Selling Wine and Beer

Posted February 15, 2013

The provincial government pays for a lot of our public services with the profits from the sale of alcohol. It is that, rather than red tape, that led to the recent crackdown on in-store winemaking and brewing.Among the voices of outrage was Richard Dunn of the Canadian Federation of Independent Business who said the law is anti-competitive and threatens the underpinnings of a free market. Others accused the government of police-state harassment and Gestapo-like tactics.

Opposition leaders enthusiastically piled on. Government beat a hasty retreat.

The comments by Mr. Dunn and others ignore the fact that liquor distribution in Nova Scotia is anything but a free market. Rather it is a government-owned near monopoly and a huge money spinner. In the most recent fiscal year it earned $220 million for government, in addition to HST.

Our prices for beer, wine, and spirits are high, not because the Liquor Corporation is particularly inefficient, but rather because of the fat profit margins it has been instructed to earn. A $10 bottle of wine includes about $1.50 for expenses, $1.30 for HST, $.50 for federal excise and customs, and $3.75 for profit. Less than $3.00 is for the product.

A proliferation of tipplers getting their wine and beer from businesses like Wine Kitz could put a serious dent in the province’s finances. So the government’s actions were about protecting the treasury, not tying small businesses up in red tape.

The u-vint and u-brew operations are not yet a significant factor, so retreat may have been the right choice in the short term. But they may now start to grow rapidly. The customers of in-store wine and beer making do very little of the work, so it is primarily a way of depriving government of their usual taxes and profit.

This may be superficially satisfying, but if the government doesn’t get its money this way it will eventually have to raise our already high sales and income taxes. That said, prosecution was a rather heavy handed tactic. There are other ways to address the problem.

A better response would be to phase in a $5 tax to u-vint products, about what government usually gets in tax and profit on its least expensive wine (it is neither necessary nor  practical to impose a tax on those who make wine or beer at home).

As well as protecting the provincial treasury, it will help to protect Nova Scotia’s vineyards, which are likely to be negatively impacted by the u-vints.

Nova Scotians who travel to the United States will have noticed that wine selling there for $10 frequently costs twice as much in Nova Scotia. Most of the extra helps to prevent our sales and income taxes from being even higher. At least in Canada, the idea of balanced budgets as a goal to be achieved is still in fashion, while in the USA it is often lost in a blizzard of partisan finger pointing.

Perhaps taxpayers will take some consolation knowing that expensive drinks help pay for our health care. Those who are really determined to keep their hard earned cash out of government hands could just switch to tea.

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  • Here is my take on what should happen to the NSLC, it all could be run from the Finance Department!
    It is time that the government gets out of the business of selling and wholesaling of all beer, wine and spirits. The province could take the value out of the business and create entity that will better serve the public, Nova Scotia’s fledgling farm wine industry, local micro-brewers and tourism.
    Monopolies in all cases are not the best business model. There costs are usually less efficient than private corporations. The best model is competition among private corporations. There are at least 4 or 5 companies that would be willing to pay top dollar to have a portion of this pie. By creating competition within NS and with no government interference the same or more monies would accrue to the government, as demonstrated by the Alberta model which falls short of what NS could have.
    The sale as a split up operation will pull in $800,000 to $900,000 million, based on the $222,000 give back to the government, which could be used to pay down the debt.
    Taxes on the products could allow the government to take out $222,000 and much more if the model is maximized. Each purchaser 4 or 5 companies should be required to carry 10% of their inventories in Atlantic Canadian wine, beer and spirits.
    The private store model should be re-initiated, so that good quality wines will be available to all including public, restaurants, clubs etc. The threshold for these stores should on a higher original cost than the bulk buy, which should go to the government as a franchise fee. Minimum
    inventories of at least $400,000 should be maintained to keep the franchise and they must carry at least 10% Atlantic Canada alcohol products and have a turnover of at least 4.
    In the next 10 years the NS Wine Industry will grow 5 fold. If the present system is allowed to stay as is, it will inhibit that growth because almost all of the expanded production will need to be exported.
    In a NS Wine Industry report, it shows that with only 18 wineries there are almost the same number of employees as the NSLC and they are all outside of Halifax. When we look at Niagara on the Lake, Finger Lakes in NY, and California, the tourism that this industry creates could be a great job creator in NS.

    Brian Knight | March 30, 2013

  • Bill,I usually agree with your comments but not this time. I do agree that our province must balance its budget and that currently,control of liquor distribution helps us with that. But instead of controlling an industry and reaping monopoly profits,why not leave it entirely to the private sector? As Bastiat pointed out,think of “what is not seen” as well as what is seen. What businesses do we not see due to our government monopoly? If a private liquor distribution industry resulted in lower prices and thus more dollars left with liquor buyers,would they not spend it elsewhere and thus boost other businesses?

    Steve Chipman | March 21, 2013

  • If you look at the Alberta example wrt privatization you see that the annual revenue to gov’t as a result of privatization is 687 million. Prior to privatization revenue was 404 million. There was also an increase in liquor retailers from 803 to 1,987. That’s a increase in employment of over 100%. The tax revenue from payroll alone should be factored in. Just so you don’t think i’m making this up, please check out the link from the Alberta Gov’t website.
    http://www.aglc.gov.ab.ca/pdf/quickfacts/quickfacts_liquor.pdf
    Thanks,
    Robert

    Rob M | February 18, 2013

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