Canadian winemakers face devil’s choice as Australia claims victory in fracas over excise duty exemption
On the eve of Canada Day, 2006, then federal finance minister Jim Flaherty clinked glasses with a group of wine industry players at an event in Beamsville, Ont.
The Flaherty photo-op, while staged, captured a genuinely happy moment for domestic wine producers, as the minister unveiled a federal excise duty exemption on Canadian wines — a tax break, in other words, that has since helped transform a two-bit home grown industry into a multi-billion-dollar domestic economic engine.
Dan Paszkowski, president of the Canadian Vintners Association, was among the smiling faces pictured alongside Flaherty in 2006. A grin, alas, that was nowhere evident this week, after he learned that the federal government would be repealing the exemption following a challenge by Australia at the World Trade Organization. The repeal takes effect June 30, 2022.
“If I said in 2006 that the exemption was fantastic, I can’t say that today,” Paszkowski said. “The loss of the exemption could not have come at a worse time for the industry. With COVID, with flat wine sales, with restaurants and bars not being at full capacity, it is going to cause significant, significant pain.”
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In Australia, where the WTO challenge originated, the mood was somewhere closer to jubilation.
“Removing these trade barriers will mean our wine exporters can now compete on a level playing field with Canadian wine producers,” Australian Federal Trade Minister Simon Birmingham said in a statement. “With Australian wine exporters enjoying zero tariffs into Canada, this is a market with real potential for growth and this agreement will provide further opportunities for our wine exporters to sell more Australian wine in Canada.”
Canada is already Australia’s fourth-largest export market for wine, and it is the fourth-largest supplier of wine to the Canadian market, in terms of value, and second largest in terms of volume sold. Add all the numbers together and Canada represents a $185-million annual business for Australian wine makers.
As is, the tax exemption for Canadian wine producers costs the government about $40-million a year. Since the program’s inception, an industry of 300 domestic wineries has grown to include about 700, many of which are small labels producing small batches of premium, world-recognized vintages.
The end of the exemption will mean a 50-cent per bottle hit to the producers, according to Paszkowski. Already operating on thin profit margins, producers will soon be facing a devil’s choice: eat the costs of the lost exemption or else pass the cost along to the consumer and risk losing their business.
“It will be difficult for our sector to pass on those costs,” Paszkowski said. “For the smallest wineries in this country the loss of the excise exemption will be the nail in the coffin, it is that serious.”
Paszkowski predicts “hundreds of wineries” could be lost if the federal government, in concert with the industry, can’t arrive at some new form of subsidy to replace the exemption being lost.
On that front, perhaps the Australians might provide some inspiration. Australia’s wine makers benefit from a tax-equalization plan at home, a government sweetener that remains intact, and that Paszkowski and his mates in Canadian wine circles decry as “hypocritical,” in light of the WTO result.
Financial Post
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