The Government could save more than $500 million through legalising cannabis, an internal Treasury document has revealed.
The document, released under the Official Information Act, shows brainstorming notes from 2013, which suggest the Government could earn $150 million from taxing legalised cannabis.
It also suggests that $400 million could be saved through reduced policing costs if the drug was legalised.
"Reforming drug policies would result in fiscal savings, ease pressure on justice sector resources and result in fewer criminal convictions for disadvantaged groups, youth and Maori," the document reads.
"New Zealand's drug classification system does not align closely with the relative levels of personal or social harm caused by drugs.
In particular, alcohol and tobacco are consistently found to be more harmful than some illegal drugs."
The document, from 2013, was released to Nelson lawyer Sue Grey by the office of Finance Minister Bill English.
It states that policies "do not appear to be" effective at reducing the rate of illicit drug use.
The report references a Christchurch Health and Development study that found only six per cent of cannabis users came to police attention, and 95 per cent of users who were arrested continued with, or increased their use of the drug.
"Evidence doesn't support the 'Gateway Hypothesis' that cannabis use leads to use of harder drugs," the Treasury document states.
Grey said the document confirmed what was well-known in other sectors: that the harm caused by alcohol and tobacco was much worse than harm caused by cannabis.
The document also states that punitive approaches to drug use had "adverse social consequences," including a negative affect on earning potential, travel opportunities and social stigma.
Drug Foundation executive director Ross Bell said the reason there had been no action on the legalisation of cannabis was because politicians were too scared to talk about the "taboo" subject.
Bell said the Government should be willing to look at alternatives for New Zealand and admit, as the Treasury notes did, that the current system wasn't working.
He said the notes showed prohibition wasn't working, and cannabis was not a gateway drug.
Although politicians did not like talking about drug policy, they were now misreading the public mood and people were ready to have this discussion, Bell said.
English said the brainstorm notes were merely a discussion, and were not official Treasury opinion.