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Why privatising the LCBO is a Bad Idea

December 04, 2012 @ 13:02 By: gordon Category: Current affairs

CBC has a story about Tim Hudak calling for the privatisation of the LCBO. Included is this quote from a statement made by Hudak:

“The LCBO is a prime example of Queen’s Park operating a commercial enterprise — from top to bottom — that should be exposed to private sector competition, enabling more consumer choice.”

It has long been a fact that the LCBO is the single largest purchaser of wines and spirit in the world and that this is why Ontarians have access to a huge catalogue of products from any LCBO store in the system. I fail to see how privatising LCBO will “[enable] more consumer choice” when we already have an enormous number of products to choose from. Splintering the industry by introducing multiple players will result in all of them having less buying power and very likely an overall decrease in selection and probably an increase in price.

There is an argument to be made for looking at expanding the network of stores that are allowed to sell wine and beer. Currently, retailers in rural areas are able to obtain a franchise from the LCBO to allow them to sell some products normally only available through an LCBO store. A couple of concerns for expanding this would be an increase in accessibility of alcohol to underage people and also the potential increase in crimes against the stores. Other provinces allow wine and beer to be sold through corner stores, so there should be ample crime statistics to examine.

But the biggest problem with selling off the LCBO is the revenue stream for the province. The LCBO generates a huge amount of revenue that goes into the provincial coffers. If the LCBO is privatised, how is he going to make up for this loss in revenue. A liquor tax could be collected at the point of sale, but that’s not going to make up for the loss of revenue from the profit made by the LCBO between their cost and the retail price.

9 Responses to “Why privatising the LCBO is a Bad Idea”

  1. The provinces don’t sell cigarettes or beer, so why liquor? The argument about the largest purchaser are specious: that can be said of ANY government agency that had a monopoly.

    And frankly, we might have theoretical access to a huge catalog of products, but you can still get stuff in the US that you can’t get here simply because there is more consumer choice from all those privatized shops, even if any one shop can’t match the selection of the LCBO.

    • gordon says:

      I’m not sure why beer is treated differently than wine. It almost certainly predates the presence of wine in Canada, and definitely predates the production of wine in Canada. (Intendent Jean Talon set up the first commercial brewery in New France in Quebec City back in 1668.) Perhaps it’s because of the alcohol content or the fact that people have been brewing their own beer for centuries.

      The provinces don’t sell cigarettes for obvious reasons. As the single leading cause of lung cancer, it would be irresponsible, at best, for the government to promote their use.

      Of course there are products you can get in the US that you can’t in Canada. But that doesn’t change the fact that the LCBO’s selection is almost certainly bigger than you’ll find in any state in the US, even the four that are more populous than Ontario (California, Texas, New York and Florida).

      It’s worth noting that there are private wine stores that carry wines made in Ontario, so the LCBO does not have a complete monopoly. And there are LCBO franchises that aren’t owned by the LCBO.

      I guess it really boils down to this: The LCBO isn’t broken, so it doesn’t need fixing. It generates a huge amount of money from taxes and profit that would be very difficult to replace. In a privatised world, the taxes would continue to be collected, but there wouldn’t be the profit from the sales. Where is that going to come from? And I’m unconvinced that the prices of wines and spirits would not increase as a result. That helps no one.

  2. Ken says:

    The government should not be in the business of selling goods. They should be in the business of providing essential necessary services to the public, not selling booze.

    To say that selling cigarettes isn’t done because of cancer isn’t a great excuse. What about alcohol abuse? Drunk driving? Liver cancer? Any other maladies associated with alcohol?

    LCBO should be privatized.

    • gordon says:

      It’s all fine to say that, Ken, but how is the lost non-tax revenue that is generated by the LCBO going to be replaced? Neither Hudak nor anyone else has offered an answer to that question.

  3. Ken says:

    Actually, that “huge stream of revenue” should be able to made up quite easily.

    In 2010/11 the generated only $1.55bn for the government.

    According to that same document, the last time that taxes were paid to the government was 2010, due to changes in the Ontario Retail Sales Tax & HST, and that was only $102m… Two years ago.

    The government could easily make up that $1.2bn through cost savings, or other revenue, like selling our excess hydro at reasonable rates, or not wasting money on inefficient health registries, etc.

    • gordon says:

      Interesting that the Commission on the Reform of Ontario’s Public Services, chaired by Don Drummond (former Chief Economist of TD, among other things), has the following recommendation in its report:

      Recommendation 17-1: Do not partially or fully divest any or all of the province’s government business enterprises — Ontario Lottery and Gaming Corporation, Liquor Control Board of Ontario, Ontario Power Generation and Hydro One — unless the net, long-term benefit to Ontario is considerable and can be clearly demonstrated through comprehensive analysis.

      The net, long-term benefit to Ontario in privatising the LCBO has not been demonstrated by Hudak, and frankly I doubt he can. He’s driven by ideology that alcohol and gambling are evil, as evidenced by his recent calls for privatisation of the LCBO and the OLGC.

  4. Ken says:

    With all due respect to Drummond, he has looooong been a supporter of Liberal governments ideaology. I doubt his analysis is any less biased than Hudak.

    And from what I can tell of the CCPA, while they say they are unbiased, their reporting seems to attempt to debunk anything of a right-wing nature.

    Hudak definitely needs to come up with a solution that will replace the revenue. However, just because the PCs haven’t come up with those solutions doesn’t mean privatizing the LCBO is a bad idea.

    • gordon says:

      To propose privatization of the LCBO without a) showing the research that shows it will be a long-term net benefit, and b) without showing how the lost revenue is going to be replaced is irresponsible at best. Of course, people making decisions based purely on ideology as opposed to facts find things like (a) and (b) unnecessary and inconvenient.

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