Tuesday, June 10, 2003

Liberals liquor privatization plan a business flop

By Paul Willcocks
VICTORIA - Governments are in a tough spot when it comes to our legal vices.
On the one hand, our collective fondness for drinking, smoking and gambling creates a rash of problems for individuals, families and communities.
But our sins do rake in the cash for government. The B.C. government will take in more than $2 billion from our tobacco, drinking and gambling this year, almost twice as much as it earns in revenues from the province's forests.
We're not likely to give up our vices. And governments aren't likely to give up the chance to extract a largely voluntary tax.
But they still have to do it efficiently.
Which leads to the B.C. government's shaky march towards privatizing the liquor business.
The theory is sound. There's no reason why the government has to own liquor stores.
But based on the government's own numbers, the current privatization plan is going to cost taxpayers between $75 million and $150 million over the next three years, with no big benefits in service, selection or price. And that doesn't make sense.
B.C. is following in the path blazed by Alberta, still the only province with a private system 10 years after it made the switch.
But the path looks bumpy. A review of the Alberta changes released this month found that they have cost the government $500 million in tax revenue over the last decade.
Before the change Alberta's revenue from liquor sales increased as population and prices rose. But the shift to private stores also involved a change in the way taxes were levied on liquor sales. The result has been basically flat revenues and a large loss for taxpayers.
The savings weren't passed on to consumers. Prices have increased more quickly in Alberta than they have in B.C. over the decade. The study, done by the University of Alberta's Parkland Institute, found prices in the two provinces are now almost identical.
And the study found no great benefits to offset the lost revenue. There are three times as many liquor stores now, but most are small, with limited selection. More people are working in them, but they're being paid about half the old rate. Some liquor-related crimes are up, but not much.
B.C.'s privatization initiative involves a more immediate cost to taxpayers. The Liquor Distribution Branch plans to close about half its 223 stores over three years, as private stores open. The LDB projects its operating profit - the money government takes in - will show no growth over the three-year period.
If the system was left alone, with revenues rising at the same rate as they have in recent years and costs controlled, the take for government would be $150 million higher.
It's not just alcohol. The Liberals used to rail against the "reckless expansion of gambling." Last month they quietly lifted the 300-slot limit on casinos, setting a province-wide cap of 5,400 machines. No increase, they say, because that's the maximum if all 18 approved casinos ever put in the maximum 300 slots. But the reality is that there about 3,300 slot machines in B.C. today and the change ensures there will be a lot more. The BC Lottery Corporation plans to increase profits by almost 50 per cent in the next three years, thanks mainly to the explosion in slots.
Meanwhile, the government quietly released a major study of problem gambling last month. It found that 4.6 per cent of British Columbians are problem gamblers, about average. But the gambling expansion is having consequences: 11 per cent of the population are "at-risk gamblers," the highest level of any jurisdiction that has done a similar study.
And expanding gambling - especially slots, the gateway drug for casino players - adds to the problem.
There's nothing wrong with making money off our vices. But governments need to recognize the risks. And they certainly need to avoid initiatives, like the liquor privatization plan, that cost taxpayers money and offer little in return.
Footnote: The liquor plan is under review. Responsibility for the whole initiative has been moved from Competition Minister Rick Thorpe to Solicitor General Rich Coleman, who is reviewing the entire project. The plan was flawed from the beginning, and needs a major rethink.

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