Monday, 28 April 2014

Australian Economics experts have shown that legalising and taxing marijuana would substantially increase government revenue.

According to The University of Western Australia Business School's Winthrop Professor Ken Clements and Monash University's Professor Xueyan Zhao, taxing marijuana at the same rate as tobacco would result in an overall increase of 26% in alcohol, tobacco and marijuana revenue.

In a new edition of Economics and Marijuana , published by Cambridge University Press, Professors Clements and Zhao show that marijuana pricing and consumption would be dramatically altered by legalisation.

In December last year, Uruguay became the first country to legalise the production and sale of marijuana, with citizens able to buy directly from the government. Meanwhile, in the United States, a recent Pew Research Center Poll found three quarters of Americans believe that the sale of marijuana will eventually become legal across the nation-whether they supported legalisation or not.

In Australia, marijuana production remains illegal - despite current expenditure on the drug estimated to be about three-quarters of that on beer and twice wine sales.

Legalising marijuana, say the researchers, would decrease production costs, while varying the taxation rate would influence not only marijuana consumption, but also consumption of tobacco and alcohol.

"Marijuana and alcohol are substitutes - so as the rate of marijuana tax increases, people swap their consumption to alcohol," Winthrop Professor Clements explained.

"In contrast, marijuana and tobacco are complementary and often used together - so as the marijuana tax increases, people will use less tobacco, and tobacco revenue will decrease.

"Overall, our modelling shows that if marijuana is legalised and taxed at the same rate as tobacco, the total revenue for marijuana, alcohol and tobacco would increase by 26 per cent."

Media references

Karen Della Torre (UWA Business School)                                    (+61 8) 6488 8538
Verity Chia (UWA Business School)                                                (+61 8) 6488 1346