For Beer Fairness, End Price Controls and Subsidies

Commentary, Economy, Matthew Lau

With much fanfare, the Ontario government has brought back “Buck-a-Beer” by lowering the government-mandated price floor on a bottle or can of beer (with alcohol volume below 5.6%) from $1.25 to $1.00. Some Ontarians who don’t drink or who consume only more expensive alcoholic beverages won’t be much affected by this policy. But for the segment of the market that likes inexpensive beer, the price floor reduction is a positive change.

In general, the effect of price floors is to make buyers and sellers worse off. A beer price floor of $1.25 makes it illegal for buyers and sellers of beer to engage in voluntary, mutually beneficial economic transactions – namely, the purchase and sale of beer for less than $1.25 – simply because an irrelevant third party (the politicians) has deemed the terms of the transactions unacceptable.

The primary argument in favour of the beer price floor is “social responsibility.” According to this argument, the government has the responsibility to discourage people from drinking too much. But the proper way to do this would be through taxes instead of price controls, since a tax can be applied evenly whereas a price floor discriminates against a specific market segment: consumers of inexpensive alcohol.

However, that doesn’t mean higher beer taxes are a good idea. Given how heavily alcoholic beverages are already taxed in Ontario, cutting beer taxes would probably be more appropriate. Christine Van Geyn of the Canadian Taxpayers Federation points out in a recent column that “if brewers sold beer for $1 per bottle, 58.7 cents of that dollar would be tax. It would include a 10.6-cent excise tax, 36.6 cents in provincial markup, and 11.5 cents in sales tax.”

It is also worth asking: if the government believes it has a “social responsibility” to discourage alcohol consumption, why does it massively subsidize beer and wine with millions of dollars in corporate welfare every year? In April, for example, the Ontario government announced that it had distributed $5.2 million in subsidies to sixteen breweries through a Northern Ontario corporate welfare fund.

This figure pales in comparison to a 2013 announcement that the government would spend $75 million of taxpayers’ money to expand the production and consumption of Ontario wine. In fact, there are so many government programs handing out so much corporate welfare that many beer and wine companies have eaten from the subsidy trough multiple times.

For example, Beau’s All Natural Brewing Co. was handed $194,791 in “transfer payments” from Ontario taxpayers in 2014/15, and then another $191,699 the next fiscal year. And then in 2017, according to the Ontario Beverage Network website, Beau’s All Natural Brewing got back into the corporate welfare game, milking taxpayers of another $98,105.

To pick another example, Diamond Estate Wines & Spirits received a $608,100 subsidy in 2018 from the Ontario government – plus another $75,000 from Growing Forward 2, a multi-billion dollar federal and provincial corporate welfare shop. And back in 2014/15, the same company got a cheque for over $126,000 from Ontario taxpayers through the province’s Ministry of Economic Development. These subsidies are a ridiculous waste of money.

To increase fairness for alcohol consumers and producers, as well as taxpayers, the Ontario government should do three things. Firstly, it should end corporate welfare to beer and wine businesses. This includes the ill-advised promotional incentives it is offering to beer companies as part of its “Buck-a-Beer Challenge.” Supply and demand, not political games, should determine how beer is sold.

Secondly, the Ontario government should lower its exorbitant alcohol taxes to avoid punishing consumers unfairly . And thirdly, the government can build upon its positive move to lower the beer price floor by abolishing the price floor completely.