For beer fair­ness, end price con­trols and cor­po­rate wel­fare

Why $1 a bot­tle? Why not let the beer maker charge as lit­tle as they want? And quit sub­si­diz­ing the in­dus­try, ar­gues Matthew Lau

The Hamilton Spectator - - Comment - MATTHEW LAU Matthew Lau is a re­search as­so­ci­ate with the Fron­tier Cen­tre for Pub­lic Pol­icy. Troy Me­dia

With much fan­fare, the On­tario gov­ern­ment has brought back “Buck-a-Beer” by low­er­ing the gov­ern­ment-man­dated price floor on a bot­tle or can of beer (with al­co­hol vol­ume be­low 5.6 per cent) from $1.25 to $1.

On­tar­i­ans who don’t drink or who con­sume only more ex­pen­sive al­co­holic bev­er­ages won’t be much af­fected by this pol­icy.

But for the seg­ment of the mar­ket who likes in­ex­pen­sive beer, the price floor re­duc­tion is a pos­i­tive change.

In gen­eral, price floors make buy­ers and sellers worse off.

A beer price floor of $1.25 makes it il­le­gal for buy­ers and sellers of beer to en­gage in vol­un­tary, mu­tu­ally ben­e­fi­cial eco­nomic trans­ac­tions — namely, the pur­chase and sale of beer for less than $1.25 — sim­ply be­cause an ir­rel­e­vant third party (the politi­cians) has deemed the terms of the trans­ac­tions un­ac­cept­able.

The pri­mary ar­gu­ment in favour of the beer price floor is “so­cial re­spon­si­bil­ity.” Ac­cord­ing to this ar­gu­ment, the gov­ern­ment has a re­spon­si­bil­ity to dis­cour­age peo­ple from drink­ing too much.

But the proper way to do this would be through taxes instead of price con­trols, since a tax can be ap­plied evenly whereas a price floor dis­crim­i­nates against a spe­cific mar­ket seg­ment: con­sumers of in- ex­pen­sive al­co­hol.

How­ever, that doesn’t mean higher beer taxes are a good idea.

Given how heav­ily al­co­holic bev­er­ages are al­ready taxed in On­tario, cut­ting beer taxes would prob­a­bly be more ap­pro­pri­ate.

Chris­tine Van Geyn of the Cana­dian Tax­pay­ers Fed­er­a­tion points out in a re­cent col­umn that “if brew­ers sold beer for $1 per bot­tle, 58.7 cents of that dol­lar would be tax. It would in­clude a 10.6 cent ex­cise tax, 36.6 cents in pro­vin­cial markup and 11.5 cents in sales tax.”

If the gov­ern­ment be­lieves it has a “so­cial re­spon­si­bil­ity” to dis­cour­age al­co­hol con­sump­tion, why does it mas­sively sub­si­dize beer and wine with mil­lions of dol­lars in cor­po­rate wel­fare ev­ery year?

In April, for ex­am­ple, the On­tario gov­ern­ment an­nounced that it had dis­trib­uted $5.2 mil­lion in sub­si­dies to 16 brew­eries through a North­ern On­tario cor­po­rate wel­fare fund.

This fig­ure pales in com­par­i­son to a 2013 an­nounce­ment that the gov­ern­ment would spend $75 mil­lion of tax­pay­ers’ money to ex­pand the pro­duc­tion and con­sump­tion of On­tario wine. In fact, there are so many gov­ern­ment pro­grams hand­ing out so much cor­po­rate wel­fare that many beer and wine com­pa­nies have eaten from the sub­sidy trough mul­ti­ple times.

These sub­si­dies are a ridicu­lous waste of money.

To in­crease fair­ness for al­co­hol con­sumers and pro­duc­ers, as well as tax­pay­ers, the On­tario gov­ern­ment should do three things:

• End cor­po­rate wel­fare to beer and wine busi­nesses. This in­cludes the ill-ad­vised pro­mo­tional in­cen­tives it’s of­fer­ing to beer com­pa­nies as part of its “Buck-a-Beer Chal­lenge.” Sup­ply and de­mand, not po­lit­i­cal games, should de­ter­mine how beer is sold.

• Lower its ex­or­bi­tant al­co­hol taxes to avoid pun­ish­ing con­sumers un­fairly.

• And build upon its pos­i­tive move to lower the beer price floor by abol­ish­ing the price floor com­pletely.

... if brew­ers sold beer for $1 per bot­tle, 58.7 cents of that dol­lar would be tax. CHRIS­TINE VAN GEYN


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