be different, because they all face different challenges and have different population levels. No matter what the rate of excise taxation is in New Brunswick, the amount of revenue generated will be greater in Ontario despite a lesser rate. The population is much greater.

The 47 per cent average rate that they have come up with is not based on sales figures, but rather on the hypothetical price, tax and markups on the top 10 brands in each province.

What this means is that for the purpose of this study, Beer Canada has chosen the top 10 selling brands in each province and decided to run with those as examples. Let us see, according to The Beer Store, what those top 10 brands might look like in Ontario: Coors Light, Molson Canadian, Budweiser, Bud Light, Blue, Carling Lager, Busch Lager, Keiths, Heineken and Corona.

A "47 per cent beer tax" is not only not applicable in any specific provincial market, it doesn't matter at all.

Every single one of those brands is either brewed by or distributed by Labatt or MolsonCoors. That 47 per cent figure doesn't include a single brand from one of the other members of Beer Canada, or from any other Canadian brewer.

Here's the other thing: All of the variation in excise tax between provinces? Completely irrelevant. Beer Canada came up with a number that doesn't matter. A "47 per cent beer tax" is not only not applicable in any specific provincial market, it doesn't matter at all.

The excise tax being talked about is federal, and it is identical across every province and territory in Canada. Here is a link to the government's website so you can confirm that.

Here's the rate they're actually paying:

Beer or malt liquor containingPrevious rate per hectolitreNew rate per hectolitre
More than 2.5% of absolute ethyl alcohol by volume$31.22$31.84
More than 1.2%, but not more than 2.5%, of absolute ethyl alcohol by volume$15.61$15.92
Not more than 1.2% of absolute ethyl alcohol by volume$2.591$2.643

Goodness, that's a lot — $31.84 a hectolitre in federal excise tax on beer over 2.5 per cent. You are meant to be jumping up and down saying "what an outrage!" Except a hectolitre is 100 litres. That is about 31 cents a litre. That comes out to about 16 cents of federal excise taxation per pint of beer.

Paul Velgos

Say, what's the price of a pint of beer again? Somewhere between $7 and $8? Well, it varies from bar to bar, so we need a more dependable figure. Let's play Beer Canada's game and get an average figure for the non-import brands in the top 10 in Ontario at The Beer Store.

Coors Light x 24 bottles37.50
Molson Canadian x 24 bottles37.50
Budweiser x 24 bottles37.50
Bud Light x 24 bottles37.50
Blue x 24 bottles34.50
Carling x 24 bottles34.50
Busch x 24 bottles34.50
Keith's x 24 bottles38.50

First, let's all feign amazement that people are paying a premium for Keith's.

Then, let's do the math. The average price of a case of beer is $36.50 if you go by the examples that Beer Canada has used. Now, let's see:

24 bottles x 341ml = 8,184ml (8.184L)

How many of those in a hectolitre? That's 12.218 cases of beer per hectolitre. That's 293 bottles and a low fill!

What's $31.84 divided by 293? It's 10.8 cents a bottle in federal excise tax!

But it's going to go up 1.5 per cent, right? Well:

$31.84 * 1.015 = $32.32 per hectolitre

You mean it goes from 10.8 cents to 11 cents a bottle, essentially remaining at the same amount because there's no way to pay less than a penny? Yep. In order for that to cost you $10 next year, you would need to drink 143 cases of beer. What hath taxation wrought that I must pay an extra $10 to drink 3,432 bottles of beer?!

You would have to drink at least nine bottles of beer a day for this to have an effect on you.

Seriously, now. You would have to drink at least nine bottles of beer a day for this to have an effect on you.

petrenkod via Getty Images

What's that, you say? There are no craft brewers in that top 10 SKU situation that this entire nonsense is ginned up on? Could it be that there is a subsequent table on the federal government website that addresses this? Let's perform the intensely difficult journalistic task of scrolling down slightly.

Annual production volume incrementsPrevious rate per hectolitreNew rate per hectolitre
From 0 to 2,000 hectolitres$3.122$3.184
From 2,001 to 5,000 hectolitres$6.244$6.368
From 5,001 to 15,000 hectolitres$12.488$12.736
From 15,001 to 50,000 hectolitres$21.854$22.288
From 50,001 to 75,000 hectolitres$26.537$27.064
Greater than 75,000 hectolitres$31.22$31.84

After I wrote the initial blog post on this subject, I got curious about the long-term ramifications of this excise tax increase. It is supposed to go up 1.5 per cent every year, after all. I have gamed that out in a spreadsheet for you.

Essentially, what you need to know is that in order for this compounding increase to put the price of beer up a dollar a case, it will need to run until April 1, 2040. You're reading that right. People as yet unborn will be of drinking age before this costs you a dollar a case.

People as yet unborn will be of drinking age before this costs you a dollar a case.

I also got curious about why such an escalating tax might be necessary. With a cursory Google, I was able to find a 2016 Beer Canada lobbying document in which they themselves point out that, due to inflation, the effective rate of excise they pay decreases every year. Inflation is such that they are paying an effective rate closer to the 1991 excise rate than the 2006 excise rate; a fact which they actually brought up to the government a couple of years ago. That might have been a bit of an own goal for Beer Canada in retrospect. I suspect they accidentally talked the government into an annual adjustment and are now attempting to mobilize the public to fix their own mistake.

More about beer from HuffPost Canada:

Let us assume that the very large brewing corporations represented in the top 10 SKUs are each making something like 2.5 million HL of beer annually in Ontario. Why, if you multiply that figure (which I have plucked out of thin air) by $31.84, you get a figure of $79,600,000. Nearly $80 million. If you multiply it by $32.32, you get $80,800,000. Nearly $81 million.

The difference in payment to the federal government on the behalf of the very large brewing corporations (which are headquartered in other countries, by the way, despite being represented by Beer Canada) is about $1.2 million a year.

It would not pay for the CEO's bonus. It would not pay for a house in midtown Toronto. MolsonCoors had third-quarter net sales of $2.88 billion in 2017. I'm quite sure 1.2 million bucks is not going to bankrupt 'em. An annual increase of 1.5 per cent on federal excise taxation is essentially a COI increase of about a nickel a case.

Toronto Star via Getty Images
Empty cardboard cases make their way down a conveyor where they will be packaged with beer.

You want to talk about damage to the consumer? Do you remember around 2007 when the big brewers started lobbying for minimum price floor for value brands in Ontario? Well, they got that condition approved. The minimum price of 24 bottles of beer in Ontario has gone from $24 in 2009 to $34.50 in 2018. That is an increase in just under a decade on people who buy in that category of a factor of 1.4375. You're paying 43.75 per cent more for value brand beer than you were a decade ago. They have simply pocketed that. The decrease in demand that caused might also have something to do with why sales are down 10 per cent over the last decade.

Beer Canada is attempting to make you angry about the fact that their largest members are going to be paying about three-tenths of a cent more per bottle of beer in excise tax next year.

In terms of the effect on you, the consumer, we're talking about pennies; a unit of currency so small that we've done away with it in circulation. If that gets passed along to you, the cost increase you can expect is about a nickel per case of beer (and that's rounding up) — and that's a worst-case scenario.

A version of this blog originally appeared on St. John's Wort.

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