Hey there, time traveller!
This article was published 9/11/2017 (221 days ago), so information in it may no longer be current.
Premier Brian Pallister has always been a bit coy about whether he has ever enjoyed the pleasures of cannabis. "I prefer beer," has become his standard retort when asked if he ever took a hit.
Regardless of whether the premier smoked, inhaled or appreciated the mystic qualities of marijuana, you can bet that he will learn to love the tax revenues that will flow from a legalized marketplace.
Manitoba's plan for the legalized wholesale and retail sales of cannabis is pretty thin right now. Pallister has only confirmed a plan to have Manitoba Liquor and Lotteries act as a wholesale distributor, with retail sales going to the private sector. Left out of the plan are any details about the age at which Manitobans will be able to purchase and consume legal pot and the taxes and other levies that will be applied.
The latter issue is of particular importance to a premier racing the clock to fulfil several important fiscal pledges before the next election. Chief among them is his 2016 election promise to cut the provincial sales tax to seven per cent from its current eight-per-cent level. That one pledge alone is expected to cost as much as $300 million.
It should be noted that is no ordinary pledge. When the former NDP government raised the PST by one point to help fund infrastructure — after promising never to do it — then-Opposition leader Pallister called it a crime against humanity and took the province to court.
Throughout the 2016 election, Pallister's solemn promise to cut the PST became the central point of his campaign. Right now, it stands as a political challenge that, if unrealized, could drastically hamper his plans for re-election.
In politics, a promise to remedy another politician's broken promise is a pretty big deal. Failure to live up to that lofty pledge would erode his credibility with core supporters.
However, as it stands right now, the premier has very little hope of achieving that goal without increasing the deficit and adding to the debt.
Although he is making modest progress on reducing the deficit, it is unlikely he will do so before April 2020. That means Pallister may have to actually borrow more money to pay for his tax cut, a scenario that is politically risky and fiscally idiotic.
If Pallister has another strategy outside of borrowing money to pay for a tax cut, he hasn't let anyone in on it.
The premier has steadfastly refused any suggestion of raising other taxes to help him balance the budget. Even the recently announced carbon tax is expected to be managed on a revenue-neutral basis. In other words, Pallister is going to spend or give back the gross majority of what is collected.
Federal transfer payments? Manitoba, along with all provinces, are girding themselves for a slowing in the growth of health-care transfers from Ottawa.
On the spending side, Pallister has undertaken austerity measures to slow expenditures in key program areas, but they will not amount to anywhere near $300 million annually.
Grow his way out of the deficit? Unfortunately, current forecasts show that the Manitoba economy is expected to grow less than two per cent next year and the year after. That's not robust enough to provide the premier with an easy path to a PST cut.
What the premier needs is a revenue windfall that is politically palatable and can be used entirely to help balance the budget. That's where legalized marijuana comes in.
Think of it as Reefer Revenue Madness.
There is no doubt that legalized pot will provide government with added revenue. What isn't known is how to maximize revenue without skewing the market to make illicit pot attractive to users.
The Parliamentary Budget Office has confirmed what many people know: the higher the price in the legal market, the smaller the consumer base. In its November 2016 report on cannabis consumption and pricing, the PBO calculated that while casual or occasional users are willing to pay a premium to get legal pot, frequent users are not.
Governments that have already legalized marijuana or those about to do so are searching for the retail-price sweet spot that is higher than illicit but does not encourage people to go to the black market for their purchase. Even those forerunning jurisdictions in the United States that were out ahead of the legalization curve are still, to some extent, looking for the right tax level.
In Colorado, recreational marijuana is taxed at an effective rate of 30 per cent, but that's not a single, flat rate tax. It includes both regular and special state sales taxes, a 15 per cent state excise tax and local sales and excise taxes. The results have been pretty impressive.
Since 2014, when Colorado became the first U.S. state to legalize pot, the state treasury alone has collected more than $500 million in marijuana taxes. That is much-needed revenue in an economically uncertain time.
However, even Colorado has concerns about continued use of the black market. As a result, on July 1, it will cut its special retail marijuana sales tax by two points, to eight per cent. The modest reduction is an attempt by Colorado to actually boost tax revenues by capturing a greater piece of the overall market.
What is Manitoba's sweet spot? That is the multimillion-dollar question for the premier and his cash-strapped government. Taking into account the experience of other jurisdictions, the potential revenue may not be enough to cover the entire cost of cutting the PST back.
Colorado, with a population of 5.5 million, earned $500 million in three years; if Manitoba were able to create the same market conditions, Pallister could expect to earn about $30 million a year. Not chump change, but also not a game-changer for a premier staring down a $300-million pledge.
There are other ways Pallister can earn revenue off legalized pot. There will be increased income and business taxes from the growers and retail operations that are expected to be established over the next year. And Manitoba Liquor and Lotteries will collect fees for its work wholesaling and distributing product to private retailers; MLL channels all of its profits, after operating costs, to government general revenues.
It may still not add up to $300 million, but it will provide some help to the premier in reaching his fiscal mountain top.
Manitobans could certainly help by ensuring that all of their disposable income set aside for recreational cannabis is spent in authorized private retailers. The province could even mount a marketing campaign to connect consumption with fiscal sustainability.
Smoke a joint, balance the books.
Born and raised in and around Toronto, Dan Lett came to Winnipeg in 1986, less than a year out of journalism school with a lifelong dream to be a newspaper reporter.