It is often said that to be successful in hospitality one must remain close to your customers, including their evolving wishes, desires, expectations, and their economic circumstances. Is the neighbourhood ripe for haute-cuisine or casual sit-down restaurant, can I raise my menu prices, what new experience or product can I provide that will draw new customers, amongst other business considerations?
Department of Finance officials in Ottawa could learn some important business lessons from successful hospitality operators. In the midst of an affordability crisis due to persistent high inflation and aggravated by the Bank of Canada’s aggressive interest rate hikes response, a nearly 5% federal beer, wine and spirits tax increase is counter indicated as a policy response.
The principles of sound tax policy include taking into account macro-economic realities. Those economic realities today across Canada include a dramatic reduction in disposable income for many Canadians. A reduction that may well worsen as the cumulative impact of successive interest rate hikes on mortgages, personal loans, and credit cards continues to be felt by consumers and the economy as a whole. No economist would suggest the proper response to these real-world circumstances is an increase in commodity or production taxes like those imposed on beer whose actual effect is to put upward pressure on prices, raise inflation and, therefore, delay the ability of the Bank of Canada to begin to reduce interest rates.
Then why are Canadians facing a looming 4.7% federal beverage alcohol tax increase on April 1, 2024?
The reason is that in 2017, the Government of Canada introduced an automatic annual inflation-based increase, a so-called “escalator” to their beer, wine, and spirits taxes. The Department of Finance believed the country would remain in a “goldilocks” economy characterised by low inflation and near zero interest rates in perpetuity. Their forecast has shown to be way off the mark, and a policy course correction is now required.
Hospitality businesses live in the real world of cause and effect. It is simply not acceptable for the Government of Canada to allow these increases to proceed and not accept full responsibility for their inevitable consequences, including more business closures, fewer jobs, and reduced investment.
Draught beer in particular is a very significant contributor to the bottom line of most full-service restaurants as well as for bars, pubs, and lounges. Restaurants Canada reports that 63% of these businesses are losing money or just breaking even. They cannot absorb any new costs increases on their purchases and they know their patrons can’t afford to pay more for a pint. They should not be forced to make this impossible choice.
The vast majority of Members or Parliament across all parties wish to either eliminate the annual inflation-indexing “escalator”, freeze the rates, or at a minimum cap the increase to no more than 2% for at least this year. They should be allowed to vote and debate on any beer tax change and not have their will overruled by technocrats or non-elected officials.
We are calling for beer tax relief to be included in Budget 2024 to support the extremely fragile beer consumer and all those businesses and workers dependent on a healthy domestic beer sector.