Canadian provinces cut cigarette tax

By , Toronto

ONTARIO threw in the towel last week and lowered its tax on cigarettes, while Nova Scotia, one of Canada's smallest provinces with about 900,000 residents, says it will keep taxes high and crack down on cigarette smuggling.

Just two weeks ago, Canadian Prime Minister Jean Chretien and Quebec Premier Daniel Johnson jointly lowered federal and Quebec cigarette taxes, saying it was the only way to stop Quebec's rampant cigarette-smuggling problem. Cutting taxes would cut smugglers' profits, the leaders said.

The federal and provincial move immediately lowered the price of a carton of cigarettes in Quebec from $47 (Canadian; US$35) to $22. But with the price in Ontario still about $41, Quebec sales boomed and Ontario store owners fumed. Until the federal announcement, high cigarette taxes constituted a fairly uniform policy across Canada that provided high revenues and made it expensive for young people to start smoking.

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Ontario Premier Bob Rae and other critics decried Mr. Chretien's decision, saying it would quickly lead to health problems and a ``domino effect'' across Canada, as province after province faced an onslaught of cheap cigarettes smuggled in from adjacent provinces where taxes were lower.

That prediction appeared to ring true Feb. 21 as Ontario Finance Minister Floyd Laughren announced that Ontario would reluctantly lower its taxes by $9.60 a carton. With the federal government's additional cut, a carton of cigarettes in Ontario now costs about $21. Mr. Laughren said the move will cost the province $500 million in lost tax revenues.

Yet in a move that may herald a wider revolt, tiny Nova Scotia said it would not lower its taxes. Officials said they would step up efforts to stem the flow of cheap cigarettes from neighboring New Brunswick. New Brunswick has announced its own tax rollback.

Prince Edward Island and Newfoundland joined Nova Scotia in resisting any tax rollback, while Manitoba, Saskatchewan, Alberta, and British Columbia were also united against a tax cut.

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