New alcohol plan could cost Ontario $510 million a year

Queen’s Park is planning big changes to the way Ontarians buy alcohol. How will this affect provincial finances?

Seven weeks after the government announced the changes, that question remains unanswered. My estimate, discussed here, is that at current consumption levels, the new retail regime means provincial coffers are set to lose $510 million a year.

For his part, Premier Doug Ford insists his plan will rake in a lot of money for the province. “We’re going to gain anywhere from $895 million to $1.16 billion,” he said In May. “We’re going to create more revenues.”

Unfortunately, the Ministry of Finance, which oversees the LCBO, has not released any revenue projections or any analysis of how sales and consumption will change as the new model is implemented. To do our own analysis, it would be handy if there were a place that already sells alcohol the way Ontario plans to. Fortunately, there is: Quebec.

The Quebec model has two main features: the publicly run Société des Alcools du Québec (SAQ) is an agency similar to the LCBO and operates roughly 410 stores; at the same time, some 8,200 private outlets also sell alcohol, although not spirits, around the province. These outlets can be SAQ agency stores, small convenience stores, grocery stores, or big-box stores.

By all appearances, this is what Finance Minister Peter Bethlenfalvy has in mind for Ontario. Born and raised in Montreal, Bethlenfalvy speaks fondly of buying beer and wine in convenience stores there. By the time his model is fully implemented, Ontario will have around 685 LCBO stores (based on the current number) and close to 10,900 private outlets (up from 2,366 at present).

So it’s worth asking: How much revenue does the Quebec system deliver to the province?

In both Ontario and Quebec, alcohol revenues come from three main sources: profits from the public liquor boards; provincial sales tax (which is the provincial portion of the HST, in Ontario); and special taxes and fees related to beer, wine, and spirits.

In 2022-23, the Quebec government brought in $349 per person age 15 and older from alcohol sales; the Ontario government brought in $319. However, two-thirds of the difference is a result of Quebec’s higher provincial sales tax. Quebec’s provincial sales tax rate is 9.975 per cent; Ontario’s is eight.

At present, the probability that Ontario will adopt Quebec’s sales tax rate any time soon is near zero. So to see how the Quebec model would work in Ontario, we need to adjust Quebec’s sales tax rate to the Ontario rate. The revenue comparison now looks like this:

Adding up the blue bars and the red bars, total per capita revenues are $330 in Quebec and $319 in Ontario. In the 2022-23 fiscal year, the Quebec government earned just over 3.7 per cent more, per person, from the sale of alcohol than the Ontario government did.

That’s not a huge difference, but it is a difference. So how does it work? How does Quebec earn more money per capita from liquor sales compared to Ontario?

Here’s the answer: Quebeckers drink more.

Statistics Canada tracks alcohol sales volumes. In 2022-23, Quebeckers drank, on average, 8.3 litres of pure alcohol, while Ontarians drank 7.3 litres. Alcohol-wise, Quebeckers drink 14 per cent more.

(One litre of pure alcohol means 2.5 litres of vodka, whisky, or other spirits with an alcohol-by-volume (ABV) level of 40 per cent; it means eight litres of wine with an ABV of 12.5 per cent; and it means 20 litres of beer with an ABV of five per cent.)

In terms of raising revenues, then, as Ontario moves to the Quebec model, Ontarians will have to drink 14 per cent more to increase government revenues by 3.7 per cent. That 3.7 per cent would represent a $147 million increase in revenues to Queen’s Park.

This raises a number of questions. First, how much more will Ontarians have to drink in order to raise “between $895 million and $1.16 billion,” as the premier claims his new alcohol market will do? If it takes a 14 per cent increase in consumption to raise an extra $147 million in Ontario, will it take a 100 per cent increase in consumption to raise $1 billion?

And what happens if Ontarians simply don’t want to drink more?

Canadians drink less than they used to, and by Canadian standards, Ontarians are not big drinkers at all—only New Brunswickers drink less. Greater convenience does lead to more consumption—that’s what the research shows—but how far will Ontarians be willing to go? At a time when Canada’s new low-risk drinking guidelines are urging people to drink two drinks a week or less, what is a realistic estimate of how drinking will change in future?

Back in May, CFRB 1010’s Jerry Agar asked Premier Doug Ford a pointed question. “Are you saying that we’re all going to start drinking more?” he asked. “No,” said the premier.

Taking that at face value, one way to estimate what might happen to revenues in Ontario under the Quebec model is to calculate how much revenue the Quebec government would lose if Quebeckers only drank as much as Ontarians. In that scenario, Quebec’s alcohol revenues would fall by 12 per cent. Applied to Ontario, a 12 per cent reduction in alcohol revenues would mean a loss to provincial coffers of $510 million annually.

This would be a major revenue loss. Imagine a $510 million annual cut to health care or education as a result.

If the government disputes this number—and I hope they will—the Minister of Finance should release all studies, analyses, and projections the LCBO and his ministry have produced on the topic so Ontarians can judge the government’s plan for themselves.

As Minister Bethlenfalvy has pointed out, what the province has proposed is the greatest change to alcohol retailing in Ontario in 97 years. Ontarians have a right to know how this major change is likely to impact alcohol sales and government revenues—especially since those revenues fund vital public services.

And if the entire plan is built around pushing Ontarians to drink more, then they have a right to know that, too.