Is it time for the ACT to 'do a Colorado' and introduce marijuana taxes?

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John Passant explores the idea of legalising marijuana for personal and medicinal use to raise revenue in the ACT.

[EDITOR'S NOTE: Minister for Health Greg Hunt has today (22/2/17) announced approval for the sale of marijuana for chronic diseases, to be regulated by the States and Territories. A detailed announcement is expected later today.]

EARLY LAST YEAR Prime Minister Malcolm Turnbull had a thought bubble about giving the States and Territories limited income tax rate rights.

Part of the prime minister’s thinking was that income tax competition between the States and Territories would be a good thing. As the sorry history of estate and gift duties shows, such competition saw Bjelke-Petersen abolish these equitable taxes in Queensland.

The other States and Territories – and the Commonwealth – quickly followed suit. The revenue and equity results were disastrous.

Mr Turnbull’s proposal to allow the States and Territories to set some tax rates, if it had got off the ground, might also have shifted some of the blame for poor funding for schools, hospitals and transport away from his government and on to the states and territories. That, along with the mooted equivalent loss in Federal grants, may well have been the main reasons why the premiers and chief ministers rejected the proposal.

Canberra’s workforce has changed over the years, but public servants still make up a sizeable number — just under 50%. It looks as if there will be further Turnbull attacks on Commonwealth public service jobs and pay — perhaps, for example, increasing the efficiency dividend.

BarnabyJoyce’scostly forced relocation of some public servants from the Australian Pesticides and Veterinary Medicines Authority to Armidale will not be the end. More agencies are moving or slated to be moved out.

There is also a strong possibility that the ACTLabor-Greens Government light rail project, servicing just 10% of the population, could cost more than double the Government’s estimate of $939 million.

On top of these local factors, there is a chance of an Australia-wide economic slowdown. The volatile housing market and possible bust would present further revenue challenges.

It is no secret that the ACT’s finances are in some trouble.

As ACT Auditor-General Maxine Cooper said at the end of 2016:

"Achievement of … lower deficits is dependent on higher revenue, in particular, increases in taxation (general rates and payroll tax) and the ACT's share of the national GST revenue pool."

All of this means the search for alternative sources of revenue in the ACT should begin now — not when the real crisis breaks. Maybe it is time to think outside the tax boxes Cooper suggests.

If we are to survive governmental dopes, why not look at dope? Not smoking it – I didn’t inhale – but legalising its possession for personal and medicinal use. This would mean legalising its growth, cultivation, production and sale in the ACT. Currently, marijuana possession in the Territory is illegal, although the discretionary fine process for possession of less than 50g or one or two plants for personal use, means many people will not have a conviction recorded.

Late last year, the Federal Government changed the Narcotics Drugs Act 1967 to permit the application for licences:

'An ODC licence allows you to legally cultivate and/or produce cannabis for medicinal or associated research purposes.'

This legal licensing avenue may explain the police crackdown on people like Jenny Hallam in Adelaide, who was arrested in January for the "crime" of supplying medicinal cannabis for free to kids and others suffering various diseases for whom the plant extract makes a big difference.

If the ACT Government legalised the whole production process and possession, the ACT could become a major supplier for all medicinal users in those States and Territories where medicinal use is legal.

So why not legalise marijuana commercial production and possession for personal and medicinal use in the ACT? The government in the ACT could then tax it at every stage — from growth, to packaging and wholesale, to retailing, with the revenue earmarked for policing, health and education.

Alternatively, the Labor-Greens ACT Government could set up a government monopoly on every stage of the production and sale process, with the profits being used for social purposes and to reduce the deficit?

Colorado became the first U.S. state to legalise the personal and medical use of marijuana, and tax it from cultivation by approved growers to final consumption. The four taxes in Colorado apply not just to the weed version but edible products like marijuana chocolate, drinks, mints and biscuits.

The results have been interesting. In 2016, sales topped US$1.3 billion (AU$1.69 billion), with the tax revenue totalling US$199 million (AU$259 million). According to The Cannabist, US$438 million (AU$570 million) – about 30% of the revenue raised – comes from sales for medicinal purposes and the other 70%, US$875 million (AU$1.14 billion) from sales for recreational use.

Some of this US$199 million (AU$259 million) weed revenue then covers policing, education and health spending. $US$40 million (AU$52 million) is earmarked for school projects. The governorrecently proposed increasing one of the marijuana taxes to double that figure.

It is unclear how much revenue a marijuana tax would raise in the ACT, but based on Colorado results of tax revenue being about 1.3% of total government revenue, this would suggest about $45 million a year. The figure could be boosted by increased tourism, immigration and by exports.

In Colorado, the sky hasn’t fallen in and some early research suggests violent crime and robberies have fallen, although drug driving is a problem. So, too, is accidental ingestion by children. About half the sales are of food products with marijuana in them.

If the ACT did something similar to Colorado, other States and Territories might begin to move away from outmoded criminalisation models and redirect the profits away from criminal groups to the state and the community.

It is time for the ACT Government to grasp the nettle.

John is a former Assistant Commissioner of Taxation. Read more by John on his website En Passant or follow him on Twitter @JohnPassant.

Signed copies of John Passant’s first book of poetry, Songs for the Band Unformed (Ginninderra Press 2016) are available for purchase from the IA store HERE

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