http://www.watoday.com.au/national/the-cost-of-the-war-on-drugs-20091003-gh0m.html
The cost of the war on drugs – October 2, 2009
Michael Duffy is a Herald commentator.
Source: The Sydney Morning Herald
Michael Duffy does the sums on the extent the Australian Government would be financially better off if we conceded that criminalisation of drug use was a lost cause and lifted the prohibition.
Australian governments spend about $4.7 billion a year on the war on drugs. This figure was arrived at using information from the Australian Drug Law Reform Foundation and other sources and is an estimate of how much the Government would save and get in tax revenue if illicit drug sales were regulated and taxed the way tobacco is.
I compiled the figure because of a growing interest in the economic consequences of the war on drugs launched by the US president Richard Nixon in 1971. Dr Alex Wodak, director of the Alcohol and Drug Service at Sydney’s St Vincent’s Hospital, observed in the Herald recently that there is a growing belief – across the political landscape – the war has been lost.
At the United Nations in 1998 there was acknowledgement that the war was not going so well, and a pledged of a renewed effort in reducing demand within 10 years. As the deadline approached, RAND Europe and the Netherlands’ Trimbos Institute reported to the European Commission that they found no evidence the global drug problem had declined. Interventions against drug producers, such as coca growers in South America, caused local disruption but had little effect on global supply. Drug prices generally declined, even in those Western countries that toughened their law and order approach.
In 2005 a Harvard economist, Jeffrey Miron, produced a paper urging legalisation of marijuana because the prohibition had minimal benefits and could cause substantial harm, including the diversion of government spending that might be better used. Five hundred economists wrote to the American government supporting his call. They included the Nobel laureates George Akerlof, Vernon Smith, and the late Milton Friedman.
The debate in Australia could do with some economics. Dr Wodak said this week: “After 40 years, it’s time to consider just what the war on drugs has really achieved, and at what cost. It would be very interesting to know just how much Australia has spent on drug law enforcement, and how much has been gained.”
John Humphreys, an economist with the Centre for Independent Studies, says: “It gets interesting when you try to do a cost-benefit analysis on the prohibition. Basically, there aren’t any benefits.”
Others, of course, disagree. But in order to have a useful debate, we need some idea of cost. I acknowledge my figure is an informed guess, and invite comments and criticism. Neither this nor any other figure necessarily means illicit drugs should be decriminalised.
The calculation of the annual cost of the current laws to government is based on figures compiled by the economist Tim Moore (see box). The two biggest costs are policing and imprisonment. I have excluded any expenditure that would be expected to continue if illicit drugs were decriminalised, most significantly health care.
Such expenditure might increase if decriminalisation led to a significant increase in the number of users. Evidence from countries such as the Netherlands and Portugal, which have in effect decriminalised drug use, suggests there would not be a big jump. I assume, therefore, that the level of drug use would remain about the same.
Moore’s figures give us a total of $2.79 billion, which I have discounted by 10 per cent, a guess at the cost of enforcement activities that would still be needed, such as policing a prohibition on driving under the influence of drugs. This gives a savings figure of $2.51 billion.
Tax revenue is much less certain, and involves major assumptions. The starting point has to be the size of the current annual illicit drug market. The best estimate I have found is in The Three Billion Dollar Question for Australian Business report for the Australian Drug Law Reform Foundation by a trio of professors, David Collins, Helen Lapsley, and Robert Marks. Adjusted for inflation, this suggests the market was worth about $11.4 billion last year.
What would happen if prohibition were repealed? Prices would drop a lot: Collins and Lapsley estimate to about 5 per cent of current levels, except for marijuana, which would drop to 25 per cent because there’s less risk now in trading it.
Others have suggested less of a drop. The economist Jeffery Miron published a paper last month assuming a halving of current prices for marijuana (because prices in Holland, where the drug is in effect legal, are still between 50 and 100 per cent of American prices), 20 per cent for cocaine, and 5 per cent for other drugs.
My assumption here is that the return to drug retailers would drop to an average 10 per cent of current prices, an annual total of $1.1 billion. I lack the expertise to know whether this is enough for lawful dealers to cover costs and make a profit. Anyway, there are too many unknowns. How might cocaine be produced if decriminalised. Would it be imported from South America, or from New Guinea? Could it be grown in north Queensland?
I assume sales worth $1.1 billion to retailers would be taxed by government at the same rate as tobacco is now, where the “sin tax” is about 200 per cent. This would boost the total cost of drugs to consumers to $3.3 billion, of which tax would make up $2.2 billion.
Adding this tax take to the enforcement cost of $2.51 billion mentioned above gives a total of $4.71 billion, the amount by which government finances would be better off if prohibition were repealed.
Some financial implications have been excluded from the calculation because of uncertainty or relative insignificance. These include the cost of taxing the new industry, and the revenue from taxing companies and individuals engaged in it. Personal income tax would also flow from some people now in prison on drug convictions who would return to the workforce.
well can’t buy decent food on the pension and pay for utilities and a car and petrol (no public transport AT All).
This is very sad and an indication of how distressed I have become being an open spirit person and thus open to the warped energy from next door – never did learn how to close off.
