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BC's Budget - Effects on Wine Industry

The Liberal government introduced its budget for 2010 yesterday. There wasn't too much mention of wine or liquor. However, there were a couple of interesting points which will likely have some consequences for the industry.

As was reported earlier, the government confirmed that the introduction of the HST is not intended to affect "shelf prices" on wine (or other liquor). This is significant because the combined sales tax rate on liquor (which is currently 10% PST and 5% GST = 15% total) will actually go down when the combined HST rate (7% PST + 5% GST = 12% total) is introduced in July. One might have hoped that this would result in a modest reduction in retail prices. However, given the government's current financial situation, this was wishful thinking. As a result, the government has indicated that it will adjust liquor markup rates to eliminate any price reduction.

Unfortunately, this is not easy to do in a uniform way because BC wine (i.e. real BC wine not CIC product) is either exempt from markup (if it is sold through direct delivery) or has reduced markup applied due to the operation of the VQA rebate (if it is sold in LDB stores). It remains to be seen how the LDB will tackle this but it seems likely that BC wineries will benefit from the introduction of the HST because the sales taxes will go down by 3% and it will not be possible to increase markup on direct delivery wines since they are markup exempt. Since the government is intending to keep overall revenue the same, the corresponding increase in markup rates will likely affect imported wines to a slightly greater degree than BC wine. For example, if total direct delivery sales are around $80 million annually, then the 3% sales tax loss would be about $2.5 million. That money would then have to be recouped through larger increases in markup on CIC product, BC product sold through LDB stores, and imported wine. While the numbers are not large, this may produce a small benefit for BC wineries and, conversely, may pour some more fuel on the trade issues problems that I outlined in my earlier article.

It was also noted in the budget that the LDB will miss its revenue target for government by $24 million this year (the new forecast is $872 million down from $896 million). However, for next year the budget indicates that the LDB will generate $974 million for government, a big increase of over $100 million from the current year. No indication is made of how they are hoping to do this ... guess we will have to wait and see.