Saturday, 24 March 2012

Provincial Liquor Monopolies may be Unconstitutional

Section 6 of the Charter guarantees that Canadians and permanent residents of Canada can move to and take up residence in any Canadian province. It also guarantees that the same people can pursue the gaining of a livelihood in any Canadian province. Like so many of the other freedoms we enjoy, we take our mobility rights for granted.

Canadian liquor producers do not enjoy the same luxury. Even though the producers themselves can freely cross between provinces, their products cannot.


It takes a short history lesson to explain why. In 1928, as Canada’s prohibition era was coming to an end, the provinces wanted to control the importation of liquor across their own borders. However, they recognized that they lacked the constitutional authority to enact such legislation, so they requested that the federal parliament delegate that power to them. The result was that, in the same year, the federal parliament enacted legislation titled the Importation of Intoxicating Liquors Act.

The act makes it illegal to import liquor into a province unless it has been purchased by or on behalf of the Queen. And you could be fined or jailed if you don’t comply. In practice, this means that all liquor imported into any province in Canada is the government’s liquor. Effectively, this 1928 law creates the monopoly over liquor enjoyed by each province. It prohibits producers from selling their products directly to consumers in other provinces. And, as is the case with any monopoly, this arrangement prevents innovative marketing, limits consumer choice, and drives up the price.

When liquor is imported into a province, the local provincial authority places a tax on it. This tax is hidden in the purchase price. In 2007/2008, the Alberta Gaming and Liquor Commission collected some $678 million in fees. In the same period, B.C. collected $857 million. But not to be outdone, in 2006/2007, Ontario collected an astounding $1.28 billion. These considerable sums of money increase the cost of liquor for consumers at the point of retail.

Today, because of the way these fees are collected, very few consumers are aware they are even being taxed.

What is difficult to understand about these provincial monopolies is that section 121 of our Constitution Act, 1867, states that all articles of “growth, produce, or manufacture” must be “admitted free” into each province. Early on, our courts decided this prohibited customs duties only, but subsequent court decisions seem to indicate that this constitutional provision means inter-provincial trade should be free of government imposed impediments, like hidden taxes, and the threat of fines and jail. Although constitutional law can be confounding at times, it is surpassingly odd that collecting $1.28 billion in hidden taxes could be considered “admitted free”.

Another interesting facet is that the provincial monopolies over liquor appear to be houses built on sand. In 1928, when the provinces requested that the federal parliament pass the Importation of Intoxicating Liquors Act, they effectively admitted that they did not have the constitutional authority to pass this legislation themselves. Parliament complied, relying on its authority to regulate trade and commerce.


But it seems that no one at that time considered section 121 of the constitution. Or perhaps it was conveniently forgotten? While parliament has the constitutional authority to regulate trade and commerce, section 121 reads as though it must not interfere with inter-provincial free trade while doing so. Ultimately, if parliament does lack the authority to enact legislation that props up each province’s liquor monopoly, the constitutional legitimacy of those monopolies should be called into question.

A modern and fair-minded reading of section 121 of our constitution makes it seem like a guarantee of economic mobility. Just as Canadians and permanent residents can freely cross provincial borders, section 121 seems to mean that liquor producers should enjoy that same freedom for their products. Since 1928, that freedom has been denied them. And consumers are literally paying the price.

This piece first appeared in Troy Media in June 2011. 

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