Experts stress ‘Goldilocks point’ for pot taxes: Not too low or high, but just right

The cash-strapped Ontario government would be looking at more than $450 million (Canadian) in tax revenue from its 13 million residents.

Thestar.com
Dec. 22, 2015
By Christopher Reynolds

As Canada mulls how to handle marijuana legalization - promised in Prime Minister Justin Trudeau’s election platform - experts are stressing the “Goldilocks point” for taxes: not too low, not too high, but just right.

“They can’t raise taxes too much or people will just smoke the illegal stuff,” said Timothy Easton, an economist at Simon Fraser University in Burnaby, B.C.

“You want to have it high enough to discourage consumption - if, in fact, that’s your goal - but if you set it too high you end up with a continuation of the black market,” noted Patrick Fafard, associate professor at the University of Ottawa’s Graduate School of Public and International Affairs.

Four U.S. states have legalized pot for recreational use, with varying approaches to taxation. In Washington, retailers must pay the government a 37 per cent marijuana excise tax, while the standard sales tax applies to purchases.

Colorado and Oregon favour a 25 per cent sales tax on weed. In Alaska, which has legalized the use of marijuana but is still figuring out how to sell it, lawmakers have discussed levying a $50-per-ounce fee.

Colorado raked in nearly $73.5 million (U.S.) through the first seven months of 2015, putting the state on pace to collect over $125 million for the year - about $24 per person from its 5.2 million residents.

Transplanting that formula to Ontario, the cash-strapped government would be looking at more than $450 million (Canadian) in tax revenue from its 13 million residents.

Up to $1 billion in savings could be gleaned from the justice system alone, Fafard said.

Portugal has decriminalized drug use across the board, but that may not be “the Canadian way,” said Craig Jones, executive director of The National Organization for the Reform of Marijuana Laws in Canada (NORML Canada).

He prefers provincial regulation along the lines of alcohol or tobacco. A federal role would be limited to removing marijuana from the Controlled Substances Act, banning sales to children and potential collection of an excise tax.

Different tax levels for different potency should be considered, Jones added, comparable to beer, wine and spirits.

In the 1990s, multiple provinces saw the fallout from slapping high taxes on a coveted product - tobacco. Canadian cigarettes, exported to duty-free warehouses in the U.S. and then illegally reintroduced to the country through a First Nation reserve straddling the international border in eastern Ontario, made up 30 per cent of the domestic market by 1993, according to a Fraser Institute study from 2010.

Cigarette smuggling fell significantly following a drastic tax rollback in five central Canadian and Maritime provinces.

Pamela McColl, a member of anti-legalization group Smart Approaches to Marijuana Canada (SAM Canada), criticized the tax revenue plan implicit in Trudeau’s vow to “legalize, regulate and restrict access to marijuana.”

“A government is not a business. A government is not supposed to be making a profit off taxing this thing. That’s callous,” said McColl.

“The more you make it available in more stores or vending machines, the more use goes up, particularly among youth,” warned Rosalie Liccardo Pacula, a senior economist and co-director of the RAND Corporation’s drug policy research centre.

Manitoba Premier Greg Selinger says government liquor stores are the best place to sell marijuana, if and when the federal government legalizes the drug.

The average price for one-eighth of an ounce of marijuana at the Denver area’s 25 stores was $40 (U.S.) as of April, according to the Colorado Pot Guide.