From: Globe and Mail | Opinion
FRED O’RIORDAN, Fred O’Riordan is the Ernst & Young Canada tax policy leader and a former director-general of excise duties and taxes at the Canada Revenue Agency.
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But the news was too good to be true. Smoking prevalence did not decrease by anywhere near the reduction in legal tobacco sales. The huge price increase created a profit incentive for smugglers of contraband tobacco. Many smokers switched to much lower-priced contraband. In 1994, Statistics Canada estimated it had increased from 1 per cent of the total Canadian market in 1987 to 31 per cent by 1993. In Ontario and Quebec, its share was much higher.
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This experience almost certainly informed federal-provincial decision making around cannabis taxation. Sadly, the story for tobacco tax policy does not end there. After a period of calm, the federal government introduced a Federal Tobacco Control Strategy in 2001, resulting in a 68-per-cent increase in federal levies over a three-year span from 1999 to 2002. Provinces again increased their taxes more or less in tandem. Sales of contraband rebounded and the black market experienced a resurgence.
