Former Tory premier says good luck selling LCBO
TORONTO - Former Conservative premier Ernie Eves says the cash-strapped Ontario government could have a hard time getting a decent price for the Liquor Control Board, an agency that generates billions in profits that the Liberals haven't ruled out selling.
Facing a $24.7-billion deficit, the largest in the province's history, the government has hired two banks to review assets such as Hydro One and the LBCO. The latter, which has 610 stores, turned over $1.4 billion in profit to the government last spring, the 15th straight record profit.
That's on top of the nearly $400 million the province collected in tax on liquor sales in 2008-09.
"Obviously (the LCBO) brings a huge return to the government, so you'd have to get a hell of a lot of money for that if you sold it," Eves told The Canadian Press in an interview.
"I chuckled the other day when I read a figure of $10 billion because I think that's low for an asset that virtually, arguably, in perpetuity will bring at least $1.5 billion a year to the owner.
"I think that's way too low."
Selling the LCBO was a key promise that helped propel the Conservatives to power in 1995, a party more philosophically aligned with privatization and smaller government than the Liberals. However, the Tories backed away from the idea after failing to get any offers that would have amounted to a good deal for taxpayers, something the Liberal government may also discover, said Eves.
In 2005, the Liberals set up a panel to review booze sales, which unanimously recommended that the government withdraw from retail and wholesale operations and implement a licensing system for the retailing and wholesaling of beverage alcohol in Ontario.
However, the Liberals quickly rejected the recommendation, saying it was their "strong view that the public is best served by the continued ownership of the LCBO."
The Liberal's latest review of assets seems to mirror almost exactly what the Conservatives did in 2001-02, said Eves, who cautioned against unloading a revenue generating agency like the LCBO just to help trim the deficit.
"There's nothing wrong with looking at your various options, but I don't think, as a general principle, you should be selling assets that produce a great deal of money just for dealing with an in-year deficit problem," he said.
"The issue is: What are you going to do to control your spending in next year's budget?"
The Liberal government won't likely follow through and sell the LCBO this time either, predicted Henry Jacek, a political science professor at McMaster University in Hamilton. Governments rarely get the money they're looking for in an asset sale, he said.
"The chances of you winding up better off financially is very, very slim, (so) a government would really only do it for ideological reasons," said Jacek.
"Politicians are entitled like anybody else to change their minds, but what the political leaders have to do is explain themselves in the next election and convince the electorate that they did the right thing when they changed their mind."
Premier Dalton McGuinty feels he has an obligation to explore options such as selling the LCBO to help get the province back into the black, said government sources.
"Things have changed since 2005 and it would be irresponsible for us to say we won't take a look at it," said one Liberal source.
"We want to make sure the lines of business the government is in are appropriate and that the rates of return are like our investments in health care and education."
Proponents of selling the LCBO to private investors point to Alberta, which privatized its liquor sales in the early 1990s, a move which supporters say led to increased selections and lower prices.
However, that only happened in Alberta's big cities, said a former Conservative advisor who spoke on the condition of anonymity.
"Service to people, particularly outside of Calgary and Edmonton, really suffered," said the advisor.
There's no shortage of prospective buyers if the province decides to sell the LCBO, said Finance Minister Dwight Duncan, who added large pension funds regularly knock on the door looking to purchase Crown assets.
"We routinely get people who come to us who say 'we'd like to buy this or we'd like to buy that' and we routinely say thanks for your interest but no thanks," he said.
One possible roadblock to selling the LCBO is its 6,000 unionized workers, who warn that privatizing liquor sales is akin to "slaughtering" the goose that annually lays golden eggs for Ontario taxpayers.
"In dozens of communities around Ontario, the LCBO is a source of employment and a `destination retailer` that attracts other retail businesses," said Warren Thomas, president of the Ontario Public Service Employees Union.
The asset review could also have an impact Conservative strategy during the 2011 election, said a Liberal source.
If the government rejects the idea of asset sales after getting expert advice it would make it harder for Progressive Conservative Leader Tim Hudak to campaign on a promise to privatize the LCBO or other provincial assets, the source said.