Association of Canadian Distillers - Publications: Other Studies - The Conference Board of Canada - The Economic Impact and Taxation Burden From The Distilled Spirits Industry

The Conference Board of Canada - The Economic Impact and Taxation Burden From The Distilled Spirits Industry

January 1996

Executive Summary

Two key questions are addressed in this report: 1) How important is the distilled spirits industry to Canada's economy? and 2) To what extent, if any, are distilled spirits taxed from other forms of alcohol? The answers to these questions are important to both the industry and policymakers in understanding what is at stake in debate. As well, these answers offer crucial inputs and insights to facilitate government policy decisions.

Although a relatively small sector in Canada, the distilled spirits industry directly and indirectly $2.6 billion worth of economic activity (GDP) in fiscal 1993-94 and accounted for almost 16,000 jobs. This includes people who work in the production, wholesaling and retailing of distilled spirits, as well as those individuals who work in industries that supply goods and services to the distilled spirits industry. The industry more labour productive than the beer or wine industries, with each employee generating $165,000 of GDP at market prices, compared to $108,000 for the beer industry and $119,000 for the wine industry

Yet the challenges facing the distilled spirits industry over the past decade have been well documented- dramatic sales declines and employment losses. Per capita volume sales of distilled spirits fell by 39 per cent from 1983-84 to 1993-94. This situation has led to debate about the root causes underlying these trends. At the centre of this debate is the issue of the relative tax burden facing different alcoholic beverages both domestically and internationally.

While the relative tax burden on distilled spirits compared with beer is virtually the same in Canada and the sector in Canada, and the United States (i.e., 1.6 to 1), the retail price of distilled spirits sold in Canada is much higher than in the United States. After adjusting for differences in concentration of alcohol, taxes and levies force the Ontario consumer to spend almost six times more to purchase a litre of spirits than the manufacturer price. In the case of beer, the consumer price is about two and a half times the manufacturer price while that of wine is three times. Taxes on distilled spirits account for 71 per cent of the consumer price of this product, while they account for 56 per cent of the price of wine and 49 per cent of the price of beer.