Tuesday 20 December 2011

GST and the price of meth

New Zealand's drug warriors laud their successes in the war on meth. Evidence of success? The price of a  gram of P is up from $723 last year to $768 this year.

Year on year CPI increase in the September quarter is 4.6%. But a big chunk of that is the GST increase.

If meth had followed the CPI, the price of a gram would have increased to $756, not $768, so maybe enforcement action pushed the price up a bit (although we ought to be pretty sceptical) . But the more interesting question is whether we should have expected price inflation in illegal markets to incorporate the GST increase.

Obviously, drug dealers don't charge GST on meth. But they do pay GST on a pile of their inputs where those inputs are bought in legal markets. And, they don't get to claim that GST back on quarterly returns either. So they'll have had a GST-related increase in their production costs. Since a smaller proportion of their inputs will be GST-affected, the CPI index for illegal sector goods should be lower than for other goods if we don't net out GST effects from either. So the real price increase is likely a bit bigger than a straight CPI-adjustment would have it.

It's worth noting the large disconnect between Key's rhetoric in the press release and the actual report's findings. Here's Key:
The fourth Indicators and Progress report for the Government's Tackling Methamphetamine Action Plan shows government agencies' work is continuing to contain the growth of methamphetamine ('P') supply networks, Prime Minister John Key announced today.
"This initiative has been in place for two-and-a-half years, and we can see that efforts to crack down on those who are importing, manufacturing and selling P and its precursors are working," says Mr Key.
"Six months ago, there were signs that supply chains were being disrupted, due to the efforts both at the border and domestically. We're now able to see that the dedicated resources on the frontline are continuing to squeeze the P trade."

..."The coordinated action against P by a number of government agencies is producing results," says Mr Key. "This report shows that, over time, the work to contain the methamphetamine trade is achieving the right results. All indicators suggest 'containment' and this should be seen as success.

"Any softening in our hard-line stance against P could undo several years of good work. Those who profit from the misery caused by P should realise we are committed to stamping out the harm this drug is causing New Zealand communities."
Here's the report (prior reports). Relevant findings:
  • Purity is down a bit, decline "close to being statistically significant".
  • What about availability?
    NZ-ADUM data shows a similar trend as IDMS, in that availability has remained stable/easier over the past two years. (p. 10)
    And, 60% of frequent users report no change in difficulty of getting P; rest split evenly between "easier" and "more difficult". (p. 14)
  • Convictions for possession/use up from 1327 in October 2010 data to 1557 in October 2011 data; convictions for supply and dealing more than doubled. But still availability has either not changed or has increased.
  • Customs is seizing less pseudoephedrine at the border and is instead seizing more P.
  • But, the price of a "set" of ContacNT (pseudoephedrine precursor) hasn't changed since September 2009 (p. 13). Recall that the government only announced plans to make pseudoephedrine prescription-only in October 2009. So despite that none of us can get anything that works for a runny nose, the black market price of pseudoephedrine is unchanged. John Key and Peter Dunne have screwed over every New Zealander with a cold for absolutely no benefit.
Keep digging up, guys. You'll get out of that hole someday.


  1. The media release is about success in containing the growth of the trade, not reducing supply. But still, I'm happy to see that prohibition of my favourite cold drugs has had no great impact. Hopefully the ban will get reversed.

  2. Know what, you're right. Second read, they're lauding successes against a counterfacutal of increasing availability and continued growth in meth supply. Alternatively, we could read it as that meth's a mature market and pretty much everyone who wants to use meth is doing it.

  3. getting harder to afford good drugs Eric

  4. "Since a smaller proportion of their inputs will be GST-affected..."

    How'd you figure that?

  5. Yes, GST on legally purchased physical inputs. But I'd be surprised if meth contract cookers charged GST to the wholesaler...

  6. That depends whether it's most appropriate to treat the cook as an employee or contractor. If they're employees, the meth lab is saving on PAYE by operating illegally. If they're contractors, then as you point out, the saving is on GST.

    If it's true, as I read somewhere, that cooks are at risk of kidnap by rival producers, that renders them sufficiently under the control of the producer as to be classed as employees. It does seem likely though, that a good cook would want to obtain their own materials, making them more like contractors. The most helpful point of reference for price comparison purposes would be the employment status of labour in a comparable legal enterprise - an industrial chemicals producer, maybe.

    If the legal enterprise employs labour on contract, you'd expect their prices to show a greater impact from the GST rise than the meth lab. If the staff are employees, on the other hand, the price impact would be similar across the two enterprises, as both would see the new rate of GST affecting their physical inputs only.

  7. @fibby: My only point of reference really is Breaking Bad, and that sounds more like contractors. But your analysis sounds right.