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Why Are Alberta Taxpayers Subsidizing Wisconsin Brewing Jobs?

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Government bailouts are increasingly de rigueur, these days. Still, it should go without saying that when a government injects a cash infusion (i.e., taxpayer dollars) into a business, the hoped for outcome is to save local jobs (witness the Ontario government lending money to Chrysler and General Motors a few years ago to ensure that auto assembly plants in Oshawa and Brampton would keep humming along.)

However, in the province of Alberta, millions of dollars in tax breaks are being given to a brewer to ensure that brewing jobs remain not in Calgary, Edmonton or Red Deer, but rather, in Monroe, Wisconsin.

The back story: The Alberta Gaming and Liquor Commission presumably had good intentions in mind when it brewed up a policy to lend a helping hand to small breweries. Namely, beer companies qualify for substantially reduced beer tax rates on the first 200,000 hectolitres sold in Alberta. The explicit aim was to help small players compete against industry giants such as Labatt and Molson. And, implicitly, the tax break would entice craft breweries to set up shop in the province.

However, eight years after the reduced beer tax rates -- estimated by one analyst to total about $200 million in savings -- were first implemented, little in the Alberta beer business has worked out quite the way the AGLC envisioned. Only five small breweries have opened for business in Alberta since the policy was implemented. And in that time Alberta has become a market characterized by discount beer.

But the most embarrassing unintended consequence is that at least one of the breweries taking advantage of the AGLC policy doesn't even brew in the province, let alone Canada.

Case in point: one of the biggest beneficiary of Alberta's small brewer tax break is Minhas Craft Brewery. Though its head office is in Calgary, the main brewing operation is in Monroe, Wisc., where it has recently poured US$3.5 million into the operation. While the firm won't release financial information, co-owner Ravinder Minhas says it shipped 96,000 hectolitres to Alberta last year, meaning the reduction in the beer tax was worth $5.6 million.

Even so, why in the world would the government of Alberta send tax dollars to subsidize jobs that aren't even in Alberta or even Canada?

Ravinder Minhas says Albertans actually do benefit by being able to buy cheap beer. Fantastic! Thus, although the high-paying brewery jobs are in Wisconsin, at least an unemployed Albertan can drink away his sorrows by having access to cheapo Minhas beer brands such as Boxer Light and Mountain Crest Classic Lager (which the company inexplicably markets as "premium brews.")

Bryan Cox, a vice-president of Canada's National Brewers (a trade association that represents Molson, Labatt and Sleeman), says Minhas's rationalization for the tax break "is interesting. Our understanding of the policy is that it was to incentivize local craft brewing in the province of Alberta."

Cox notes that "a strong, vibrant, local brewing environment is good for beer -- it gets people talking about beer, and it helps grow the pie, which is good for all brewers." Yet he points out there's actually a dearth of craft brewers in Alberta. And there have been other side effects. John Sleeman confirmed that his firm, Sleeman Breweries, cancelled plans for a new Alberta-based brewery, in part because of the brewer tax break, which it would not qualify for.

AGLC CEO Gerry MacLennan declined to comment on the program. However, AGLC spokeswoman Christine Wronko insists Alberta's "unique mark-up system" is all about creating a "level playing field for liquor companies" even though it actually does the precise opposite by creating a very unlevel playing field.

Wronko says the fact that just five breweries have opened in the province since the tax break scheme was hatched in 2003 and that the Alberta beer market is defined by discount brands, are consequences that are out of the government's control. Nice.

Bottom line: Alberta's small brewer system would appear to be yet another case of the law of unintended consequences -- especially when a government agency tinkers with the free market economy. From a dearth of local Albertan craft brewers to providing a helping hand for American jobs, the AGLC's bizarre beer tax policy is enough to drive a teetotalling Albertan to drink.

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