Dish

Taxing the pint: The new rules are confusing, but will (hopefully) help brewers

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Last week the Alberta government announced new rules regarding how much the government adds to the price of beer. Depending on who you listen to the new arrangement is either a protectionist attack on free trade, an insult to small Alberta brewers, or an attempt to help those same Alberta brewers.

Allow me to cut through the confusion. Some history is in order.

The announcement had to do with what is called the “mark-up” which is the amount the government takes from the sale of alcohol. It is not a tax on the breweries, as it is just added to the wholesale price.  For years, Alberta has had a tiered mark-up for beer. Beer from small breweries would have less added to their price than large brewers—historically a gap of 50 to 70 cents per litre. The logic is that the smaller mark-up helps small breweries, who can’t take advantage economics of scale, to compete a bit more on price.

It sounds like a good idea, and it is. The problem is that because of Alberta’s privatized liquor retail system and a policy of having open borders —allowing any beer in the world to enter the Alberta market—the government had to grant the lower rates to every beer, regardless of where it was brewed. In short, the Alberta government subsidized small breweries from around the world. This was a huge problem for Alberta’s nascent craft beer scene, stunting the growth of local production. It has long been a thorn in the side of Alberta breweries that imports get the same price break they do.

So, last fall the new NDP government signaled a key policy change by restricting the lower mark-up rates (at this point a spread of $1.15 per litre) to beer produced in Alberta, BC and Saskatchewan. The reason for including the latter provinces is Alberta’s membership in the New West Partnership.

The policy sparked a wave of protest from importers and Toronto’s Steam Whistle launched a lawsuit to stop the change, claiming it was a violation of trade rules. Last week’s response was the government’s attempt to address the lawsuit. It is a two-part strategy.

First they scrapped the long-standing tiered mark-up. Every beer sold in Alberta will now have a mark-up of $1.25 per litre (the existing top rate), regardless of where it is made or how big the brewery is. Second, they have promised to create a grant for Alberta brewers to an amount roughly equivalent to the former spread between the high and low rates. In other words, the grant will make Alberta breweries “whole”.

The goal of the two-pronged policy is to, in effect, restrict the lower mark-up to Alberta-made beer. At least we think. Some of the confusion in the announcement’s wake is due to the fact the government has not released any details on that grant. Some in the Alberta beer industry are nervous the cost advantage they have will disappear, making their life even harder. However, most of the established Alberta breweries are expressing cautious optimism that this manoeuvre will finally give them some needed competitive space vis a vis imports.

BC and Saskatchewan breweries, however, are joining their colleagues from other jurisdictions in railing against the change, calling it protectionist. Very quickly rumblings of a new lawsuit have been heard.

My take? In the short term, if the grant does what it promises this policy will help Alberta brewers by making their beer more price competitive. If the grant falls short, Alberta breweries will be in an even more disadvantaged place.

Every other province uses a variety of tools, including restricting the number of imported beer, guaranteed shelf space for local beer, and grants, to shelter their breweries from the full onslaught of competition with imports. So cries of protectionism do have a whiff of hypocrisy.

Mark-ups and grants are a crude and awkward way to assist Alberta brewers. But because Alberta has no government-owned liquor stores and has an open border, the government doesn’t have the tools other province’s have.

Will it work? I don’t know. What I do know is it will continue to generate controversy for some time to come.  V

Jason Foster is the creator of onbeer.org, a website devoted to news and views on beer from the prairies and beyond.

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