Federal Politics

Tax toke: the budget office models GST on marijuana

Just what are they smoking down in the Parliamentary Budget Office?

The normally conservative federal institution has done some highly unusual economic modelling based on the question: how much money could the Turnbull government raise if it legalised and then applied the GST to marijuana?

The federal government could raise $300 million a year in tax if it legalised marijuana.
The federal government could raise $300 million a year in tax if it legalised marijuana.  Photo: Supplied

The answer is about $300 million a year.

And that doesn't even include the increased tax toke – sorry, take – from the inevitable boom in sales of pizza and Doritos.

The PBO, which was set up to provide independent and non-partisan budget analysis to politicians, did the costings at the request of libertarian crossbench senator David Leyonhjelm, who wants marijuana fully legalised.

If such a policy were introduced in July 2017 it would raise $600 million in GST revenue in the first two years, the PBO found.

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That money would flow on to the states but the policy would also help the federal government through reduced law enforcement costs.

The government would save about $100 million a year in reduced Australian Federal Police and Australian Border Force costs, the PBO says.

The costing is based on some key assumptions, chiefly that all states and territories would align with the Commonwealth in fully legalising marijuana, hemp growing and the production of hemp for human consumption.

It's also based on there being no restrictions on marijuana production, such as quotas or restrictive licensing.

It also assumes there would be no impact on excise collections from the sale of alcohol or tobacco.

"A number of studies have analysed whether marijuana is a complement to or substitute for alcohol and tobacco. However, the literature has not reached a consensus, with the findings of different studies in conflict," the PBO says.

The impact of the proposal was calculated by applying a 10 per cent GST rate to current estimates of household consumption expenditure on marijuana.

However the PBO predicts the proposal would result in an increase in marijuana supply and demand, from 333 tonnes in 2016-17 to 395 tonnes in 2018-19.

The PBO stressed these costings should be considered "low reliability".

"There is uncertainty regarding the price and quantity of marijuana currently consumed and the price and quantity of marijuana that would be consumed in a newly legalised market," the PBO writes.

"It is also difficult to separately identify marijuana law enforcement activities as these are often integrated within broader law enforcement activities."

Senator Leyonhjelm said he does not recommend the use of marijuana except for medical purposes but recreational use should be for adults to decide for themselves.

"Prohibition has achieved absolutely nothing except tie up police resources and provide revenue for criminal gangs," he said.