Canada’s federal and provincial finance ministers had been haggling for hours over how to split the proceeds of the coming marijuana excise tax when Newfoundland and Labrador’s Tom Osborne asked all political staffers and bureaucrats to clear the room.
The province’s finance minister had a proposal he wanted to make and sources say that before he pitched it, Osborne felt it was time to kick out about 40 people so the ministers could chat amongst themselves.
Even the translators at the Ottawa meeting were asked to leave their booths and get out.
Federal Finance Minister Bill Morneau had been standing firm on a 75-25 revenue split in favour of the provinces, telling the room repeatedly that it was the best Ottawa could do to improve its offer from November of a 50-50 split. A federal source said Ontario, Quebec, British Columbia and New Brunswick were basically OK with the 75-25 compromise.
But others, such as Nova Scotia, Saskatchewan and Manitoba wanted much larger shares — anywhere from 90 to 100 per cent of the revenues. A provincial source says Prince Edward Island wanted a split of 85-15.
When the 14 ministers were alone, Osborne pitched the idea that helped land the deal. He suggested a cap on the federal share of the tax revenue from the sale of marijuana.
With Ottawa projecting the excise tax would generate about $400 million a year, Morneau was asked to cap his government’s take at $100 million — anything above and beyond would go to the provinces.
Morneau thought about it for a minute and agreed. The officials were called back into the room and instructed to work on the language.
An honest broker
The revenue split was critical to the provinces and territories because they will shoulder the bulk of the expenses during the startup period of legalized cannabis and be responsible for helping their municipalities.
The federal source suggested Osborne’s pitch was so well-received because he had focused on playing the role of an honest broker in the weeks of talks that led up to the meeting. The source said Osborne’s focus on getting a fair deal — rather than scoring political points — gave the cap proposal credibility.
At Monday’s news conference, where everyone but Manitoba signed on to the tax split, Ontario Finance Minister Charles Souza credited Osborne for pitching the cap idea.
But while Osborne made the pitch, two sources say the idea came from his boss — Premier Dwight Ball — and was designed to test the Trudeau government’s confidence in its projections and the sincerity of its pledge that it wasn’t in the marijuana business for the money.
Trusting Morneau’s word
It is a big challenge to project revenues right now, so much of this is guesswork. The federal source says it is highly unlikely that the excise tax revenue will exceed the $400-million mark in the two years of the deal.
But the federal official called the quick agreement on the cap “a sign of goodwill.” It also sent a message that Morneau’s word can be trusted; that when he promises to be flexible he means it.
The federal cap guarantees the provinces and territories the upside benefit if the market proves more lucrative than expected. Privately, multiple provinces say their projections show scenarios where the revenue could blow past $400 million and the extra cash would push the provincial and territorial share past 80 per cent of the excise tax revenues.
But even Osborne admits that’s basically just a guess.
“The costs right now are unqualified. You can’t put a quantity on what the total cost will be,” Osborne said after the meetings. “And none of the drug dealers are willing to tell us what their sales are. And even if we knew, we don’t know for sure what percentage of that market we’ll capture.”