The economic boon for New Zealand of drug law reform

The benefits of a package of drug law reform measures will outweigh the costs – by tens of millions of dollars, finds Shamubeel Eaqub in a new report commissioned by the NZ Drug Foundation. Below, an excerpt from the economist’s findings.

Our current criminal-justice approach to drugs is not working. Drug use remains widespread and, crucially, the social costs and personal harms are still large. Prohibition and criminalisation may be counterproductive to reducing harm from drugs.

A World Health Organisation study demonstrated that international rates of drug use were unrelated to how vigorously drug laws were enforced, concluding that “countries with stringent user-level illegal drug policies did not have lower levels of use than countries with liberal ones.”

There is a growing movement around the world to take a health-focused approach to reduce the harm from the problematic use of drugs. This focuses action on prevention, harm reduction and treatment, rather than stigma and prosecution. The emerging evidence is encouraging: a health-focused approach seems to decrease, and at least does not increase, problematic use. Together with increased investment in education, prevention, harm reduction and treatment, such an approach can translate into a significant reduction in harm.

The international evidence does not suggest a miracle. Drug use, dependency and harm will not disappear. People use drugs (including alcohol) recreationally because it makes them feel good, and, very powerfully, because it can be a temporary reprieve from physical, psychological and emotional pain. That’s why wishing drug use away – by banning it, rather than accepting many people use drugs regardless – doesn’t work. Worse, exposing people who use drugs to the criminal world and prisons because of drug use, or not providing sufficient help with complex health and social issues, can lead to further compounding problems. Drug use is widespread across society, but harm can often be concentrated among socially disadvantaged groups.

As Professor Sir Peter Gluckman noted: “There has long been an argument that illicit drug use should be looked at as a public health issue, rather than just as a law-and order concern, because the ‘war on drugs’ rhetoric has not tackled the social and political determinants that underpin the global and local trade in illicit substances.”

A health-based approach to reducing drug harm

This report evaluates the New Zealand Drug Foundation’s proposed reforms to how drugs are treated, supported by a boost in funding for education and health interventions. The Foundation regards these reforms as crucial steps to its “Free from Drug Harm” vision. This report is commissioned by the New Zealand Drug Foundation, the New Zealand Needle Exchange Programme and Matua Raki. This health-based approach follows in the footsteps of a growing number of countries.

The proposals by the Foundation are to:  decriminalise the use and possession of all illicit drugs but to keep their supply illegal; legalise the use and supply of cannabis, and boost harm reduction and treatment services and drug education.

These proposed drug policies would have a net benefit for New Zealand.

The proposals reduce personal and social harm. Their benefits will outweigh the additional cost of increased drug harm education, prevention, harm reduction and treatment services that the Foundation argues should go hand in hand with a reform of drug legislation.

Decriminalisation of use and possession of all drugs

The use and possession of all illicit drugs would be decriminalised under the Drug Foundation proposal. People found using drugs, or in possession of drugs for personal use, would be cautioned and offered information, or required to attend a brief health intervention. Supply (importing, manufacturing and selling the drugs) would remain illegal.

Decriminalisation would make society better off by $34m-$83m a year, primarily through reduced criminal justice costs ($27m-$46m a year).

There would be additional costs in the health sector as people are referred to health providers rather than the justice system. This is part of the proposal to boost investment in education, prevention, harm reduction and drug treatment, as an integral part of shifting to a health based approach, and address current unmet need.

Decriminalisation should also result in broader social benefits, such as better labour market outcomes for people who avoid convictions, and better life outcomes for their children. These are harder to quantify and directly attribute, but no less important.

The Drug Foundation’s proposal is similar to Portugal’s approach, which decriminalised the use of all drugs in 2001 and boosted health funding. Thus far, studies indicate good success “with reductions in problematic use, drug related harms and criminal justice system overcrowding”.

Another effect in Portugal is that more people who use drugs are accessing health services and police are devoting greater resources to reducing supply. The legal change in Portugal was perhaps smaller than it appeared on paper, as it codified what was already happening in practice.5 In New Zealand, too, convictions for drug possession and use are trending lower, as police have deprioritised these offences.

Legalisation of the use and supply of cannabis

While the Drug Foundation proposes all three parts of their model be implemented, legal regulation of cannabis could proceed, instead of, or as well as, the decriminalisation of other drugs, so we assess their impacts separately.

In the proposed model, all cannabis use and supply offences would be removed from the criminal justice system, and the growing and supply of cannabis would also be allowed, but under strict regulations.

Regulations would control the quality and safety of cannabis offered for sale, and who it is sold to. There is no reliable data on the effect of standardising cannabis quality on harm to users, so we have not separately estimated the benefits of quality regulation, relative to the costs of testing, monitoring and enforcement.

The regulatory costs of licensing and monitoring would be around $5m a year, paid for from license fees for approved retailers and manufacturers.

Criminal justice costs would fall by an estimated $6m-$13m per year, as fewer people go to court and prison for cannabis possession and supply offences. The change in setting implies additional referrals to community or residential treatment services, covered as part of the proposed boost in drug education, harm reduction and treatment services.

Based on these effects, New Zealand would be better off by $10m-$53m a year as a result of legalisation.

The proposals would also bring supply (growing and selling) within the formal economy. The benefit of this is that it reduces a source of finance for organised crime. It also generates tax revenues of $185m-$240m per year.

If these taxes are put towards drug harm reduction policies and socially beneficial use, then New Zealand will be better off.  

Several states in the US (Colorado, Washington, Oregon, Alaska and Nevada) have adopted a similar approach, and Canada has also developed policy along the same lines.

The emerging evidence from the US suggests that, while recreational use rises after legalisation, the proportion of dependent use does not increase materially when accompanied by good education and prevention programmes. However, there is disagreement on this – some scholars suggest that impacts of legalisation are uncertain and note mixed results in some jurisdictions.

Data to date does not show any significant change in cannabis use by youth in Colorado, but an increase in Washington – reiterating the importance of education and prevention programmes. There may also be benefits, such as reduced use of other drugs and connection with criminal activity though they are also tentative at this point.

Legalisation in the US is still too recent to fully assess the long-term impacts. This mixed evidence means we must take a robust approach to measuring and monitoring drug use and likely harm, and respond with regulatory and other interventions as required.

More drug education, harm reduction, and treatment services

The proposals do not pretend drugs do not cause harm to individuals and communities. Instead the proposals argue that harm, or the risk of harm, is better addressed by prevention, education, harm reduction and treatment, not stigmatisation and criminalisation.

Drug education, harm reduction, and treatment services are available in New Zealand, but the amount is insufficient given current patterns of drug use, harm and need for services. There is already a shortfall of funding and staff, and funding has not kept pace with population growth driven demand. The Foundation has estimated funding for harm reduction and addiction treatment services needs to increase by $150m per year and drug education by $9m per year.

Such an increase in funding for prevention and treatment is a logical companion policy to decriminalisation and legalisation – not just to reduce existing harm, but also as a way to mitigate the risk that the prevalence of drug use increases more than what has been seen internationally following decriminalisation or legalisation.

The Drug Foundation argues that, given unmet need, such increase in health spending needs to happen now, regardless of other policy.

Conservatively, we estimate that $150m in increased health and harm reduction spending will deliver wider societal benefits (benefits to individuals, community and government) of $225m, and a $9m increase in education spending will deliver social benefits of $19m. This is based on various meta-studies of drug treatment and prevention programmes around the world.

There is, however, a degree of uncertainty around these estimates.

Conclusions

Based on the international evidence, all proposals here, by themselves or in combination, will reduce harm from current levels. These benefits outweigh the costs.

These estimates exclude the important, but hard to quantify, benefits to individuals and their families (and the wider community), from avoiding convictions (such as better job prospects) and contact with the black market.

While social benefits are important, they are difficult to measure, they may be realised in different timeframes to investments, and are more open to estimation errors. Governments also make a considered decision on current fiscal settings. Political reality dictates that additional spending needs to be funded.

Our analysis suggests that decriminalisation has a marginal positive impact by reducing criminal justice costs, but not enough to fund current need for addiction services. Cannabis legalisation however has the potential to raise significant tax revenue, which can fund expanded addiction services as well as other spending priorities. Cannabis legalisation has the benefit of a tax base to increase drug education, harm reduction and treatment.

In our conservative base case:  

Decriminalisation of all drugs would result in a net societal gain of $34m, with a net $15m gain to the government mainly from reduced criminal justice costs.  

If accompanied by the proposed $150m a year health package, the government would need to raise $132m from other sources or reduce spending elsewhere. Societal benefit would be substantial at $112m a year.  

Legalisation of cannabis would result in a modest societal gain of around $10m a year.  

Not counted in this is the increase in tax and licensing revenue of $191m a year. If accompanied by the proposed health package, resulting government spending increases will be more than offset by tax revenue gains, with around $33m remaining for other use. Societal gains are significant at $86m a year.  

The fiscal situation looks best with cannabis legalisation. Without it, harm reduction policies cannot be expanded to fulfil unmet need without raising taxes or cutting spending elsewhere.


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