Controling liquor sales

The concept of privatizing the Liquor Control Board of Ontario (LCBO) has been raised in the provincial government when considering its economic prospects.

This instance of the debate proposes the partial privatization of the LCBO along with several high-profile assets in response to the provinces $24.7 billion deficit.

The plan would create a “super-corporation” by combining assets of Crown corporations such as Hydro One, Ontario Power Generation, the Ontario Lottery and Gaming Corporation (OLG) and the LCBO.

Monopoly sales

The LCBO makes profit because it is the monopoly provider of liquor in the province.

“You could think in some sense of the cost of alcohol as being the cost of producing that of water and grains, some distribution costs, including the cost of the employees that distributed it, some taxes and some things that you could call taxes which is the LCBO mark-up which is their ‘profit’,” explained David Johnson, professor of economics at Wilfrid Laurier University.

The prices of alcohol remain comparatively moderate to the rest of the country because of the negative implications if the taxes per alcohol unit were raised.

“Suppose they made liquor taxes 10 times as high in Ontario as they currently are, then quite clearly there would be an enormous amount of smuggling from … Quebec and Manitoba,” said Johnson.

Both taxes and profits of the LCBO go to the provincial government, with a small percentage distributed to the union representing LCBO employees.

“The people that lose by the privatization are the employees who are very well paid for a retail sector job … The people who are most opposed to [privatization] are the unions,” said Johnson.

Partial shares

The current proposal of selling a minority portion of the LCBO rather than privatizing it in full is uncertain in the economic benefits.

“If you sell it off at the current mark-up so that its profits are being sold it’s just like you’re buying a bond,” said Johnson.

Rather than buying a bond, the purchaser would have the additional benefit of owning the rights to the LCBO infinitely.

“When you think about it in that light, the privatization is fundamentally stupid because there’s no gain; you might as well just sell the bond,” said Johnson.

It would also create complications in having to guarantee profits to investors and would limit the ability to privatize the LCBO in the future.

“It would say you would have to be able to have some input. A partial-private owner of the LCBO would have to have some input into the size of the mark-up, which again makes no sense because the size of the mark-up is fundamentally a policy decision of how expensive alcohol should be,” said Johnson.

Opposing parties

Supporters of privatizing the LCBO claim that it would lead to an increase in the number of outlets, lower prices, provide longer operating hours and allow the business to expand into other markets.

However, those opposed to privatization, including the Ontario Public Service Employees Union (OPSEU), claim that it would reduce selection at some outlets, increase prices for certain items and potentially reduce government oversight in the sale of alcohol.

“Under privatization, product is often limited to best sellers with several retailers in smaller communities competing against one another for a limited, or shrinking, market,” said Greg Hamara, OPSEU communications officer.

The government would immediately receive the financial proceeds of selling either part or all of the shares in the LCBO.

“You would replace the LCBO mark-up with a thing that was actually a tax and then you … go and sell it as long as you pay the taxes,” explained Johnson.

The long-term revenue for the government would be dependent on the tax per unit of alcohol.

Whether in the private or public sector, liquor sales can generate revenue for the provincial government.

“The issue of LCBO privatization versus public ownership has been surveyed to death over the years. The results consistently show that between 70 and 75 per cent of Ontarians want the LCBO to remain in public hands. In other words, there is no demand for privatization,” said Hamara.

For the time-being, the provincial government’s throne speech on March 4 only ensures a review of Crown corporations, resulting in changes if it can better support public interest and economic priorities.

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