Ottawa will give 75 per cent of the tax revenue from sales of marijuana to the provinces under a new two-year deal reached by Canada's finance ministers.
With less than seven months to go before Ottawa's planned July 1 start date for allowing the legal purchase of marijuana for recreational use, Finance Minister Bill Morneau announced the deal following two days of meetings in Ottawa with his provincial and territorial counterparts.
Manitoba was the lone holdout, as Finance Minister Cameron Friesen said his government needed more time to review the details.
The finance ministers also agreed on a price, stating that the goal is to sell marijuana for about $10 a gram from coast to coast in an effort to root out the existing black market. That price would include a federal excise tax of $1 or 10 per cent, whichever is higher. Sales taxes may also be charged, depending on the province.
The excise tax alone is expected to raise about $400-million a year initially. If the revenue turns out to be larger, Ottawa has agreed to cap its share at $100-million.
Mr. Morneau said a two-year deal and regular meetings will be a form of "constant vigilance" in order to help governments adjust to the new reality of legal marijuana.
"We will need to remain focused on how we deal with the market as it develops," he said.
The agreement represents a climb down from Mr. Morneau's initial position, when he told the provinces in June that Ottawa expected a 50/50 split of the excise tax. Provinces countered that the push for legalization was a federal Liberal promise that imposes significant costs on them in areas such as enforcement and establishing a distribution network. Mr. Morneau also noted that he heard significant concerns from municipalities, who have warned that they will also face greater costs.
The Federation of Canadian Municipalities had requested one-third of the revenues. However, provincial premiers pushed back on supporting a firm percentage, stating that each province is different and will work out arrangements directly with municipalities.
Finance ministers insisted Monday that the excise tax is unlikely to raise enough money to cover the added government costs that come with legalization, at least during the initial years as the rules are established.
"For us, this is a cost," said Quebec Finance Minister Carlos Leitao, noting that Quebec's share of the excise tax revenue would likely be about $60-million. "In the first couple of years, we will not be making money on this."
At a meeting of the Council of Atlantic Premiers in Halifax, all four premiers appeared to welcome the deal. Earlier in the day, Newfoundland Premier Dwight Ball had said that "no one is satisfied" with the earlier proposed 50/50 split.
New Brunswick Premier Brian Gallant said the tax breakdown should reflect which governments will bear the costs for legalization-related efforts and offset them. "We certainly feel the provinces and territories will be bearing a large portion of the costs," he said.
When news of the Ottawa agreement broke, Nova Scotia Premier Stephen McNeil said the agreement affords the kind of flexibility that provincial leaders were looking for.
Mr. McNeil said the four Atlantic provinces have a commitment to setting a "common regional price" for cannabis. Part of the goal of regional pricing, he said, is to avoid the type of cross-border price competition issues the provinces are facing in regard to alcohol.
The premiers said they will not ask for an extension on the July 1 timeline but they did raise concerns about whether they will have access to enough cannabis to meet demand when marijuana becomes legal. They urged federal health officials to step up the pace of their efforts to approve legal cannabis producers.
In addition to marijuana, the finance ministers also discussed next year's scheduled renewal of the equalization program and transparency rules related to Canadian corporations. Mr. Leitao said he raised the question of whether sales taxes should be imposed on foreign digital services such as Netflix. Quebec is planning to impose a sales tax on Netflix, but Mr. Morneau repeated Monday that he opposes a "Netflix tax."
The term has created confusion. It is sometimes used to describe a special levy to fund cultural content – as recently recommended by a House of Commons committee – while Quebec is proposing extending sales taxes to foreign online content providers, such as Netflix.
When asked to clarify his position Monday, Mr. Morneau suggested he was open to a broader discussion about sales taxes and online commerce.
"On that specific topic around the taxation of Netflix, our decision is clear," he said. "We understand that there's a broader digital economy and that will always be something that we consider in order to make sure that our taxation system works."