Legalise It, Tax It and Reap the Benefits

The recent United Nations Conference on Drugs (UNGASS) was viewed by many as a missed opportunity to move towards the decriminalisation of drugs, especially cannabis.

However, there were indications that a number of countries recognise the social and economic benefits of decriminalisation, and are open to change.

Moves Towards Decriminalisation

Mexico is one nation willing to embrace decriminalisation, with its President Enrique Pena Nieto announcing plans during UNGASS to legalise medical marijuana, and to increase the legal quantity of recreational cannabis from five to 28 grams. He also foreshadowed the release inmates imprisoned for possessing small quantities of the drug.

A number of other countries have also moved to legalise recreational cannabis use in recent times. The Chief of Ireland’s National Drugs Strategy, Aodhán Ó Ríordáin, announced plans last year to decriminalise the possession of small quantities of the druga. The Canadian government has also promised to legalise possession for personal use.

Jurisdictions that have recently legalised recreational marijuana include Uruguay, and the United States of Colorado, Washington, Oregon, Alaska and the District of Columbia. Portugal decriminalised small drug possession at the beginning of the millennium. All of these jurisidications have reported social and economic benefits.

Despite the trend, efforts towards global decriminalisation have been stifled by the hardline policies of conservative governments like China and Russia.

Economic Benefits

Those to embrace legalisation have reported significant economic benefits. In the first year of Washington’s regulated marijuana sales, the state and local governments have collected more than $70 million in taxes, primarily used for education and healthcare.

Colorado collected $44 million in cannabis taxes in its first year of legalisation, while the second year has seen tax revenue exceed initial projections, with the state collecting a whopping $125 million in 2015.

Both states have reported a decrease in crime rates, and have benefited from the creation of hundreds of new jobs.

More than 300 economists, including three Nobel Prize laureates, have signed a petition supporting the findings of Harvard economist Jeffrey Miron, who calculated that legalisation would save the US economy $7.7 billion per year in enforcement costs. The report added that an additional $6 billion per year could be earnt in taxes, amounting to an overall economic benefit of $13.7 billion annually.


A University of Sydney Business School study predicted that legalising medicinal cannabis Australia-wide could draw an industry worth more than $100 million per year.

“It’s about more than medical benefits,” study author and associate lecturer Michael Katz said. “The idea that we may become an export nation of an industry that currently doesn’t exist provides huge opportunities for forward thinking from our councils and state governments to position them at the forefront of this.”

The report compared Australia’s market use to those of countries where medicinal cannabis is legal. It estimates that initial demand could reach 8,000 kilograms per year.

In response to a request by Senator David Leyonhjelm, the Parliamentary Budget Office has conducted a loose costing of marijuana legalisation. That costing did not incorporate taxes which, if tobacco and alcohol are anything to go by, would significantly contribute to government revenue. It found that imposing a GST on marijuana would bring in hundreds of millions of dollars per year.

It found that even we only applied a conservative 10% retail tax (which is much lower than Australian tobacco and alcohol taxes), the government could earn between an extra $200 million and $500 million per year. Further profits could be made through taxes on wholesale purchases from distributors. This does not take into account the additional benefits through lower enforcement costs.

A detailed legalisation plan drawn up for the UK estimated that the British government could raise 1 billion pounds in taxes per year. The plan found that the fall in enforcement costs would significantly add to the economic benefits.

Moving Forward…

Imprisoning people in NSW costs taxpayers $237.34 per inmate per day. In total, 36,000 people are currently imprisoned across Australia, costing taxpayers more than $2.6 billion a year; and this does not include the money spent on enforcement costs, from policing to prosecution through the court system. Enforcement costs are significant, with drug arrests in NSW doubling over the past six years.

UK Liberal Democrat leader, Tim Farron, says “A legal market would allow us to have more control over what is sold, and raise a considerable amount in taxation… I have always said that we must have an evidence-led approach to drugs law reform… The status quo causes huge damage and we urgently need reform.”

Many feel that if Australia were to heed those words and move towards decriminalisation, we might realise benefits similar to those already being experienced in progressive jurisdictions. Perhaps the only losers would be criminal lawyers, private prison companies, drug cultivators and suppliers, and career politicians scared of being seen as ‘soft on crime’.

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