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Provinces confront feds in feud over marijuana proceeds

Last Updated Dec 10, 2017 at 8:31 am EST

A woman exhales while smoking a joint during the annual 420 marijuana rally on Parliament hill on Wednesday, April 20, 2016 in Ottawa. THE CANADIAN PRESS/Justin Tang

A cross-country squabble over how best to divvy up the proceeds of Canada’s coming legal-weed windfall is about to intensify as finance ministers gather for high-stakes talks in Ottawa.

For the provinces and territories, a key question looms: what entitles Ottawa to claim so much as half of the tax revenues that will start flowing when marijuana is legalized next summer?

In anticipation of legalization, the federal Liberal government — which has long insisted its plans were never about the money, but about keeping pot away from kids — has proposed an excise tax of $1 per gram or 10 per cent of the final retail price, whichever is higher.

An initial offer of a 50-50 split with the provinces was met with equal parts disdain and incredulity.

Provincial and territorial governments should get the lion’s share of the proceeds, since they’ll shoulder most — if not all — of the costs, they argue.

The federal government has since said it’s prepared to sweeten the pot — as long as some of that extra cash goes to cities. The Federation of Canadian Municipalities wants a third of the revenues earmarked to help municipal governments handle administrative and policing costs.

Meanwhile, it’s unclear just how big a share the feds are willing to accept. And to ministers like B.C.’s Carole James, it’s also unclear why they should retain any of it.

“Before we even get to talking about sharing, we want to hear about what responsibilities the federal government’s taking on to justify taking any of the percentage,” James said in an interview.

“Certainly, from our perspective the formula put out by the federal government is a no-go. That’s very clear.”

Ontario Finance Minister Charles Sousa also wants Ottawa to explain how it plans earn its share.

“I want to know what the feds are going to put in — what they’re going to pay for,” Sousa said in an interview.

“I want us to have unity around Canada on this issue and I definitely want to see more because we’re bearing more of the costs.”

The added expenses likely to land with the provinces are expected to include public-awareness campaigns, beefed-up policing, busier court systems and increased road safety efforts.

“It’s completely inadequate — it’s a non-starter,” Manitoba Finance Minister Cameron Friesen said in an interview.

“If the responsibility resides with the provinces, then the resources must flow to the provinces. Any departure from that theme, then, must come with concessions from the federal government.”

There’s no guarantee that revenues will be higher than the associated costs, said Friesen — particularly considering Ottawa’s rushed timeline to legalize cannabis by July.

The federal government might face some “very small” fixed costs such as those related to its administrative role for taxation, he added, but that “pales in comparison” to the size of the responsibility and the added risks that will be assumed by the provinces.

Ottawa has already earmarked $274 million to support policing and border efforts related to legalization, and some of the money is to go to the provinces. But it remains to be seen if more federal commitments are on the way.

Last week, federal Finance Minister Bill Morneau told a Senate committee that Ottawa is well aware of the provincial, territorial and municipal challenges and costs associated with the federal decision to legalize pot.

“I can’t tell you exactly where we are going in the coming weeks, but it’s clear that it’s necessary to have consideration of the federal situation, the provincial situation and the municipal situation,” Morneau said.

Regardless of how it’s divvied up, the excise tax is expected to generate big bucks — as much as $1 billion per year, by one estimate from Liberal MP Bill Blair, a former Toronto police chief and the Trudeau government’s point man on legalizing cannabis.

Federal and provincial sales taxes would be applied on top of the excise tax, but governments are aiming to ensure the total cost stays reasonable so as to keep black marketeers at bay.

Also on the table tonight and Monday will be the federal government’s proposed tweaks to the formula behind equalization payments, as well as the three-year review of the Canada Pension Plan and the state of the global economy, including a presentation by Bank of Canada governor Stephen Poloz.

Talks are also expected to resume on a national strategy to improve the sharing of information on corporate ownership between jurisdictions, a measure designed to clamp down on tax avoidance, tax evasion, money laundering and terrorist financing.