Pubdate: Fri, 10 Nov 2017
Source: Winnipeg Free Press (CN MB)
Copyright: 2017 Winnipeg Free Press
Author: Dan Lett
Page: A6


PREMIER Brian Pallister has always been coy about whether he has ever
enjoyed the pleasures of cannabis. "I prefer beer," has become his
standard retort when asked if he's ever taken a toke.

Regardless of whether the premier smoked, inhaled or appreciated the
mystic qualities of marijuana, you can bet he will learn to love the
tax revenue that will flow from a legalized marketplace.

Manitoba's plan for the legalized wholesale and retail sales of
cannabis is pretty thin. 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 eight per cent.

PThat one pledge alone is expected to cost as much as $300

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 now, the premier has 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 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? All provinces, including Manitoba, 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 programs, but they will not come close to
$300 million annually.

Grow his way out of the deficit? Unfortunately, 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 from legalized

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; MBLL
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 mountaintop.

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

Buy some bud, balance the books.
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MAP posted-by: Matt