Saturday, May 03, 2008

How much tax revenue are we gifting to criminals?

An interesting news item from the Netherlands suggests, amongst other things, that their cannabis coffee shops are generate 400 million Euros in tax revenue for the Government:

"Coffee shops where small amounts of cannabis can be bought, contributed some €400m to the treasury a year, according to estimates by tv programme Reporter.

The country’s 700 coffee shops are responsible for selling some 265,000 kgs of soft drugs a year, mostly Dutch-grown marijuana, Reporter says. This means turnover in the sector is some €2bn a year.

The programme also estimates some 5,500 plantations were destroyed by police last year. Between 20% and 40% of local production is sold in the Netherlands, the rest exported abroad, largely to Germany and Britain.

Police chief Max Daniel told the KRO programme that that marijuana is the Netherlands second or third-biggest cash crop after cucumbers and tomatoes.

In a programme to be broadcast on Sunday night, Reporter also looks at the amount of (illegal) fertisers and heavy metals found in Dutch-grown marijuana."

It is hard to know what to make of these estimates without any references or background information but several important things are highlighted here.

Firstly, whatever the exact value of tax revenue generated by the coffee shops we can safely assume it to be pretty substantial, and most certainly more than the UK tax haul for non-medical cannabis, which is of course precisely zero. The UK's population is approximately four times as big and we have a higher level of cannabis consumption per head (according to the EMCDDA - probably the most reliable source of info on these intrinsically hard to measure stats). So we could also safely assume that any potential tax haul from a legally regulated market would be bigger than that of the Netherlands by at least a factor of four. There has been some reasonably in depth work done on this by the Independent Drug Monitoring Unit but by its nature it is fairly back of the matchbox stuff that necessarily leaves pretty wide error margins. The IDMU estimates:

Potential Excise Duty Revenues


Unit price 2003

Min Units

Max Units

Duty per unit

Min Duty

Max Duty


£ 2.85



£ 1.00

£ 154,471,691

£ 606,889,748


£ 5.75



£ 2.00

£ 187,157,006

£ 735,304,101

So, combining the resin and herbal 'skunk' markets, based on a tax of 1 and 2 pounds per gram respectively, they estimate between a minimum of £341 million and maximum of £1.342 billion annually. So - some pretty serious cash which ever way you do your sums. Start multiplying that by the ten years of your average drug strategy and you are looking at the sort of cash that can transform communities, drug treatment, eduction and prevention services, and police forces. This is before you start to factor in savings made by not enforcing ineffectual and often counterproductive punitive drug laws, and filling our prisons with non-violent drug offenders (like this poor guy with arthritis who just got 8 months - at about £3K a month, not including police and court time - for 36 grams of cannabis, thats marginally less than you could fit in two Schwartz spice jars).

The IDMU also look at the wider UK illegal drug market and estimate potential revenue (including costs of administering a legal system, and savings elsewhere in the system) of between £3.4 and £6.3 billion a year to the exchequer. Even if way off beam, we are talking about vast sums of money that, let us not forget (in terms of the tax on sales at least), currently accrue to criminal networks (often unpleasant and violent), here and around the world.

A massive pile of illegal drug money*

People, not least the UNODC director, have suggested that any benefits of legal regulation would be outweighed by the increase in costs relating to increased harm from addiction etc as use rose following any such move. As has been argued elsewhere (see the chapter in 'Tools for the debate' called 'would prevalence rise?') there is little evidence that prohibition has been an effective deterrent to use and enforcement is at best a marginal influence on drug using decisions. The Netherland's experience also suggest that this premise is flawed; despite its de-facto legal cannabis system it has lower cannabis use than its neighbours, notably including the UK. There appears to be no obvious correlation between a countries enforcement regime and levels of use.

There are other costs to prohibition that have been extensively documented on this blog, and in much of Transform's literature. One of them is highlighted in the above news item; the lack of quality control in illicit production maximises the potential harms associated with the product itself whcih may contain unknown contaminants and be of unknown strength - two problems easily dealt with when production is brought within the law.

* This is in fact 206 million dollars found stacked in a bedroom in Mexico in March 2007, thought to be illicit drug profits; the biggest pile of money found by police, anywhere , ever. By the above calculations, it amounts to something in the region of one single month's worth of potential UK cannabis tax revenue - currently being gifted to criminals.

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