Feds willing to give more pot tax revenue to provinces to help municipalities

The Trudeau government is willing to give provinces and territories a bigger share of the revenue from a federal excise tax on cannabis, provided that the extra money is devoted to helping municipalities cope with the impact of legalizing recreational pot.

The feds have proposed giving provincial and territorial governments half of the estimated $1-billion annual excise tax take once weed becomes legal next July.

But The Canadian Press has learned that Finance Minister Bill Morneau and his officials have signalled a willingness to increase that share during discussions with their provincial and territorial counterparts.

The discussions have been taking place in preparation for a meeting of federal, provincial and territorial finance ministers Dec. 10-11, where the issue of cannabis taxation is expected to be front and centre.

Any increase in the provincial share will obviously mean less for federal coffers. But precisely how much less than 50 per cent the federal government is willing to accept has not yet been revealed.

Costs needed for policing, zoning: Tory

A government official close to the discussions, who was not authorized to speak publicly about the matter, said it's too early to float specific numbers. The final decision will rest on an assessment of the needs of the municipalities and a willingness by provinces and territories to agree to devote the extra revenue to those needs, the official said.

Mayors across the country have raised concerns about the potential cost to municipalities.

"We all need to know that legalization will not download unsustainable financial or operational burdens to municipalities," the Federation of Canadian Municipalities says on its website.

Toronto Mayor John Tory has predicted municipalities will face additional costs for policing, enforcement, public health, zoning and licensing. He wrote Ontario Premier Kathleen Wynne last July, asking her to consider dedicating a portion of provincial pot revenues possibly through a special levy to municipalities.

"Whatever decisions are made, I have no doubt the result will be increased costs for the City of Toronto," Tory wrote.

The federal government is sympathetic to the concerns of municipalities, the official said.

Under the current proposal, the federal government would impose an excise tax of $1 per gram of marijuana or 10 per cent of the final retail price, whichever is higher, with half the revenue going to provinces and territories.

Federal and provincial sales taxes would be applied on top of that.

Final price tag will vary by province

A one-month public consultation period on the excise tax proposal closes on Dec. 7, just ahead of the finance ministers' meeting.

Premiers have been complaining since early October, when Prime Minister Justin Trudeau first unveiled the excise tax plan, that a 50-50 revenue split with Ottawa is not good enough. They maintain their governments will shoulder the lion's share of the cost of legalization including public education, policing and road safety and should, therefore, get the lion's share of the tax revenue.

Co-ordinating cannabis taxation with the provinces is crucial to the federal objective of drumming organized crime and gangs out of the illegal pot business and keeping marijuana out of the hands of minors. If the price of legal marijuana is not competitive, the black market will continue to flourish.

Under the federal proposal, sales and excise taxes would be levied on both fresh and dried marijuana, pot-infused oils and seeds and seedlings used for home cultivation.

They would also be applied to medical marijuana, on which only HST is currently levied. That proposal has drawn fire but the government argues it's necessary to ensure there's no incentive for people to seek out medical pot just because it's cheaper.

The final price tag for legal weed will vary across the country because provinces have different sales taxes.