Should Ontario privatize liquor sales?

Tamsin McMahon on how the province with a monopoly makes less money on booze

(J.P. Moczulski/CP)

Ontario’s Opposition leader, Tim Hudak, seems to have found the ideal hot-button issue in his promise to privatize the provincial liquor monopoly if he emerges victorious from whenever the present leaderless minority government ends up holding an election.

The future of the LCBO has been debated ad nauseam since the agency was created back in 1927. But this time the announcement actually appears to have some traction for Hudak, coming during the holiday season when budgets are tight, alcohol is in demand and there’s not much else in the way of interesting news from the provincial government to distract us.

Strangely enough, as Progressive Conservative leader Hudak shied away from the privatization issue in the 2011 provincial election, instead musing on the days a buck-a-beer, when a 24-case of domestic could be had for $24.

But after floating a few other wedge issues in the last election (prison chain gangs, the dangers of sex ed for elementary school children) to no avail, Hudak may just have found the one that actually matters to Ontarians. After all, free-flowing booze is about the only thing that could unite a 50-something libertarian in rural Eastern Ontario and a 20-something hipster in downtown Toronto.

Still, the idea has predictably touched off a firestorm of debate. B.C. Premier Christy Clark floated a similar idea back in the summer, but was forced to back down due to union pressure.

Proponents of LCBO privatization often point to Alberta, which privatized its liquor sales in 1993 and has since seen a rush of new private liquor stores, both mass market and specialty, along with a larger selection of products and longer store hours. Critics also like to cite Alberta for the downside of privatization: Namely the fact that the Alberta government has seen steadily declining revenues from alcohol sales for the past two decades and that the LCBO transferred $1.63 billion to Ontario government coffers last year, excluding taxes. (Hudak’s finance critic, Peter Shurman, recently said the Progressive Conservatives “don’t know” exactly how privatizing liquor sales will affect government revenues.)

In light of the ongoing debate over public versus private liquor stores, here is a look at some Statistics Canada data that tracks the net government proceeds of liquor sales in every province. The data removes the GST portion of the sales tax, along with what it costs provincial governments to run their liquor stores. In other words, it’s a look at the pure profits flowing into government coffers from the sale of booze.

The results here are based on revenue per 100 residents and are adjusted for inflation (in 1993 dollars, which is when Alberta privatized alcohol sales):

Government revenues from alcohol sales

They clearly show that Alberta has faced declining revenue since going private, from $15.30 for every 100 residents in 1993 to the equivalent of $12.86 in 2011, a drop of 16 per cent. However, the province still earns more per capita than either Ontario or Quebec, which long ago allowed private stores to sell beer and wine, but not hard liquor. B.C., which went to a two-tiered system in 2004, has also seen its revenue drop over the years. But most of that decline actually occurred before it allowed private wine and beer sales and revenue was actually growing between 2004 and 2009.

Atlantic Canada earns by far the most per capita from its alcohol sales and, along with Saskatchewan, has been able to grow its revenue nearly 25 per cent since 1993. Quebec takes in the least per person from alcohol sales, although the province has managed to boost revenues by nearly 50 per cent over the past two decades.

What’s interesting in Ontario is that government revenues are substantially lower than other provinces that also have monopolies on the alcohol distribution and sales. Revenues per capita from alcohol have increased just eight per cent in nearly 20 years in the province. Despite moving to a privatized system, the Alberta government still takes in more per capita on alcohol sales than Ontario.

Clearly there’s more at work here than a debate over a public monopoly versus privatization. After all, governments have lots of potential policies in their arsenal to boost revenues from booze whether in a public or private system: alcohol taxes, minimum pricing to discourage consumption, fees for alcohol producers for the privilege of selling their products in government stores, fees for liquor licences. The Maritime provinces, for instance, all have large alcohol taxes on top of provincial sales tax.

One would expect that more taxes, a la Atlantic Canada, would lead to higher prices for beer, wine and spirits. On the flip side, critics argue that privatization has driven up prices in Alberta.

To test this debate, here’s a look at the price of a popular product, a standard 750 ml bottle of Smirnoff Vodka, across the country:

Quebec, which collects the lowest alcohol revenues has the lowest price, while the Maritimes, which collect the most, have higher prices. (It’s not broken down here, but at $27.98, Nova Scotia actually has the highest price for a bottle of Smirnoff in the country.) Manitoba’s high provincial sales tax helped push up its prices. Alberta’s private system has also pushed its prices toward the higher end. (The amount quoted here is from Metro Liquor Stores in Calgary.)

Ontario’s prices seem high given that government revenues from alcohol sales are comparatively low. It costs 17 cents less to buy a bottle of Smirnoff in Newfoundland than it does in Ontario, and yet the Newfoundland government takes in roughly 62 per cent more per capita in alcohol revenues than the Ontario government does.

It’s clear the issue is a lot more nuanced than the debate over public versus private alcohol sales would suggest. B.C., Alberta and Quebec have all allowed some manner of private sales of alcohol. But government revenues from alcohol sales have been growing in B.C. and Quebec. Not so in Alberta. Ontario’s liquor monopoly doesn’t seem to have helped the province boost its sales revenue all that much. Neither Ontario, nor Alberta, had the highest or the lowest prices.

There may be other valid reasons to privatize liquor sales, like better choice of products and more convenience for consumers. If it’s a matter of being able to buy beer and wine at midnight at the corner store, ending the Ontario government’s monopoly on liquor sales may be the best option. If the debate is over whether governments should benefit from higher revenues, consumers should benefit from lower prices, or that alcohol should be taxed into oblivion to keep us all from drinking too much, neither a government monopoly, nor a privatized system seems to have all the answers.

Update

In reply to this article, Jan Westcott, president and CEO of Spirits Canada, writes the following:

Ms. McMahon comes tantalizing close to stating the obvious yet rarely uttered truth, that provincial Treasury revenues derived from the sale of beverage alcohol are most directly related to implicit provincial commodity tax rates, i.e., liquor board mark-ups (Should Ontario privatize liquor sales, December 10, 2012).

A case in point: by exempting beer and bottled-in-Quebec wines from their fair share of the provincial alcohol tax burden, Quebec ranks lowest amongst net return per capita.

The corollary: those provinces with the highest taxes on spirits no longer are home to distilled spirits production as manufacturers consolidated their operations in lower tax jurisdictions.

For example, Ontario jumps to the province with the highest government alcohol revenues per capita once one adds an additional $1 billion ($5.25/100 residents), directly related to local spirits manufacturing.




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Should Ontario privatize liquor sales?

  1. What is the per capita cost to earn theabove per capital revenue?

  2. No

  3. You could also mention that the Alberta government had a 5 year policy, at the time of privatization in 1993, that would prevent the government from earning more money based on liquor and reduced their “Provintial mark-up” three times to make its income from liquor sales neutral to pre-privatization levels. You might also mention that the current sale price of Smirinoff vodka is $20 in many liquor store flyers on a regular basis. :-)

  4. Alcohol kills. I would suggest that if alcohol sale is ever privatized that the penalty for drunk driving be raised to life imprisonment when someone is injured.

  5. Thanks for the article. For info on people using voluntary Libertarian tools on similar and other issues worldwide, please see the non-partisan Libertarian International Organization @ http://www.Libertarian-International.org ….

  6. Don’t forget that Alberta no longer has to deal with the union or the cost of operating the stores. The province sold the stores or sub leased all gov’t locations. The number of stores increased and so did selection and hours. Every store in Alberta purchases liquor at the same cost and adds their mark up. This results in different prices/selection at all stores and smart consumers can shop around for the best deal. I just bought a 750ml or Smirinoff for $17.99. In most cases larger retailers operate their own stores attached to their stores(Safeway, Costco, Superstore). Privitization is the only way to go when you look at all the bottom line

  7. Have those stats been corrected for actual residents above the legal drinking age?

    I believe Alberta has a much larger proportion of the population under 18.

  8. Lets see a comparison of the medical costs associated with alcohol related illness, death, traffic injuries etc associated with these provinces. How can small grocery stores take back empties, so what percent of privatized provinces stores take returns?

  9. There is also the benefit of a more diversified economy. In Quebec, for example, beer and wine are sold in the local depanneurs. The advantage is that often beside a depanneur you’ll see a video store, restaurant or a cafe because of the influx of people.

  10. I come from Maryland, one of the many “lands of grocery store alcohol.” I tell you, I have been PLEASANTLY surprised and pleased by the system in Ontario. I admire and laud the system here. I DO NOT WANT PRIVATIZATION. There SHOULD be a speed-bump on peoples’ path toward alcohol. It SHOULD be the kind of purchase you have to put effort into. Taxes and revenues have nothing to do with it; the negative impact of widely available alcohol should be obvious. It doesn’t matter that the majority of people who enjoy alcohol do so responsibly; they’re not causing trouble now, they won’t cause trouble under privatization. The problem is the people who already are not responsible in their consumption and privatization will only make those numbers go up. Last year a family car on the way home from holiday services was struck by a drunk driver. The mother and the week-old infant were killed. Does that husband and the surviving child have to face that loss just so you can buy a beer with your bread? Yes, the drunk driver was behaving badly and most people don’t. But making it easier for people who already make bad decisions to make MORE bad decisions strikes me as criminal negligence.

    • Sorry to reply to your comment so far in the future but I agree with you. I recently posted a comment related to my own experience growing up with alcohol sales in corner stores in a different forum and was slammed heavily by some other posters. I decided to look for opinions from other people who understand the problems related to easier access to alcohol and found one in your post. So thank you.

  11. In response to Tamsin McMahon’s article on the benefits of privatizing the LCBO, there is an important point that should be drawn in regards to the per capita comparisons made between Alberta and Ontario. The question of per capita government revenue from alcohol sales in different Canadian markets (in this particular case comparing Alberta and Ontario) isn’t new. However, any reasonable comparison must include provincial revenues from the 1,000-plus private beer and wine retail outlets in Ontario. When all direct sources of provincial revenue from the retail sale of alcohol are considered, Ontario’s legal drinking age per capita revenue is actually significantly higher than Alberta’s.

    Government revenues from the two provinces’ retail systems since 1993 (when Alberta privatized) show an increase of 83% in Ontario (from $1.45 billion to $2.66 billion) and 68% in Alberta (from $408 million to $684 million). Over this time period, Ontario taxpayers have received from alcohol retailers $37 billion, to help pay for health care, education and other government priorities.

  12. Are we really looking at both sides of the coin?

    According to its December 2011 report, Canadian Public Health, the government spends more on policing and healthcare related to alcohol than the revenues it receives from its sales.

    According to the Institute of Medicine of the National Academy of Science, … 15 percent of people who try alcohol become dependent.·
    According to the World Health Organization’s (WHO) study of the burden of disease, alcohol ranks second out of 26 risk factors for death, disease and disability (measured in Disability Adjusted Life Years), with only tobacco causing more harm in high-income nations like Canada. ·
    This places the burden from alcohol higher than that from other health risks, including, overweight and obesity, physical inactivity, illicit drug use, unhealthy diet and others (WHO 2011).
    According to the Public Health Agency of Canada, it
    can be estimated that close to one million (approximately 945,150) children
    lived in an alcoholic home in Canada in 1991. This figure represents approximately
    12% of children in any age group.

  13. Wine Selection in alberta is dismal and much more expensive for quality wines than in Ontario and Quebec. Can’t see how that experiment benefitted anyone except the private store owner how lost their buying power in the world market. Alberta gets the short end of the stick with poorer selection than any other province.

  14. This is why I would like to see beer privatized:

    1) I know The Beer store is not government owned but it is 3 big brewers who own the store (of which only 1 brewery is half Canadian and half American owned, the other 2 are completely foreign owned) and make it a monopoly. Many smaller Ontario craft brewers have attempted to get the government to let them operate and control there own beer store selling local and craft beers only, however they were denied. Many of “The Beer Stores” are not shopper friendly and often dirty and unfriendly. The way they run the store goes against how any retail store would operate a business. Beers are often not displayed, no aisles to browse, and no knowledge on what style of beers are available in the store. 90% of what “The Beer Store” sells is gold fizzy big brand name lagers. Those who want to drink beers of different styles such as Belgian Ales, England Ales, German Wheat beers, American IPA’s, local craft beers and so on are very limited in selection.

    2) The LCBO often has a better selection of beer (the bigger the LCBO usually the better the selection) however LCBO is not perfect and I would like to have an option of where to purchase beer (other then The Beer Store).

    3) Location can be difficult with the current Ontario set-up of Beer Store’s and LCBO’s. They are often dotted across a map but often there is a neighbourhood in the city or town that has a local grocery store and convenience store but has no Beer Store or LCBO in the local neighbourhood. Not everyone owns a car, this can be a difficult and long journey for some to trek across town or into another neighbourhood just to purchase alcohol.

    I would like to see alcohol sold at privatized stores for convenience location and the option of selection. I would like to have options on where I would like to buy beer. Currently i feel like I have one choice where to purchase beer as I dislike the other option where to purchase my beer. As one who has worked in the alcohol industry would also like the chance of opening my own business if I choose to further down the road rather then being told I can not because the government and the big brewers are taking all the money, leaving none for others.

  15. The government should never be involved in sale of Liquor ,Privatize it and let the competition begin.
    Oh i almost forgot NO DISCOUNT ON ALCOHOL for our Liberal politician.

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