Show Leadership In Liquor Distribution Debate

July 19, 2012 § Leave a comment

In recent months the BC Liberal Government suggested that they would privatize liquor distribution in BC. At the time they said it would generate $700M in asset sales to General Revenues.

Shortly after that the opposition uncovered the fact that the same guy who ‘masterminded’ the BC Rail deal, was working on behalf of an Alberta group to purchase Liquor Distribution. What followed this revelation has more to do with sensationalism and intrigue than reality.

This post is not about choosing sides but about presenting some of the realities in BC Liquor today.
The BCGEU and the BCNDP suggest that the BC LDB is profitable which begs the question if it ain’t broke why fix it?

The reality is that to claim the BCLDB is profitable or not is not valid. In this case profits should be considered taxes. Taxes that go into general revenue which pays for things that we have all agreed are social goods that we need. These would include health care and the like.

At present the bottom line for the LDB says that it earned $800m in general revenue for the government over the last fiscal year. What it doesn’t do is say where this revenue is earned. In fact it is assumed that it is earned at retail and not wholesale. Nothing could be further from the truth.

If we assume that the LDB is a wholesaler then every cost that is not a part of the wholesale function takes away money from general revenue. In this light we must consider that the cost of operating BC Liquor Stores is a cost to general revenue and that it they did not exist, then net taxes collected by the LDB could have been $1.1B last year as the cost of operating BC Liquor Stores was $300M.

If on the other hand the BC LDB is a vertically integrated retail system the it would be measured on gross margin generated, and the goal would be to work to control or reduce relative operational and distribution costs. If true then general revenues would be improved by $246m to $1.046B by selling off the assets and cost associated with distribution.

In either vision the BC LDB could generate substantially more for general revenues if it cut either retail or wholesale costs, but here is the kicker; 55% of all sales to consumers last year were not generated by BC Liquor Stores, rather they were generated by the private sector through retailing or restaurants, bars, pubs and hotels. If we take away the economic activity generated by the private sector then the BC LDB as an organization operated at a net loss even though the BC LDB applies the highest at wholesale mark-ups in North America.

The accounting fact is that government generates 100% of its revenue on liquor by applying taxes at the wholesale level. This is done in every jurisdiction in the world. Privatizing Liquor Distribution will not change the fact that the government collects taxes on every bottle, case, or box of liquor sold in BC. The question is how to collect the most while providing adequate public safeguards on the sale of liquor in BC.

What needs to happen in this debate is that the rhetoric should stop and the facts should be analyzed… Actually what needs to happen is that the opposition and government should act as the leaders we have elected them to be and showcase the facts in order to have a substantial debate.

Granted the government has bumbled this policy direction in a similar way to HST, but the fact is that even overturning this direction on the basis that Patrick Kinsella is involved is also not good public policy. I want good public policy based on facts not inflammable innuendo.

BC NDP prove why privatizing Liquor Distribution is not in the public’s financial and social interest.
BC Liberals prove why privatizing Liquor Distribution is in the public’s financial and social interest.

Next post: Differences in operating a Private Liquor Store vs Public Liquor Store in BC

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