Prime Minister Justin Trudeau: Pot For Potholes

Trudeau Taxing Cannabis

So, where is newly elected Prime Minister Justin Trudeau going with all of that Canadian cannabis tax talk? It would seem as though an entire country on October 19th took a massive swerve in the political road, as to avoid another 4 years of the Conservative agenda. It's very early days for a Liberal party won over a relatively unexpected majority government. However, on the campaign trail, and post acceptance speeches, the Liberals are standing behind their fiscal plan described as "a modest short-term deficit" that would involve 3 years of $10 billion deficits followed by a balanced budget for the 2019 - 2020 fiscal year. Certainly, the most ambitious expenditure forecast among the competing parties.

Just to double down on Federal spending, within their campaign platform, citing Canada as the only G7 country that fails to have a national transport strategy. During the campaign this past August, Trudeau went so far as to promise the largest new infrastructure investment in Canadian history, nearly doubling the federal infrastructure investment to almost $125 billion – from the current $65 billion over the next decade, reaching an additional $9.5 billion by year ten.

Aggregate household consumption expenditures on transportation ~ $173.5 billion

All this seems to be, by democratic process, a good idea among the Canadian people. This is what they voted for - job creation via improved national, provincial, and municipal infrastructure. And it's not a short bill. If you live in Canada, you probably place a high value on transport infrastructure, as we are so dependent on it. In 2014, aggregate household consumption expenditures on transportation amounted to $173.5 billion – second only to shelter. Excluding government transfers, the combined spending of federal, provincial and territorial governments on transportation was an estimated $20.8 billion for 2013-14. Not a light crown to bear for Mr. Trudeau's Liberals.

And it's costly on the Provincial level

If we look to the west we see how this breaks down on a provincial level. Alberta's 2015 budget called for $4.6 billion for provincial highways, $2.2 billion for bridge construction and road rehabilitation, and $2.1 billion in municipal projects. British Columbia has committed to spending $2.9 billion on their roadway infrastructure. Meanwhile, back east, Ontario boasts an ambitious long-term plan under the project title, Building Together. It involves more than $100 billion over the a 10-year term with $50 billion earmarked just for transport infrastructure. In addition, the province has also committed $31.5 billion within its Moving Ontario Forward plan.

So, how does Prime Minister Trudeau expect to soften the deficit blow to the national debt while repairing a decaying national infrastructure? The legalization of cannabis has been near the front of the national water cooler conversation since Trudeau was placed at the front of his Liberal party for the Federal election run.

Canadian Tax Revenues For Marijuana

When looking to 'working' examples in the governance of marijuana, Colorado makes as an easy and successful reference, for the time being. With a population of 5.4 million, the state generated $69.9 million U.S. in cannabis tax revenue on a GDP of $306.6 billion between July 2014 - June 2015. When these numbers are proportionately scaled out, Canada would theoretically generate $411 million in tax revenue, assuming a GDP of $1.8 trillion.

Some critics and analysts have been even more bold suggesting far higher tax inflows from legalization. Simon Fraser University economics professor Stephen Easton, who is also a senior research fellow with the Fraser Institute, presented a rough estimate of $3-billion a year.

The Green Party, Canada's most fringe-left national political party, went so far as to suggest $5 billion could yield per annum. Stephen Easton, an economist at Simon Fraser University who published a paper on the economic potential of legalizing marijuana in British Columbia, goes even further with comparisons to the tobacco industry and tax structure in Canada. Dependent on the set tax rate and efficiency of eliminating black market sales, the upper end of his tax revenue projections reach just under $7.5 billion.

Canada's Trudeau On Cannabis Tax

And lets not forget the additional benefits to legalization - a ramped down criminal justice budget. Economist and Professor at the University of Ontario, Mike Moffatt, proposes that the $2 billion that Stats Canada currently suggests we spend on drug enforcement would be significantly reduced. "We would tax marijuana, get it out of the hands of organized crime and have that revenue go to the government instead," Moffatt says.

If Mr. Trudeau is serious about cannabis law reform, swift and effective implementation by government regulators and police enforcement, there is a undeniable gravity to a strategy that can have an immediate and positive fiscal impact on Canada's stressed and stretched transport infrastructure. More pot. Fewer potholes.

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Seth MacCallum
Seth MacCallum