REPORT ON SAQ A LITTLE TIPSY
Recommendation to end monopoly makes little sense in cash-strapped time
Just about everybody seems unhappy with the Quebec government’s liquor monopoly, the Société des Alcools. Prices are high, selection is limited and competition is virtually non-existent.
Consumers would like more choice and better prices. Private business would like more room to develop the market for wine and spirits.
And a new report commissioned by the Quebec government calls for ending the liquor monopoly in place since 1921.
But you have to wonder if the commissioners drank a little too much Châteauneuf du Pape when they put together the chapter on the SAQ. Their arguments are a little wobbly.
The commission chaired by former Liberal cabinet minister Lucienne Robillard was asked to report on how government services can be improved.
It rejects the idea of a full or partial privatization of the SAQ and opts instead for ending the monopoly and opening the market to competition from the private sector.
The recommendation makes little sense. First, there’s the obvious fact that the government makes a lot of money off the sale of booze, just as it does from tobacco, lotteries and casino gambling.
Say what you want about the morality of such conduct. But in a cash-strapped period when it’s struggling to balance the books, Quebec is unlikely to do anything that could jeopardize the $1 billion or so it collects every year in dividends from the SAQ.
The Robillard commission says that in ending the monopoly, Quebec could protect its revenue base by boosting the tax rate on all alcohol sales in Quebec. It argues that consumers would see no net difference at the checkout counter because pre-tax prices would fall to reflect the greater competition in the marketplace.
That seems like a gamble. No one can be sure how the market would react after the monopoly ends or how consumers would behave.
The real issue is whether the government should compete at all with the private sector, as the report proposes.
Peaceful coexistence is rare in such cases and entrepreneurs inevitably ask why the public sector, with advantages like government-guaranteed debt, should be allowed to take business away from them.
There are plenty of examples where such hybrid markets fail. Think of the reasons why Air Canada and Petro-Canada were privatized. In both cases, there was no justification for the federal government to compete with the private sector.
The same could be said of the Robillard recommendation. Private retailers will be at an immediate disadvantage in going head-to-head with the SAQ, according to Gaétan Frigon, a former president of the Crown corporation. They won’t have as much shelf space as the SAQ network and they won’t have as much purchasing power.
Another option would be to sell off the SAQ and use the proceeds to pay down the public debt. The commission is too quick to dismiss such an idea.
This is puzzling since the report itself points to a generally positive experience in Alberta, where the provincial liquor board was privatized in 1993.
The Alberta government took a financial hit in the first few years as it paid out compensation to employees who lost their jobs. But the report notes “these costs seem to have been compensated by the benefits obtained over the long term, including the creation of jobs, additional tax revenue and improved selection for consumers.”
True, privatization would raise other issues. The SAQ estimates its market value at $12.5 billion based on a multiple of earnings, but that value implies a monopoly and Quebec wouldn’t get nearly as much if it sold the business without a monopoly guarantee.
In the end, the government will probably decide to leave things alone. It’s not as if the SAQ is draining money from taxpayers’ pockets. Yes, it’s somewhat pricey and inefficient, but at least it’s a stand-alone operation that makes money and helps fund government programs.
A more immediate priority is the commission’s other big recommendation: ending the costly and wasteful duplication that comes with a separate provincial tax-collection agency.
But that’s a story for another day.
Another option would be to sell off the SAQ and use the proceeds to pay down the public debt. The commission is too quick to dismiss such an idea.