Better for Ford to lower beer tax than minimum price
There are few things better than a cold brew on a hot summer day, and it’s even better if you pay less for it.
Many thirsty Ontarians rejoiced recently when Ontario Premier Doug Ford announced details of his plan to get buck-a-beer into stores by Labour Day, but some brewers reacted to his plan with more tears than cheers.
Ford’s plan to get to $1 beer is to lower the government mandated minimum price of beer from the current floor of $1.25 to $1. The wrinkle in Ford’s plan is that there is no beer in the Beer Store currently selling for the existing minimum price. The cheapest beer in the Beer Store is $35.50 for a case of 24 bottles, which works out to about $1.48 per beer, before the bottle deposit.
Brewers aren’t selling at the existing minimum price because it’s hard for them to make money at that price. And the reason isn’t just the cost of production – it’s the incredibly high taxes on beer.
If brewers sold beer for $1 per bottle, 58.7 cents of that dollar would be tax. It would include a 10.6 cent excise tax, 36.6 cents in provincial markup, and 11.5 cents in sales tax. This is assuming a large brewer who is not receiving any kind of markup relief.
With the remaining 41.3 cents per bottle, the brewer needs to buy ingredients and equipment, run a production line, label, bottle, and transport the product, and pay salaries. Buck-a-beer is a potentially money losing proposition for most brewers.
This is why a number of craft brewers have come out against the buck-a-beer policy and have said they won’t be participating. Some have explicitly said that selling beer for $1 would put them out of business.
Ford’s solution is to provide “incentives” to encourage some brewers to hit this price. Any brewer who lowers their price to $1 on or after August 27 will, for a limited time throughout the year, receive LCBO promotional considerations like limited-time discounts, in-store displays on end aisles, or advertising in LCBO flyers and newspaper inserts.
This kind of government help will do little to offset the cost of producing at a $1 sale price. But the bigger problem is it inserts the government into the marketing and product line of the LCBO. This type of political control is exactly why the LCBO should be taken out of government hands, broken up and sold. We don’t need politicians tinkering with our tankards.
There is, fortunately, a better solution.
If Premier Ford is absolutely committed to ensuring that brewers sell beer at the $1 price point, he can lower beer taxes. This is something entirely within his government’s control. At 58.7 per cent, taxes on bottled beer is absurd. With canned beer, the tax rate is a shocking 70.1 per cent on a $1 beer. And it’s getting increasingly hard to produce affordable canned beer, with new tariffs on aluminum that started on July 1.
Cutting taxes on beer would do far more to help more brewers sell better beer for less than temporary shelf-space, and the price would be sustainable. Under the Wynne Liberals, the government just recently hiked the provincial beer tax in March, by 12 cents on a case of 24 cans. The basic Ontario beer tax has increased $1.70 per 24 cans since 2010. And in 2017, the Federal government passed a “beer escalator tax,” that automatically increases the federal taxes every year. On April 1, 2017, they hiked every federal liquor tax by 2 per cent, and on April 1 of every year they will automatically increase alcohol taxes by the rate of inflation, forever.
If Premier Ford wants lower beer prices, he can start right away by tackling taxes. He could cancel the planned provincial tax increase on beer tax, scheduled to come into effect on November 1. Premier Ford should seize this golden hop-portunity and do something that really will lower prices long term. Bottoms up!