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Time for Accountability for the BC Liquor System

My apologies for the following rant which is really a summary of recent frustrations …

News from the BC Government, LCLB and LDB is showing that the lack of accountability and transparency in our retail wine distribution system is reaching unprecedented levels. Generally, it is assumed by the law that when government regulates in an area it is doing so in the public interest. However, the BC government\’s wine and liquor distribution system throws some serious doubt on this assumption. In fact, some recent actions of the BC government seem to show that there is inadequate consideration of the public interest in this area. Consider the following recent issues.

Minimum Shelf Prices. Most people aren\’t aware that the government imposes minimum prices for beer, wine and spirits in BC. The LDB recently increased the minimum shelf price for spirits in BC from $23 to $23.75. A couple of recent articles have showed how off base this policy is. Because the LDB uses a \”fixed markup formula\” for all of its products, any increase in the shelf price will simply result in the supplier increasing the wholesale price charged to the LDB. So all that happens is that the consumer overpays, the government loses out on tax revenue and the supplier gets a windfall profit. Zero benefit to consumers … nice profit for suppliers, minor benefit to the government/taxpayers (but with lost revenue).

Privatization Derailed. The recent deal between the BC government and the BCGEU has the government promising to keep operating nearly all government liquor stores as well as the wholesale distribution system. This comes at a cost to taxpayers of about $300 million per year. The government could have privatized some or all of the retail stores, saving itself tens or hundreds of millions of dollars in operating costs while maintaining all of its existing liquor tax revenue (which is applied at the wholesale level … so it doesn\’t matter whether the product gets sold in a government store, private store or bar/restaurant). In addition, the government could have sold the government stores to the private sector, likely netting itself a one-time windfall of hundreds of millions of dollars at a time when those funds are badly needed. Instead, the government decides to keep the status quo. Zero benefit to consumers & taxpayers, no help for smaller BC wineries trying to get better distribution … but a nice benefit to the BCGEU and some of the other players who like the system the way it is.

For an interesting insight into the inner workings of the liquor system and how your taxpayer dollars are being spent, you might wish to read either this summary or the full labour arbritration decision both of which relate to a 2005 LDB awards dinner where one employee got severely intoxicated, fell over as he was receiving his award and apparently heckled the Premier, the Minister and the Lieutenant-Governor (who were all present) using some rather inadvisable and colourful language. While this is obviously a case of \”one bad apple\”, it casts some light on the use of your taxpayer dollars. The LDB fired the employee afterwards … apparently at least partly because he had caused embarassment to the LDB at a time when they were trying to avoid privatization. The LDB lost an appeal by the union of the dismissal … and the \”over-refreshed\” employee was reinstated.

Increased Distance Separation for Private Liquor Stores. Most
people also aren\’t aware that the government has a legal prohibition
which prevents a new private liquor store from opening if there is
another private store close by. It\’s almost impossible to obtain a
retail liquor license in BC … so there\’s not a great deal of
competition anyway. But, the government has just increased the \”distance
so that the law prohibits any new stores within 1 km of an
existing store. So for example, if you are lucky enough to have an
existing private liquor store license, you are effectively
shielded from any new competitors within a 2 km radius. No allowance is
made for population density so if your license happens to be in a
densely populated area – lucky you, you get an exclusive right to that
area. As readers will know, I am an advocate of more privatization in
the wine business and many existing operators do an excellent job … but this
government policy is misguided. Since when is it a legitimate function
of government to prevent competition in any retail sector? Just imagine
if this logic was extended to other businesses – e.g. we\’ll make it
illegal for anyone to open another coffee shop within 1 km of yours
regardless of how many people live nearby. Nice perk if you could get
it! Zero benefit to consumers & taxpayers … preferential treatment
for existing store owners who are in densely populated areas.

Implementation of the HST Means Increases in Liquor Board Markup. Theoretically, the introduction of the HST at a combined rate of 12% would have meant a small reduction on the taxes on wine (which are currently 10% PST + 5% GST = 15% total). However, the government has decided that this can\’t be allowed so they have directed the LDB to INCREASE the already outrageous liquor board markups. So, for example, the markup on wine, which is currently 117% will go up to an even more absurd level. Once you add the liquor board markup, the sales taxes and various liquor board fees, you have combined tax and markup rates which approach 150%! And this is on wine, a product which is actually good for you when consumed as intended, in moderate amounts. By contrast, if I chug soda pop which is not good for me in any amount, I am currently not taxed by the BC government at all and will only be taxed at 12% after the HST is added. For complicated reasons (which you can read about here if you are interested), there may actually be a small benefit to BC wineries but there will be zero benefit to consumers and taxpayers.

The sum of all of this is obvious … in my view, the government is not paying sufficient attention to the public interest on important policy decisions which affect the wine industry and wine consumers. Most monopolies in Canada have historically had a corresponding regulator whose purpose it is to protect the public interest. However, Canada\’s liquor monopolies have never had this oversight … it\’s time for consumers and taxpayers to demand change.

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