Anyone who took grade school math will remember the dreaded requirement that you “show your work.” I hated that command in school since I was usually able to do long division and the like fast enough in my head that painfully writing out each individual step seemed both tedious and pointless. Decades later I can grudgingly accept there was some pedagogical merit to it, as the teacher needed to be able to see, in essence, that students weren’t just lucky (or cheating). It’s possible to arrive at the right answer for the wrong reasons.
The Ontario Liberals got out early last year claiming that expanding alcohol sales to corner stores and groceries would cost the province nearly a billion dollars, allowing them (for political PR purposes) to call it a “billion-dollar boozedoggle.” That claim was always a bit dodgy: it relied on the assumption that the province could extract hundreds of million of dollars in added licensing revenue from big grocers, and it always had the air of a figure that was made up to get the total sum high enough to justify the headline on the news release, not a serious policy analysis.
And yet, the Liberals have ended up being right for the wrong reasons. And then some. Whatever the magnitude of their errors, the magnitude of the government’s is literally multiples larger. The Financial Accountability Office reported this week that the cost of expanded alcohol sales in the province won’t be $1 billion — it’ll be more like $1.4 billion between 2024 and 2031, and potentially as much as $1.9 billion. Worse still, under the current policies the more the government’s policies succeed (the more alcohol is bought from new retailers outside the old LCBO/Beer Store duopoly) the worse the hit to the province’s finances will be.
What’s particularly galling is that a huge amount of the costs as assessed by the FAO have been incurred solely to accelerate the expansion of liquor stores last year to set the stage for the PC Party’s early election bid. Of that $1.4 billion cost estimate, just a bit over $800 million was baked into the costs if Ontario had proceeded with its original plan to expand alcohol sales in 2026 with the natural demise of the Liberal-era Master Framework Agreement. The remaining $612 million is the difference between opening the alcohol market on January 1, 2026 (the original plan) and September 5, 2024. That’s $612 million in additional costs to accelerate the roll-out of corner store beer and wine by 483 days, or $1.2 million per day.
What is going on here, and how has Ontario suddenly forgotten how to profitably sell liquor to thirsty people? The short version is that Ontario doesn’t tax alcohol like it taxes other goods: bars, restaurants, the Beer Store, and microbreweries all pay beer taxes, for example, but the grocery stores and corner stores do not. The LCBO makes its revenues largely from product mark-ups, not formal taxes. So if sales move from in-store purchases at the LCBO or the Beer Store to grocery and corner stores, the government loses out on tax revenues.
The FAO doesn’t advise the government on the wisdom of its policies; it simply looks at the policies as they are and tries to project the costs with some stated assumptions. In this case, they’re assuming that wider availability of alcohol doesn’t change the decades-long trend to people consuming less alcohol and that the shift in consumers buying beer and wine in new retailers happens at a relatively modest pace. But crucially, the way the finances of alcohol sales in Ontario are currently structured, if those assumptions are wrong — if people consume more booze because it’s more convenient and their consumption shifts to new retailers faster than projected — the financial hit to the province gets worse, not better.
It's a bananas system that nobody would build today if we were starting from scratch. And indeed, when the government announced the early advent of corner store beer, it simultaneously announced a review of taxes, fees, and markups at the LCBO to better accommodate the massive change to the market. That review was supposed to be concluded by the end of 2024. By October the CBC reported that the finance ministry was no longer committing to that completion date for the review. This problem isn’t going away, however: nobody seriously proposes to turn back the clock to the pre-2024 alcohol market.
Critical reports of government come and go, though the FAO has handed the opposition parties such a gift this one seems likely to feature heavily in election attack ads — and the report came just days before the campaign is expected to formally begin. Ontario’s alcohol market is yet another item on the list of problems facing the government when MPPs return to Queen’s Park, whoever that government is led by.