B.C. Liberals’ tax-break deal favours party supporter

Steve Mertl
National Affairs Contributor
Daily Brew

There seem to be no good political outcomes in the flap engulfing the B.C. Liberal government over a tax change benefiting Pacific Western Brewery.

At best, implementing a rule change that would potentially save one B.C. brewery $10 million this year is viewed as a bureaucratic blunder not sanctioned by the minister in charge. At worst, it's seen as an example of the Liberals helping one of their large contributors.

Neither view looks good on the Liberals as they head into a campaign next spring for a fourth-straight mandate, an election they're widely expected to lose.

Here's what happened, apparently. About a week ago, the B.C. Liquor Distribution Branch issued a memo to domestic beer suppliers about an amendment to the rules on the so-called mark-up tax that bases the rate a brewery pays on the level of its annual production.

Smaller breweries like Pacific Western, pay a lower rate than the big national producers such as Molson and Labatt until their output reaches a preset level. Exceeding its production ceiling would automatically require that brewery to pay the higher-category mark-up rate on its entire year's production retroactively.

The government's Nov. 14 memo said the liquor branch now would blend the lower rate with the higher one when a brewery in the lower category exceeded its limit, which would reduce the overall tax bill.

In Pacific Western's case the ceiling is 160,000 hectolitres (a hectolitre is about 12 cases of a dozen beers), the Vancouver Sun reported. Under the new rules, the brewery would save about $10 million in additional mark-up taxes if it boosted production by a planned 40,000 hectolitres.

[Related: B.C. Liberals keep carbon tax, hear election wizard at party convention]

The memo triggered a quick backlash from the rest of the industry. The National Brewers Association, which speaks for the big players, said the revision gave an unfair cost advantage to smaller producers so they can compete with the big ones.

The association accused Rich Coleman, the minister responsible for the liquor branch, of crafting a policy change for a political friend, CBC News reported.

The Sun reported Elections B.C. figures show Pacific Western contributed more than $131,000 to the Liberals over the last decade, compared with about $61,000 by Molson and almost $66,000 by Labatt (the association donated $200,000).

But the Globe and Mail also revealed Pacific Western's owner, Kazuko Komatsu, had donated a luxury holiday package worth almost $27,000 for a party fundraising auction in Coleman's riding about a week before the policy change was announced.

Pacific Western had hired Liberal insider Patrick Kinsella to lobby the government for the tax change.

Coleman contended that without a tax change, the hugely profitable brewery was going to lay off workers for the rest of the year to avoid hitting its production ceiling, the Globe said.

The minister ended up having to explain the situation to the Liberal caucus and conceded the Nov. 14 changes went to far, the Sun said.

The caucus was concerned about the optics of the tax deal, an especially sensitive topic for a party that was accused of trying to favour its friends in the $1-billion privatization of B.C. Rail almost a decade ago.

More recently, the government had to back away from a plan to privatize the liquor distribution system itself when it couldn't push its economic case for the move.

It also found itself on the defensive when opposition critics claimed the idea was first proposed by lobbyists for Exel Logistics, which operates Alberta's liquor distribution system. Exel is partly owned by ... wait for it ... Patrick Kinsella, CBC News reported.