August 19, 2009
By MPP Toby Barrett
“It’s déjà vu all over again.” ~ Yogi Berra
Reaching back to 1994, many will recall hundreds of smoke shacks disappearing literally overnight on native reserves following federal and provincial tax cuts. At Six Nations, 200 smoke shacks went out of business.
The reason was simple – the economic incentive to participate had been eliminated and there was no longer a discrepancy between the legal and illegal price. Today, I am calling on government to learn from history and again cut taxes. At 50 per cent illegal, tobacco trade is currently out of control.
During the 1980s and early 1990s, ever-increasing tobacco taxes and retail prices fostered smuggling. In 1991 it was believed that one in every nine cigarettes in Canada was contraband, yielding $709 million to smugglers.
As a result, the federal government cut tobacco taxes at midnight on February 21, 1994, from $10.36 to $5.36 per carton of 200 cigarettes. On the heels of that cut, a handful of provinces decided to drop the retail sales tax with Quebec leading the way, followed by New Brunswick, Ontario, Prince Edward Island and Nova Scotia. The federal government then chose to cut cigarette excise tax even lower in these five provinces and by April of 1994, tax rates had been reduced by between $14 and $21 per carton.
In Ontario taxes on a carton of smokes were cut from $28.85 in 1993 to $9.65 in 1994 – and the illegal trade pretty well ceased to exist.
Over the years taxes on tobacco have steadily increased and many smokers have turned to the illegal trade once again. A traditionally law-abiding population seem resentful of the very high taxes, the plethora of new rules and regulations, or simply want to save money
However, there are consequences. It doesn’t pay to buy or traffic illegal tobacco. Federally, depending on the number of cigarettes found, a vehicle can be seized and the owner fined 17 cents per cigarette. And Ontario has just brought in new laws – as of June -- to crackdown as well.
I’m told it’s not uncommon for someone to be carrying 50 cartons or 10,000 cigarettes which can result in a fine of up to $51,000. A provincial fine can then be laid. For that pensioner or student trying to make a fast buck, this could be risky. I say could because we have yet to see both levels of government crack down to the point where dealers and the organizations involved feel it’s a risky business.
Convenience store owners see a direct link between contraband tobacco and other problems such as a decrease in customers and revenue. There’s also been an increase in the threat of violence as cigarettes can be more important to thieves than cash. Many corner stores have been forced to close their doors because they cannot compete with black market cigarettes and they are no longer benefitting from add-on sales in other product areas.
Enforcement and information campaigns must be supplemented with tax policies that reduce the financial allure of the illegal market – to that end I will be introducing provincial legislation this September.
It’s plain to see that illegal cigarettes are harming many people whether they smoke or not. Just like in the late 80s and early 90s, we’ve seen this before – it’s time for tax cuts again!