August 29, 2018
How the federal and provincial governments should split cannabis tax revenues
Cannabis use creates direct costs for governments, especially in the areas of health care and criminal justice. New analysis from the Mowat Centre shows that following legalization, there is a real risk that overall costs could increase. That risk will be borne disproportionately by provincial, territorial and municipal governments. The way cannabis-related tax revenues are shared between governments should reflect this reality.
At the same time, there is a real risk that overall costs to government will increase post-legalization, primarily due to the impact of cannabis-impaired driving and to health-related costs. The majority of this risk is shouldered by provinces, territories and municipalities.
This uncertain reality should be reflected in the way cannabis-related tax revenues are shared across levels of government. Upon legalization, an excise tax will be levied on cannabis products, with 25 per cent of the revenues going to Ottawa and the remaining 75 per cent going to the provinces. But this is a temporary arrangement, slated to be reviewed after two years. Our analysis suggests that two years will likely not be enough to get a clear picture of how costs and risks will be split among Canada’s governments over the long-term.
We conclude that for at least the first decade of the cannabis taxation regime, the revenue-sharing mechanism should be subject to ongoing reassessment cycles tied to estimates of which governments bear the costs of cannabis.View PDF View Key Takeaways
August 29, 2018