How much do Australians spend each year on illegal drugs? The most recent estimate from the Australian Bureau of Statistics (ABS) was $7.1 billion and that was for 2010. Of that, the ABS estimated that the margins earned by wholesalers and retailers was more than $5.8 billion!
Of the total $7.1 billion, the ABS estimated Australia’s cocaine market at $783 million, heroin $750 million, cannabis $3.8 billion, amphetamines $1.5 billion and ecstasy $300 million.
But how can we really know the size of an illicit market? There are no tax returns, receipts or official records. In the absence of those, two methods are commonly used to generate estimates: the seizure method and the consumption method.
The seizure method operates on the premise that police in any given year seize 10% of all illicit drugs. This is unreliable though as it is reliant upon volume of enforcement activity, and luck.
The consumption method, favoured by the ABS, uses data gathered from surveys like the National Drug Strategy (NDS) Household Survey. Essentially, they multiply the number of people who use drugs by the average amount of drugs consumed per person per year.
But the consumption method is also far from perfect. For example, Australian authorities seized 5234kg of MDMA in 2007 when the consumption method had estimated the entire MDMA market at only 3142kg.
In 2013, Australian illicit drug researcher Dr. John Jiggens developed an economic model that incorporated consumption and seizure data, to generate more accurate estimates of the Australian illicit drug market size.
Jiggens' estimates were far higher than those from the ABS. His model estimated the cocaine market at $2.5 billion, heroin $2 billion, cannabis $6 billion, amphetamines $5 billion and ecstasy $1.4 billion.
Jiggens’ total market valuation came to $17 billion - more than double the ABS estimate of $7.1 billion.
These figures are dwarfed by the profits from the illicit drug market, even based on the ABS’s low estimate of $5.8 billion. In 2009-2010 the government spent $1.7 billion on their response to illicit drugs. Of this $1.1 billion (66%) was allocated to law enforcement. In that year, prevention, treatment and harm reduction received just $156 million (9.2%), $361 million (21%) and $36 million (2%) respectively.
Clearly, Australia has a large and lucrative illicit drug market. Government policy and spending do not reflect the realities of this trade. Effective regulation of legalised markets would not only enable governments to reduce spending on law enforcement, it would also provide tax revenue to fund other programs and policies that actually work.