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Remove the LCBO from the hands of politicians

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Remove the LCBO from the hands of politicians

On Friday, Ontario liquor store workers hit the picket lines, closing liquor stores across the province. The strike, which will surely upset many Ontarians, raises some key questions about the liquor market in the province.

Ontario’s Liquor Control Board (LCBO) is a Crown corporation created in 1927 to sell wine, liquor and beer in the wake of Prohibition. Its buying power given the size of the Ontario market has made it one of the largest global purchasers of alcoholic products.

While initially the role of the LCBO was to control alcohol consumption given the importance of the temperance movement in Ontario, it has over time evolved into a retailer with a quasi-monopoly that’s generated uniform prices and choices throughout the province, and a source of government revenue.

But as the Alberta move to privatization in 1993 has illustrated, privatizing the LCBO could generate competition that would generate a wider diversity of products and choices and more variable pricing, while still providing an important source of tax revenue for the province.

There have been occasional calls for privatization of the LCBO, but they have been shot down by a variety of arguments including that it provides the provincial government with a lucrative source of revenue. Indeed, the revenues remitted by the LCBO have grown robustly though the pace has slowed since 2017 (as illustrated in the chart below).

Historically, LCBO revenues grew faster than total revenues, though this too has changed since 2017. In 2000, the LCBO brought in revenues of $845 million with total provincial government revenues at $70.9 billion. In 2017, LCBO revenues were $2.3 billion with total government revenues of $140.7 billion. By 2023, the LCBO was bringing in $2.5 billion relative to provincial government revenues of $192.9 billion. From 2000 to 2017, LCBO revenues grew by 178 per cent while total provincial government revenues grew by 98 per cent. From 2017 to 2023, LCBO revenues have only grown by 8 per cent while provincial revenues grew 37 per cent.

LCBO revenues

In the face of slowing revenue growth, one can ask if introducing more competition into the Ontario alcohol market via privatization would shake up Ontario’s market, boost sales and thereby enhance government revenues. Privatization through the sale of the government corporation would also involve a short-term upfront benefit of many billions of dollars, which could be invested in a sovereign wealth fund and used to fund government programs in perpetuity. And selling off the LCBO to private operators would also reduce the provincial government’s contradictory role of being both a purveyor of alcohol and gambling with all its connotations of vice and at the same time a proponent of social determinants of health policies and programs.

However, these arguments have been made before and there has been a gradual if piecemeal erosion of the government monopoly via the introduction of alcohol sales to grocery stores and soon corner stores, effectively changing the role of the LCBO to the province’s primary alcohol retailer.

Yet recent evidence suggests that there are new reasons why government should get out of alcohol retailing even via an arm’s length Crown corporation—that is, an alarming propensity of the Ford government to intervene in the day-to-day affairs of the LCBO. It’s one thing to regulate alcohol given perceptions of public health or public good, but it’s quite another to intervene in business decisions that affect the operations, costs and profitability of a Crown corporation.

For example, in an effort to deal with rising theft, the LCBO recently decided to pilot an identification scanning process at several of its locations in northwestern Ontario. According to media reports, the finance minister “quashed the ‘controlled entrances’ pilot less than 48 hours after the LCBO announced it, even though the ministry had been briefed about it weeks in advance, according to the documents.”

While aspects of the pilot can be seen as questionable, it still seems odd that modifications such as checking IDs (but not scanning and retaining them) were not put forth during the briefing process. And then, there was Premier Ford’s sudden order to resume the use of paper bags at the LCBO months after they had stopped being used.

Again, while eliminating all paper bags may not have been the best decision on the part of the LCBO, political intervention from on high in what’s supposed to be an internal business decision is disturbing. It sets a precedent for future interventions. Of course, there has always been a political element to the operation of the LCBO given it’s a provincial government enterprise reporting to the finance minister with board members appointed by orders-in-council. But what’s next? Perhaps a line of Cabinet’s Choice wine products phoned in by individual ministers to reflect their discerning palates for fermented products.

And now LCBO stores across Ontario are closing due to a strike. Before talks between the Ford government and the union broke down, the government released an interesting statement: “It's never been more clear that Ontario consumers need and deserve the same choice and convenience every other Canadian enjoys." With declining revenue growth, and a politicization of its day-to-day operations by interventions (well-intentioned or not), the day may have finally arrived to move the LCBO out of the hands of politicians and into the private sector.

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