Tuesday, 4 July 2017

Cannabis revenue

NZIER's done some nice work estimating the tax revenues that could accrue through marijuana legalisation. They base things on a 25% excise rate plus GST and come up with figure around $70 million.

They contrast it with Treasury's earlier estimate of around $150 million in revenue, but any number you come up with in this space depends on what you think the government's trying to achieve with excise. If you think they want to continue to deter consumption by maintaining retail prices to consumers around where they are now, then you need to ballpark how much production costs would drop in a legal environment and set excise plus GST to fill that gap. If you think government would aim to internalise external costs, the excise rate would be close to zero.

I'd estimated a range from maybe $75m to $200m conditional on government wanting to keep retail prices about where they are now. If the government wants to do something else with excise, you'd get a different number.

Catherine Harris reports on that earlier figure here today as well:
Eric Crampton, chief economist for think tank The New Zealand Initiative, has also tried to estimate the excise tax take on cannabis, coming up with a range of $75m to $200m in 2013.

The big uncertainty was the production costs, because as an illegal drug "nobody really knows," Crampton said.

But he agreed the price would almost certainly come down as the premium attached to the risk of producing an illegal commodity was removed.

Production would become more efficient, "because people are able to produce to scale without being worried about being raided."

"It seems like a natural market for New Zealand. We do seem to be missing a trick in that, if Northland is as good as they say it is."
And just a super kudos to Ross Bell and his team at the Drug Foundation. He's been doing just so much to advance the debate here.

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