Retail Alcohol Monopolies: Privatisation and Government Revenue

Privatisation and Government Revenue

As well as promoting public health, provincial/state alcohol monopolies are an efficient and powerful means of raising government revenue. Government retail monopolies generate high government revenues.  In 2000, the Liquor Control Board of Ontario (LCBO) reported revenues of $2.7 billion of which $1.1 billion was transferred back to the Government of Ontario (LCBO, 2001). 

Privatisation of alcohol sales, on the other hand, can result in a net loss for governments. While there may be short-term revenue gains with the sale of government property, once costs related to managing health and safety aspects of alcohol use are considered, they overshadow short-term profits.

Privatisation can also result in a decline in government revenue from alcohol sales. In Iowa, privatisation led to higher consumer prices and lower state revenue after a newly created interest group of retailers successfully lobbied to lower the taxation so that the private retailers could increase their profit.  In Alberta, government revenue from the sale of alcohol has been 8%-15% below that of the last full year of the monopoly system in 1992. The drop in government revenue took place despite higher prices and increased sales.   Lobbying efforts of private retailers resulted in a change in Alberta's tax policies that reduced liquor taxes from $1.00 to $0.50 per bottle (Wine Council of Ontario, 1994).

This decline in taxes from alcohol may not have been a concern to political leadership in a province, such as Alberta, which has had significant surpluses in recent years and is projected to have zero debt in 2005; however, it is of concern from a public health and safety perspective.  International research over the past decades has shown that higher alcohol taxes are associated with controlling alcohol consumption and drinking-related damage (e.g. Bruun et al., 1975; Edwards et al. 1994; Babor et al., 2003, p. 264).   An increase in government revenue from higher taxes thus offers two advantages: as a policy lever to control drinking-related problems and as a resource to pay for some of the social and health costs related to the ongoing damage from alcohol consumption.

Generating government revenue is an important function of a monopoly system.  However, if generating revenue becomes the primary consideration, it is likely that public health and safety considerations will be eroded or devalued, and costs related to alcohol-related problems will increase.  Therefore, a more comprehensive perspective with regard to alcohol takes into account both revenue and costs of managing the health, social and public order problems related to drinking.  Rather than seeking to increase revenue by selling more alcohol, a more responsible approach would either maintain revenue or seek to increase revenue from the same volume of alcohol sold - for example, by increasing prices and reducing operating expenses.  For the greater social good, the health and safety considerations of alcohol monopolies must be balanced with the interest in revenue generation from alcohol.

 

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