Written by Mark Hicken Mark Hicken
Category: Latest News Latest News
Published: 18 April 2013 18 April 2013

According to the latest financial figures from the BCLDB, the transitions back and forth between the PST and HST will cause major losses to the total revenue that the provincial government generates from liquor sales in the province. By my estimates, the losses are at least $185 million over the time period. The losses were caused because BC raises liquor revenue through a complicated mix of "liquor board markup" and taxes which mixture was upset by the PST/HST transitions as well as by missed LDB revenue targets and a significant increase in LDB operating costs. The losses are not immediately obvious from looking at the LDB documents because LDB financial statements do not include sales tax revenue. However, once you factor in sales tax revenue from liquor sales, the losses become apparent. Here is a summary chart (in millions of dollars):

 2009/10 (PST) 

 2010/11 (HST intro'd) 2011/12 (HST)  2012/13 (HST)  2013/14 (HST removed)  2014/15 (PST)  Change
Total LDB Sales  2854.1 2820.5 2889.9 2922.1 2891.3 2932.9 +2.7%
LDB Operating Expenses  275.9 281.5 291 305.7 307.3 312.2 +13.1%
Net LDB Revenue to Govt 877.3 890.4 911.1  906.1 850.9 860.4 - 1.9%
Approx. Sales Tax Rev. (est.*)  285.4 218.5 202 204.5 289.1 293.2
Approx. Total Liquor Rev. 1163 1109 1113 1110 1140 1154
Loss to Govt 0 (base) - 54 - 50 - 53 - 23 - 9

*Sales tax numbers would likely be greater than 10% or 7% of the total LDB sales numbers since some of the product would be sold through licensees who charge higher prices than the LDB but for ease of calculation and to be conservative, I have just used the base number.

As has been noted here earlier, when the HST was introduced, the combined federal/provincial sales tax rate on alcohol went down from 15% (10% PST + 5% GST) to 12% (5% Fed portion + 7% Prov portion). This would have created a reduction in consumer prices ... except that the government raised "liquor board markup" rates (e.g. the markup on wine went up from 117% to 123%) at the same time to eliminate any savings and with the intention of keeping provincial government revenue constant. The plan was to increase net LDB revenue to government in order to compensate for the loss in sales tax revenue. So for example, in the LDB's pre-HST service plan (page 19), one can see that LDB revenue was supposed to jump up following the introduction of the HST: for 2010/11 the projection is 973.7 (million) then 1013.5 for 2011/12 and 1039.2 for 2012/13. It is apparent from the above figures, that government revenue did not remain constant during the transition years because the LDB failed to meet its revenue targets and LDB operating costs increased substantially during the years in question, eating up some of the higher liquor board markups and preventing the intended increase in LDB revenue to government which was supposed to offset the decrease in sales tax. This can be seen from the numbers above:

My estimate of the overall loss to government over the period looks to be at least $185 million. If nothing else, these major losses should cause BC's next government to reconsider the current approach to raising money from liquor sales, which relies on the complicated mix of taxation and "liquor board markups" described above. By contrast, if the government simply raised its liquor revenue from straightforward taxes on liquor (such as a version of Alberta's flat liquor tax) then none of the above would have happened ... and government would have been able to rely on a consistent and stable source of liquor taxation revenue. Please let me know if you have any comments or corrections to the numbers set out above.