Alberta’s Liquor Policy Bonanza

Commentary, Frontier Centre, Role of Government, Uncategorized

In its provincial budget last April, the government of Nova Scotia promised that it would “get out of the retail and wholesale liquor business, provided such a move makes good sense for taxpayers.” The evidence from Alberta, which privatized liquor retailing in 1993, indicates that the move makes a lot of sense.

Once the private sector took over, the industry took off. Albertans now enjoy more choice, more convenience and more investment in the liquor business. Revenues to the provincial treasury have remained the same, despite lower taxes per bottle. Predictions of dire social outcomes from freeing up booze have proven hollow.

John Hamm’s government is heading in the same direction for the right reason, that selling liquor is not a “core government function”. That phrase may not seem profound, but ignoring it is perilous. Government can best perform its vital duties, ensuring social order and prosperity, by getting out of the way. It doesn’t run businesses very well, and shouldn’t try.

Why did most provinces monopolize the liquor industry? The policy was a hangover from the beginning of the century, when temperance movements were all the rage. The harmful social effects of alcohol could only be mitigated, most people believed, by tight social controls over its sale and distribution. They were mistaken. Today we understand the catastrophic health effects of smoking, but nobody advocates selling cigarettes in government stores. We simply tax them heavily to discourage their use.

In Alberta, the government decided to maintain its liquor tax revenue at a flat level. Although per capita consumption has remained about the same, a tripling of outlets has allowed the government to capture the same amount of revenue while lowering the tax per bottle. To keep revenues constant, it has had to reduce taxes four time.

Before Privatization After Privatization
Number of retail outlets 304 840
Communitites served 151 219
Full-time jobs 950 4,000
Product list (provincial) 3,325 16,701
Product per average store 865 1,140
Tax revenue $435 million $443 million
Average price per litre $4.92 $4.69

Sources: Alberta Gaming and Liquor Commission, Statistics Canada, Westridge Marketing Services

Did more choice and diversity in the industry mean a lot more drinking? Not at all. Average liquor consumption per capita over the seven years rose only 1.7%. More importantly, since 1991 the incidence of drunk driving in Alberta has declined by 50%, due to heavier penalties for infractions. This is government at its best, allowing much more social freedom while containing the negative consequences.

Statistics on crime involving booze outlets are ambiguous. Overall, the rate of criminal offences at liquor stores in Calgary declined by 32%, but over-the-counter robberies went up. Analysts believe that the crime pattern just shifted because liquor stores can now stay open until 2:00 a.m. Break and entry declined because criminals approached were more likely to find staff in attendance.

Consistent with the pattern of privatization in other industries, the private liquor business created a financial windfall for Alberta. The government initially took in $82 million from selling assets, more than three times the actual cost of privatizing, which included $17 million in severance packages for employees. But $100 million in private capital investment followed. The businesses that sell liquor pay business, property and income taxes, having lost the free ride of escaping normal taxation due to government ownership. Alberta also realized a big boost in license fees from private liquor stores.

A significant difference between Alberta’s effort and Nova Scotia’s plans is that the latter intends to privatize the wholesale and distribution end as well. The pervasive benefits of free markets will be realized across the board.

Six years ago, the Filmon government made a minuscule effort to liberate the liquor business by licensing a handful of private wine stores and allowing two grocery stores in Winnipeg to sell wine. But the outcome has been muddied by blatant discrimination between the two types of facility and by ham-handed monopoly behaviour towards both.

For instance, the LCC has decreed that the wine stores get a 30% discount, after its 100% markup, but the grocery stores are only allowed 13%. The logic? Wine will bring more people into the food stores and they will buy more food. It does not make financial sense for grocery stores to bother with wine at this price.

Neither style of retailer is allowed to offer high-volume customers discounts or any of the promotions common in the hospitality industry. The Commission lost so much in sales to restaurants despite the restrictions that it offered them a generous Air Miles promotion the private retailers can’t match. This diddle landed the LCC in court.

The private retailers can decide wine prices only if the LCC doesn’t stock the brand, otherwise controls apply. Even if they bring in their own bottles from wineries, they have to rubberstamp the LCC’s prices. The LCC minimizes the threat of competition with a sliding scale of discounts, 30% on the first million dollars in wine purchases, 15% for the next million and then down to 71/2%. In short, you are penalized if you succeed.

As soon as even a modicum of choice was allowed, the LCC responded with a sledgehammer. Before private wine stores, its advertising budget approached zero; now it’s over $10 million a year. The private stores are not even allowed to tout the health benefits of drinking wine. The LCC also threw millions of tax dollars into renovations and hiring wine experts, spending that the private stores can’t match as long as they’re forced to stay small. In at least three cases, licensees have tried to supply private restaurants in which they have an interest but were threatened with the loss of their licenses just for asking permission.

Any wholesaler who tried these tactics in the normal marketplace would land in jail. That’s the trouble with government monopolies. Basic rules of fair play go out the window when the referee ceases to be neutral.

These modernizing breezes from Alberta and Nova Scotia are unlikely to blow into Manitoba, at least under this government. Here’s why. In Alberta average wages paid to liquor store workers declined from $13.00 an hour to $7.97, the labour price found in the competitive retail sector. Four times the employment, five times the product selection, lower liquor prices, 840 new tax-paying businesses, longer service hours — in other words, a consumer and taxpayer bonanza matter little compared to preserving a handful of protected jobs.

Inertia rules. As it wastes energy harassing a few shopkeepers, a government misses the big picture yet again. We all continue to pay for another medieval public policy relic, drinking very expensive wine, at the cost of every economic advantage that privatization can confer.