Corporate welfare no way to run a brewery

If a producer needs an injection of tax dollars to survive, that company shouldn’t be in business

HALIFAX, N.S. Oct. 4, 2016/ Troy Media/ – Governments and public servants are lousy at picking market winners and losers. In the case of the beer industry, consumers can get the job done.

Corporate welfare isn’t economic development, it just diverts money from successful businesses to less successful but politically favoured ones. When a subsidy dries up, so do the jobs.

But governments haven’t learned. Even a blind monkey will occasionally hit the dartboard. But who would buy stock or manage savings this way?

Politicians and civil servants certainly don’t risk their pensions on the bets they make using tax money.

Even the sure bets governments settle on are suspect. In the case of New Brunswick, it’s beer. More than half the industry has its hands deep in the pockets of taxpayers.

Over the past decade, successive provincial governments have handed breweries more than $11 million. Fifteen of the 27 breweries and cideries operating in New Brunswick have received government support.

What does it say about the strength of an industry when 12 companies pay taxes to support the other 15?

Economic Development Minister Francine Landry says subsidizing beer production is about creating jobs. And she insists there’s no need to worry about picking favourites because all breweries and cideries are eligible for assistance.

But subsidy dollars aren’t free. Corporate welfare comes from raising taxes or adding debt. The more it spends on subsidies, the less a government has to fund important social programs.

As well, corporate welfare creates a culture of dependency. Businesses become reliant on government assistance, even including it in their business plans. Indeed, Landry has encouraged brewers not on the dole to apply for subsidies.

Surprisingly, the provincial New Democrats offer some clarity. Leader Dominic Cardy doesn’t think taxpayers should subsidize companies, including breweries.

“The history of the human race over the last several thousand years has been pretty consistent in that we haven’t needed a lot of incentives to drink beer or produce it,” he said.

Cardy believes it would be better to reduce the number of costly regulatory hurdles that make it difficult for New Brunswick microbrewers to reach consumers.

The province and Ottawa say using tax dollars to support the industry is smart because the beer and cider market is growing. But subsidizing domestic producers won’t drive up consumer demand. Consumers can only drink so much.

Subsidies permit less efficient breweries to undercut the sales of beer companies that don’t need government support. Subsidy-free breweries end up selling less and hiring fewer people.

Why not give them all a subsidy, as Landry seems to suggest? This would lower the cost to enter the market for beer and cider makers and likely result in more New Brunswick breweries.

But paying for those subsidies would also divert resources from other sectors of the economy. This just slows economic growth. Why should beer production be supported with higher taxes on New Brunswick’s successful fishing, farming and forestry industries?

The New Brunswick beer market is a confusing and anti-competitive regulatory mess. The province overtaxes the product, making it costlier for consumers.

In addition, New Brunswick-owned Moosehead Brewery is forced to deal with thinner margins to compete against giant beer producers.

Microbreweries also complain they can’t easily get products to consumers because of obstruction at NB Liquor.

And so we subsidize the industry with grants and loans.

New Brunswick’s economic policy is to tax it when it moves, regulate it when it keeps moving and subsidize it when it stops moving. It’s one reason why the province has weaker private sector investment compared to provinces that meddle less in the economy.

No brewer, investor or bureaucrat can say how many breweries New Brunswick should have.

But there would certainly be more sales of microbreweries’ products if NB Liquor’s costly regulations were relaxed.

Ultimately, consumers should decide how many brewers operate in New Brunswick, based on their buying habits. If a producer needs an injection of tax dollars to survive, that company shouldn’t be in business.

Drinking beer is something consumers do very well without government help.

John Williamson is vice-president of research at the Atlantic Institute for Market Studies.

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