Convert 49% of future NB Liquor earnings through income trust, Cardy proposes
Fredericton – The New Brunswick New Democratic Party is proposing to convert 49% of Alcool NB Liquor earnings to an income trust that could generate as much as $1.1 billion dollars for debt reduction while providing an excellent savings opportunity for New Brunswickers. Units in the income trust would be sold on the market, with ANBL employees and New Brunswick residents getting access to preferential shares.
“The income trust model is a chance for New Brunswickers to invest in New Brunswick,” NDP leader Dominic Cardy said. “Instead of selling off the NBLC to corporate interests on Bay Street or Hong Kong or to friends of the Government, the money will stay in New Brunswick for New Brunswickers.”
The proposal emanated from the work of two economists and former civil servants who explored options for gaining better value for the province from NB Liquor operations. Brian Steeves, an economist who has worked for the provincial Department of Finance and Michael Wong, who has worked as chief economist for NB Power, first developed the concept of an income trust model as an alternative to privatization.
“This is another example of good ideas that have come from New Brunswick civil servants,” Cardy said. “What has been lacking is the political will to make these ideas happen. The NDP has the courage to make hard decisions.”
Cardy said the concept enables the province to monetize a portion of ANBL while providing a secure investment opportunity for New Brunswickers. The trust units would yield a guaranteed 6% annual return. All money generated from the sale of trust units would immediately go towards reducing the $12.2 billion provincial debt.
“This provides a unique opportunity to pay down debt without cutting services or raising taxes,” Cardy said. “It gives every New Brunswicker a chance to help reduce the province’s massive debt load while benefitting directly from a small piece of our liquor business. It really is a win win.”
The income trust model differs from privatization in that NB Liquor would not be sold. What is being sold are shares of the company’s earnings. In addition to the investment opportunity for New Brunswickers, any loss in government revenue to an income trust will be offset by the reduction in debt servicing fees that will result from a smaller debt-load.
“This will deliver a very strong message to our citizens, to Ottawa, and to the financial services industry that New Brunswick is serious about debt reduction,” he said.
Cardy stressed that the move would not affect the union or any ANBL employee. Nor would it affect the sale price to New Brunswick consumers.
“This will not affect the day to day operations of the ANBL in any way,” he said. “It will not mean any store closing, it will not affect the way you buy your beer.”
The New Brunswick Investment Management Corporation would set up the income trust and oversee the transactions.
“This is a great way of strengthening the public service while having government focus on what it should be doing: providing world class healthcare and education.” Cardy said. “It’s good for the province to expand the role of the NBIMC. They have the expertise, the talent, and a solid track record.”
This proposal follows the NDP’s 2013 motion which removed patronage from the hiring of ANBL’s CEO. That proposal was adopted by the governing Conservatives and passed in the Legislature later that year.
“After decades of back and forth between Liberals and Conservatives with no real progress on debt reduction, the NDP has a workable plan and is ready to put it into action,” Cardy said.
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Income Trust F.A.Q.
Q 1. How will this plan help pay down the debt?
A. The sale of income trust units would generate an estimated $1.1 billion that would immediately be applied against the $12 billion provincial debt. This represents an immediate 9% reduction in the debt without cutting services or raising taxes.
Q 2. Where does the $1.1 billion figure come from?
A. It is an economic calculation based on net present value (NPV) of the stream of annual remittances to the province.
Q 3. What is an income trust?
A. An income trust is an investment trust that holds income-producing assets and trades units like a stock on an exchange. Income trusts attempt to hold assets which will generate a steady flow of income, such as lease payments from an office building. The income is passed on to the unit holders.
Q 4. How does an income trust unit differ from a share?
A. A share represents as ownership stake in the corporation where an income trust unit represents a stake in the corporation’s future earnings as defined by the income trust.
Q 5. What are the figures for revenue lost and savings gained that makes this venture revenue neutral?
A. The estimated figures are $66 million in lost general revenue. However that is countered by the debt servicing savings which are estimated $61.7million. Added to this will be $6.6 million in provincial taxes on the income from the trust units. This works out to a net $2.3 million gain for the Province in addition to the $1.1 billion figure that will be deducted from the debt.
Q 6. If revenue neutral, why do it now and what are the benefits if any?
A. First, the province will use the proceeds to make a 9% reduction in our provincial debt which results in lower debt servicing costs, lower borrowing costs, and a positive impact on our credit rating. Secondly, this allows New Brunswickers to have a secure investment opportunity in the province’s liquor industry. The trust units will yield a guaranteed 6% annual return. More money in New Brunswickers’ pockets leads to more economic spin-offs.
Q 7. Is this not privatization or a step towards privatization?
A. No. The ANBL remains a 100% crown corporation. With privatization, you would sell off assets of the corporation. In the income trust model, we are selling a percentage of earnings. This is a better model for the people of NB.
Q 8. What makes it a better model for New Brunswickers?
A. With this model, the corporation remains in public hands. In any move to privatize, the assets are often ‘marked down’ to ensure a timely sale.
Q 9. Will this affect the number and location of agency stores?
A. No. The corporation will continue to regulate all aspects of NB Liquor including the number and location of agency stores. Existing contracts will be unaffected.
Q 10. How will the ANBL staff be affected?
A. They will not be affected. The only impact on staff is they will now have the option of buying preferential units in the income trust.
Q 11. Will this affect the price of beer, wine and liquor?
A. No. Liquor prices will continue to be determined by market conditions and government revenue targets, as they are today.
Q 12. Will members sit on the board? How will this affect the board of directors?
A. Trust holders will have some form of representation on the board. The exact make-up of this representation will be finalized at a later date.
Q 13. If this is such a great idea, why has no government tried this before?
A. Someone has to be the first! The NDP is ready to move forward after years of dithering and inaction from the other two parties.