The Chamber Proposal for Interprovincial Ecommerce on Alcoholic Drinks is not Well-Considered
There are many unnecessary barriers to interprovincial trade. Professional certification in one province does not necessarily earn recognition in another. There are barriers to labour mobility for tradespeople. Ontario’s restrictions on who could supply their efforts at green energy made it impossible for suppliers in other provinces to compete for the business, contributing to the demise of the DSME wind turbine plant.
As new trade agreements are reached with the European Union and others, it is sometimes easier to import goods from a foreign country than from another Canadian province. Reducing the interprovincial trade barriers is a worthy cause.
The Canadian Global Cities Council (CGCC) is a coalition of presidents and CEOs of the eight largest urban regional chambers of commerce and boards of trade in Canada, of which the Halifax Chamber of Commerce is one.
The CGCC has launched a campaign to reduce interprovincial trade barriers. They have taken a most unfortunate approach for their test case.
Suppose you buy a bottle of Ontario wine at the NSLC for $23. Of that, $3 is for HST—of which the province gets $2. Another $7.60 represents the goal for profits after expenses established by the province of Nova Scotia.
Added up over all alcohol sales, that comes to $230 million from the profit piece and a further $60 million in provincial HST. Both revenues are important contributors to the funding of health, education, and other government services.
The provincial government has unwisely decided to forego almost all the profit on locally produced tipple. They do exclude large suppliers like Labatt, but have otherwise taken no steps to limiting the cost. The lost revenue has spiralled rapidly out of control and will exceed $30 million this year.
Into this context, the CGCC has proposed the idea that federal and provincial First Ministers should allow “e-commerce of any locally produced alcoholic beverage across any interprovincial border,” including wine, beer, and spirits.
When quizzed about the impact this might have on provincial finances, they allowed that perhaps the receiving province should get its usual share of HST. When asked about the much larger loss of profit, they characterized the sales as a “niche market” and dismissed the concern about “the nickels and dimes they’d lose in retail markup from freer provincial trade.”
Perhaps that is what bookstores thought when Amazon first offered to sell books by mail. Amazon has gone on to sell almost any product, from toasters to televisions, from sofas to skiwear. It rivals Walmart in sales of non-perishable goods.
It is not just boutique wineries and craft brewers who would want to take advantage of the ecommerce opportunity.
Hiram Walker of Windsor, Ontario is owned by a French drinks conglomerate. It boasts the largest distillery capacity in North America with 37 fermenters manufacturing 180,000 litres of alcohol every 24 hours.
Imagine their excitement at being able to sell all over Canada direct from the distillery, with Amazon handling all the shipping logistics while bypassing the retailers, both public and private. Likewise for big wineries like Inniskillin or Peller Estates.
Ecommerce may in fact be a perfectly good way for people to buy their tipple. It is already legal to buy online from the NSLC.
But ecommerce orders from out-of-province makers should not result in an income loss for the province. It is not that we love paying for a big mark-up, but rather because, if we forego that revenue, we will have to find another way to pay for our government services.
That mark-up is not a barrier to trade.
There are plenty of barriers to interprovincial trade, the elimination of which would make our economy more efficient, without costing governments any loss of revenue. The elimination of some of them might save the government administrative cost.
The Chambers of Commerce and Boards of Trade wishing to impress finance ministers would be well-advised to advocate those, and to avoid ideas that will put dents in government revenues.
Posted January 11, 2019
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