Liquor sales come with costs either way

by Paul Dechene

Privatizing Liquor

provinceSometimes when politicians release trial balloons, they get buffeted by the prevailing winds and either soar into the stratosphere or get knocked to the ground. Other times, they just sort of hang there. That would appear to be the case with the recent musing by Saskatchewan premier Brad Wall about making the privatization of the province’s 79 publicly owned liquor stores a plank in his next election campaign in 2016.

A subsequent Insightrix Research poll revealed that provincial residents were lukewarm on the idea, with 23 per cent expressing support, 25 per cent opposed, 34 per cent content with the current mixed system of public and private options, and the remainder undecided.

Not surprisingly, the NDP want to keep public stores public. But that doesn’t mean they don’t see room for improvement. “I get as frustrated as the next guy,” says NDP leader Cam Broten. “I remember one night, I finished mowing the lawn and wanted to have my favourite Paddock Wood 606, wanted to go down to the SLGA, but it had just closed.”

But, he says, that isn’t sufficient reason to put a “For Sale” sign in the windows of SLGA stores.

“As I’ve been talking to people, travelling, this isn’t the top-of-mind issue that people bring up. But when they do talk about it, what I really hear is the desire to have SLGA modernized, to have better hours, to have better selection, to have more flexibility. I think that absolutely the government right now could fix a lot of those issues while maintaining the public liquor stores and the huge profits that provide for health care, roads and all the things we rely upon.”

In 2012-13, Saskatchewan Liquor and Gaming Authority earned $478.4 million in net income. Not all of that was tied to booze sales. But with provincial coffers perennially cash-strapped, the revenue SLGA generates seems like a pretty convincing argument for keeping liquor stores public.

Too bad those millions in revenue disappear once you apply a mathematical trick known as “subtraction.”

“Actually, provinces lose money running liquor stores. It’s not a cash grab when they tax liquor,” says David Campanella, a public policy research manager for Parkland Institute and co-author of a 2012 report titled The Economic and Social Consequences of Liquor Privatization in Western Canada.

When the public costs for health care, policing and the courts are totaled up, says Campanella, “they’re much higher than governments are able to recoup in liquor revenue.”

Despite this, Campanella’s report comes down firmly against privatization because, while he says government-controlled liquor stores don’t produce strings-free riches, privatized liquor stores are even worse. That’s because society still bears the same health, police and court costs, but fewer dollars are typically earned on each bottle of booze. That’s what he found when he looked at Alberta’s experience of privatizing its liquor stores.

“[Privatization] has essentially eroded [Alberta’s] ability to tax liquor,” he says. “So we get a much lower portion of liquor sales than we used to while at the same time consumption has gone way up, and higher consumption is related to higher public health care costs.

“Since it was introduced in 1993, we’ve actually only increased the [liquor] tax rate once. And every year since then it’s been eroded by inflation, because in a public system [taxation] is based on the price, so it’s able to account for prices generally going up. But in a private system that becomes a bit too complex to manage, so you have to switch to a unit tax, which is just a flat markup.”

When Alberta premier Ed Stelmach tried to counter that erosion with a tax increase in 2009, says Campanella, he met strong resistance from private liquor vendors concerned about loss of profits through higher prices and less consumption. “Stelmach was expecting $180 million in additional revenue every year, but we quickly saw the industry and others rebuke him and the tax increase was cancelled. That sort of encapsulates the new dynamic here.”

Not only do private retailers push to keep taxes low, Campanella notes, they have a strong incentive to encourage higher alcohol consumption by the public. Sometimes those sales come courtesy of intoxicated or underage patrons that public liquor stores are generally more vigilant against in denying service.

Ideally, a public system, while making liquor available, should have a mandate to discourage excess consumption as that’s the best way to minimize public health and legal costs while maximizing provincial revenue from liquor sales. But since the early 1990s, Campanella says, provincially controlled liquor stores across Canada have increasingly emulated a private retail model.

“That’s a big complaint that I heard when I was doing my research, talking to some of the public health care advocates. In Ontario, Saskatchewan and B.C., they railed against how the mandate has changed in how the liquor system was governed towards better advertising, bigger stores, better stores, more stores. And I imagine that’s probably coming from [the liquor stores’] attempt to satisfy consumers’ demand for easier access to liquor in order to ward off attempts to privatize them.”

In the end, unless we want to return to Prohibition and the problems that brings with it, people are going to be buying beer, wine and spirits. And that means Saskatchewan has to navigate between two Canadian comedies. Do we go with Wolfcop’s 24-hour, privately run Liquor Donut franchises? Or do we get Strange Brew’s tightly regulated beer stores where you humbly request a two-four of Elsinore from a provincial employee? Each has its charms. And both come with costs.