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How Much Tax Revenue Would New Zealand Collect If They Legalized Cannabis?

New research shows that the Kiwis could raise an additional $70 million in annual tax revenue by legalizing marijuana.

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Last month, New Zealand joined the rising ranks of medical cannabis-friendly countries by permitting doctors to prescribe CBD oil to patients with certain medical conditions. The decision was a small, yet pivotal step towards full-scale legalization for pot-loving Kiwis, and could potentially jumpstart a greater movement throughout the country.

In order to show how much the southwestern Pacific Ocean island region could prosper from a recreational system, the popular New Zealand news website Stuff recently commissioned the New Zealand Institute of Economic Research (NZIER) to estimate how much tax revenue the government would collect from legalization. The findings suggest that cannabis would generate about $40m in tax revenue and $30 million from the Goods and Services Tax, coming out to an annual amount of $70 million.

To reach this figure, the research group had to make a number of educated assumptions on the number of consumers, the tax rate, as well as how price changes and taxes would impact the final price of the product. The NZIER team, headed by economist Peter Wilson, gathered data from the Ministry of Health's latest survey on drug use. This allowed the researchers to guess the number of cannabis users and how much they would consume under legalization.

The team then used the same tax rate that Colorado has implemented; 25 percent of the pre-tax price plus a Goods and Services Tax tacked on top. There were also a number of other factors taken into account, including the role of the black market, cost reductions from larger-scale operations, and the overall price drop that will come from allowing legal suppliers to sell.

While $70 million in tax revenue is certainly nothing to scoff at, the NZIER’s final estimation is actually less than the figure the New Zealand Treasury came up with through their own research. According to the Treasury’s study, legalization is expected to bring in $150 million in tax revenue, while also saving around $180 million that is currently spent enforcing anti-cannabis laws.