Wednesday Nov 18, 2009

Legalise marijuana

I was watching Newsnight yesterday evening, which is running a show on "recipes for a good and palatable tax".

Britain is facing its biggest deficit for 40 years. The question is not whether taxes should go up, but how.

A number of people came up to propose some good ways of generating new taxes. It occurred to me that legalizing cannabis/marijuana should provide quite a nice windfall in taxes. I have not read the recent book "Economics and Marijuana: Consumption, Pricing and Legislation" which is bound to have a detailed analysis of how much one could expect in taxes from legalization, but going from the sentence in the introduction

...expenditure on marijuana in Australia is estimated to be three quarters of that of beer and twice that of wine.
and putting that together with the figure I found in "Alcohol: Tax, Price and Public Health" that £6 billion were collected in taxes on beer, would make me think that one could collect at least £4.5 billion on cannabis if the tax rate for cannabis were the same as that for beer - but it could be more as people have gotten used to paying for the risk to the dealers. In Keneth Clements and Mert Daryal's online paper "The Economics of Marijuana Consumption" (p 18) they estimate that in 1995 the Australians spent 5 billion dollars on Marijuana. Since there are three times more people in the UK, and counting the fall in value of currencies over a period of 10 years, we have 15 billion 1995 Australian dollars that might now be worth $22 billion, which converted into pound sterling is £12 billion. It seems quite reasonable then that out of a spending of that size it should be easy for the state to recuperate at least 1/3 of that if not more.

One could furthermore save a huge amount of money on reductions in police surveillance, legal cases and prison sentences. This should be even more true in the USA, which has a huge prison population (10\* larger than most European countries). About.com has an interesting article on the subject "Should Governments Legalize and Tax Marijuana?". See also "A Budget Cure: Marijuana Taxes?". This idea is clearly making its way: Governor Schwarzenegger recently proposed opening the debate on this issue.

In the Newsnight program the proposal that won approval was the proposal to tax the rich a lot more on their pension funds. So my guess is that a lot of rich people should be very keen to legalize marijuana in the very near future.

It would be quite ironic in the end if a mind altering drug were to pull the state out of a hole created by mathematically deluded stock analysts on a huge ego trip.

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