Taxing pot won’t match taxes lost to illegal tobacco

One suspects there was no hotbox celebration among Finance Minister Bill Morneau’s crew when it recently learned taxes from the legalized sale of marijuana would produce only a rather modest high.

Instead of the anticipated billions, likely based on the belief that everyone would suddenly start smoking the drapes, the parliamentary budget officer said tax revenues from legalized weed could be as low as $356 million or as high as $959 million.

Certainly not the upwards of $5 billion a year the Trudeau Liberals were hoping would start rolling in.

After all, if the revenuers jack up the sales tax too high, or have suppliers price their pot as if it originates from Holt Renfrew, connoisseurs of the weed will go back to their street dealer. This is how free enterprise works. It’s also how contraband tobacco works.

If Morneau wants billions rather than millions, he should be unleashing his dogs on the contraband tobacco business which, in Canada, rivals that of the narcotics trade.

(A study released earlier this month by the Western Convenience Stores Association found nearly 15 per cent of collected cigarette butts were untaxed cigarettes. Of the top 10 sites with the highest rates, six were universities, colleges or high schools. At UBC, the location with the most illegal cigarettes, nearly half of all butts were contraband.)

In Ontario, the illicit tobacco industry, owned and controlled by our First Nations brothers, is responsible for annual forgone tax revenues of between $1.6 billion and $3 billion.

That’s a lot of money gone up in smoke.

How did this happen? Well, it happened because, as shown at Oka, Ipperwash and Caledonia, the feds don’t know quite what to do when First Nations folk get in their face.

Back in 1994, when the RCMP kicked down the doors of a manufacturing complex on the Mohawk Six Nations reserve near Brantford, Ont., and found a mega-million-dollar cigarette operation, they also found themselves caught between a rock and a hard place.

It was bad politics to come down hard, so the Liberal government of Jean Chretien gave those illegal producers a gift that has been cited by critics as the Deal of the Century.

In return for paying federal excise tax on their products, but no provincial tax, they got virtual immunity from the RCMP because only the RCMP can enforce the Excise Act.

And the feds never thought twice about bringing the provinces into the deal, effectively cutting them out of a tax share.

It also allowed the company to legally export its cigarettes without restriction, leading to a flooding of foreign markets not particularly happy with what basically amounts to smuggling and, therefore, complex legal battles.

In Mexico, where the contraband cigarette trade has its source in Canada, Bloomberg News did an investigative piece using the Canadian flag as its main graphic. Instead of the red maple leaf, however, Bloomberg News replaced it with a red skull and crossbones.

So much for Canada’s positive image.

This Deal of the Century, by the way, also gave First Nations manufacturers access to importing all the new leaf tobacco and inputs — machinery, foil, et cetera — that allows them to produce high-quality cigarettes uninterrupted and unimpeded.

Canada is now swamped with illegal cigarettes because, with pricepoint being of significant importance, why would a person addicted to cigarettes pay $100-plus for a heavily-taxed carton at a convenience store when a carton can be bought on a reserve for $35?

Or from the back of a friendly van owner for $40.

A car holding 10 cases of cigarettes will produce a minimum $20,000 profit for that “nice old guy” selling Native cigarettes outside high schools, or in front of office buildings. It’s not a bad gig. Mark Bonokoski is a Postmedia columnist.