Why the proposed cannabis tax could still leave provinces at net loss
OTTAWA -- Prime Minister Justin Trudeau is proposing to levy a federal excise tax on recreational marijuana once it becomes legal next July, with the provinces and territories receiving half the revenue.
Under a federal proposal put to premiers during a first ministers meeting Tuesday, each gram of pot would be subject to an excise tax of $1 on sales up to $10 and a 10 per cent tax on sales of more than $10.
However, premiers argued that provinces will foot the lion's share of the cost of regulating and enforcing the new regime and should, therefore, get the lion's share of the revenue.
Trudeau said the level of taxation on marijuana and revenue sharing are still matters under negotiation with the provinces. He acknowledged that there will be "significant new costs" associated with legalizing pot and said he's open to provincial arguments that they'll bear the brunt of them.
Still, he emphasized that the goal of legalization is not to make money.
"Our goal from the very beginning on the legalization and regulation of marijuana was not to make profits, to bring in tax revenue," Trudeau told a wrap-up news conference following a day-long meeting with provincial and territorial leaders.
Rather, he said, "all first ministers are fully aligned" on the goal of keeping marijuana out of the hands of kids and out of the control of criminal gangs.
Ontario Premier Kathleen Wynne said it's not simply a matter of sharing any federal tax revenue with provinces. She noted that a number of municipalities have told her they will face some new costs as well.
Any taxes imposed on marijuana will have to be sufficiently low to keep the price low enough to force the black market out of business, said Nova Scotia Premier Stephen McNeil.
Consequently, he said, "I don't think we should run out and start spending tax dollars based on cannabis."
No one should think legalization means governments will "hit the mother lode," agreed Quebec Premier Philippe Couillard.
He argued that pricing of marijuana will be a balancing act: if it's priced too low it will encourage use; if it's priced too high, it will keep the black market thriving.
Manitoba Premier Brian Pallister, who wants the federal government to give the provinces another year to introduce regulatory and enforcement regimes, said discussion of revenue sharing is premature.
"It reminds me a little bit of the two salesman who were having a vicious argument about a commission split on a deal that they hadn't done yet," he said.
"We don't really know what the ramifications are of this. This is a historic change ... We're talking about splitting revenue [and] at this point we don't know what the net may be. We may be splitting a cost, not a net proceed. We don't know."
Legalization of marijuana was one of two issues that was top of mind for premiers as they arrived for the day-long summit with Trudeau. The other was the federal government's proposed changes to small business tax measures.
Federal Finance Minister Bill Morneau briefed the premiers on his proposed changes, which he maintains are aimed at ensuring the wealthiest Canadians can't use incorporation of small businesses to avoid paying their fair share of taxes.
The proposals include prohibiting income sprinkling to family members who do no work for the business, limiting the ability to make passive investments in things unrelated to the business and restricting the ability to convert income to capital gains, which is taxed at a lower rate.
The proposals have been slammed by large and small business groups, doctors, accountants, lawyers, farmers, shop owners and even some of Trudeau's Liberal backbenchers. A number of premiers have expressed concern that they could prevent farmers from passing on their family farms to their children and that they could cause doctors, particularly in rural areas, to pack up and leave.
McNeil said he was somewhat reassured by Morneau's presentation.
"I was certainly pleased to hear the finance minister say today that his tax policy would not impact family businesses, farms being transferred from one generation to the next ... he wanted to ensure that women were being successful as entrepreneurs with ... the capacity to save for maternity leave and that all Canadians need the flexibility when it comes to retirement," he said.
Consultations on the proposed change ended Monday. Trudeau emphasized that the government has heard the concerns of small business people and the premiers and that they'll be taken into account in the final proposals.
Trudeau and the premiers sat down for about 90 minutes Tuesday morning with Indigenous leaders. While they were generally pleased to have an opportunity to air their particular concerns, the Indigenous leaders said they'll continue to push for full inclusion in first ministers' summits.
"There are still these historical barriers for Indigenous inclusion within multilateral conversations in this country," said Natan Obed, of the Inuit Tapiriit Kanatami, adding that sometimes provincial and territorial governments "don't want to give up power" to Indigenous Peoples.
Isadore Day, Ontario regional chief for the Assembly of First Nations, dismissed the first ministers' summit as "nothing but just words."
"We were shuffled out of the room again," she said.
When the issue of Aboriginal self-government came up during the meeting, Day said Couillard warned that his province's long-standing constitutional demands must be dealt with first.
"He pulled the constitutional card," Day said, accusing Couillard of holding First Nations in Quebec "hostage."
Perry Bellegarde, national chief of the Assembly of First Nations, said he'll continue pushing for more first ministers meetings with Indigenous leaders. In the meantime, he said he advised premiers Tuesday that "if you want to grow Canada's economy ... you have to involve First Nations people every step of the way."
Investing in the untapped potential of young Indigenous people is critical to addressing Canada's skilled labour shortage and aging population, and respecting Aboriginal jurisdiction over their land is crucial to the development of natural resources, he said.