Economics, Commerce and Industrial Relations Group
12 May 1998
Major Issues Summary
Government Policy on Smoking
Assistance for Smokers
Impact of Measures to Date
- It was estimated that in 1992 (the most recent figures
published) there were 3.55 million adult smokers in Australia of
whom 1.89 million were men and 1.66 million were women.
- It was also estimated that in 1992 smoking caused 18 920 deaths
in Australia. Smoking is reputedly the leading cause of premature
death and disease in Australia, yet such illness is preventable.
The social cost of smoking to the Australian economy in 1992 has
been estimated, conservatively, to have been $12.7 billion. The
costs of smoking are not borne solely by smokers themselves. Their
addiction has direct impacts upon others in society.
- Although Federal and State governments have resorted to
regulation, education campaigns and limited cessation support
services, they have also relied substantially upon tobacco taxation
as a means of discouraging consumption, particularly among young
people. In 1996-97, the Commonwealth and the States raised around
$4.5 billion from tobacco taxes. In recent times, calls have been
made for further large increases in taxation to address the smoking
- There is strong evidence to suggest that tobacco taxation can
play a powerful role in discouraging smoking by young people.
However, the demand for tobacco products by adult, more established
smokers is relatively insensitive to price changes. Increasing
taxes does have an effect upon consumption but overall expenditure
on tobacco products (and government revenue) increases. This
increased expenditure must be at the expense of other items in the
household budget. This is especially the case for low income
households who spend a much greater proportion of their budgets on
tobacco than high income households. Notwithstanding the large
public health costs associated with smoking, governments derive a
large net budgetary benefit from the existence of smoking.
- Survey evidence shows that while the proportion of adult
smokers in the population declined significantly between 1983 and
1992, there has been relatively little decline in the adult smoking
rate between 1992 and 1995, despite the fact that it was between
these latter years that both the Federal and State governments
significantly increased tobacco taxation. There is some evidence to
suggest that smokers have reacted to price increases by reducing
the number of cigarettes smoked rather than by quitting.
Nevertheless, the average number of cigarettes smoked daily by men
is still 19.7 while for women it is 18.1.
- Total government expenditure on anti-smoking measures (in
1989-90 prices) rose from 30 cents per capita in 1983-84 to nearly
70 cents in 1989-90 but had fallen to around 25 cents per capita by
1995-96. Significantly more funding has been provided to address
conditions which affect fewer people than does smoking.
- Neither the Commonwealth nor the States have provided
significant funding for smoking cessation programs aimed at
actively assisting smokers to quit. It is the Commonwealth's view
that 'quit' programs are essentially the responsibility of the
- One area where the Commonwealth could make a contribution is
through the Pharmaceutical Benefits Scheme (PBS). In 1995, the
Federal government rejected a recommendation from the
Pharmaceutical Benefits Advisory Committee that there be a limited
listing of nicotine patches on the PBS. Research has indicated,
however, that the use of nicotine replacement therapies can double
the success rate of smokers who are trying to quit.
- It may be timely for governments to re-evaluate their approach
to the smoking issue. A case may exist for more resources to be
applied towards measures aimed at reducing the high social costs of
smoking. In essence, it may be far too simplistic to argue that
smoking can be discouraged merely by increasing taxation. A much
more integrated approach by both levels of government may need to
be implemented if the national problem of smoking is to be
In recent times there have been calls for
significant increases in tobacco taxation as a means of addressing
the high social costs of smoking. One anti-smoking coalition has
even issued the catchcry of '$10 per packet'(1). In April this
year, the Minister for Health and Family Services, Dr Wooldridge,
reiterated his Government's concern about the 'devastating effect
of smoking' when announcing the commencement of a series of
This paper briefly examines some facts and
figures relating to smoking. It points out that while governments
have resorted to regulation and education to reduce smoking rates,
a significant emphasis has been placed upon tobacco taxation as a
means of discouraging consumption. However, while there is no doubt
an important role for taxation to play in reducing tobacco use,
there are economic and equity consequences associated with that
approach. This paper argues that there may be a case for a
re-evaluation of government policy on smoking, with governments
being prepared to increase outlays on anti-smoking initiatives
rather than simply embracing further revenue raising measures.
Nicotine is a very addictive drug. It is
estimated that, in 1992, there were 3.55 million smokers in
Australia over the age of 15 years, all but a handful of whom
display signs of physiological addiction. Of this total, 1.89
million were male and 1.66 million were female.(3) Even if
virtually all of these smokers must be held responsible for
initiating their smoking habit, a point is reached when their
addiction should probably be regarded as an illness rather than
simply as a consumption choice.
Smoking is reputedly the leading cause of
premature death and disease in Australia. A corollary of this is
that tobacco-related illness is preventable. In 1992, the latest
date for which such figures are available, it is estimated that
smoking caused 18 920 deaths in Australia, over nine times the
number of road crash fatalities. Interestingly enough, of all drug
related deaths, 82 per cent are due to tobacco, 16 per cent due to
alcohol (including road crash victims) and only 2 per cent are due
to illicit drugs(4). Deaths from smoking are due not only to
illnesses such as cancers and cardiovascular disease, but also
occur through such other events as smoking-related fires.
Table 1 shows smoking-related deaths compared with other
common causes of death. This makes an interesting yardstick against
which to gauge relative government policy responses.
Sources: Winstanley, M., Woodward, S, and
Walker, N., Tobacco in Australia: Facts and Issues. Quit
Victoria. Melbourne. 1995. Table 2.3; Australian Bureau of
Statistics, Causes of Death, Australia (Cat. No.
Collins and Lapsley have estimated the cost of
smoking to the Australian economy in 1992 to be $12 736.2
million(5). These costs are derived as shown in Table 2. As the
authors point out, there are many costs associated with smoking
that are difficult to quantify, so they have not attempted to do
so. As a result, their estimate of smoking-related costs is likely
to be conservative.
The tangible costs in Table 2 show the loss or
diversion of resources as a result of smoking deaths and/or
illness. Paid production costs represent the loss of production of
marketable goods; unpaid production relates to the loss of
production which is not marketed, such as household services,
community services, etc. While these represent a loss of potential
goods and services available to society, it also has to be
recognised that smokers who die forgo a stream of consumption of
goods produced by others. Health care costs involve the provision
of medical services and the cost of providing hospital and nursing
bed days. Resources used in consumption relate to resources used to
manufacture, distribute and consume tobacco products.
Intangible costs attempt to put a value on the
life which would have been enjoyed by a deceased smoker had he or
she lived. Another intangible cost is the forgoing, by a deceased
smoker, of the benefits of a stream of future consumption had he or
Intangible costs should also include some
estimate of the cost of pain and suffering endured by the patient
(and others).(6) However, given the difficulty of deriving a
reliable estimate, these costs have not been included.
Source: Collins, D.J. and Lapsley, H.M., The
Social Costs of Drug Abuse in Australia in 1988 and 1992.
National Drug Strategy Monograph Series. No. 30. February 1996, pp.
33, 35, and 53.
A very interesting perspective on the issue of
smoking is the net budgetary impact for governments. This is shown
in Table 3, again drawn from Collins and Lapsley.
Source: Collins, D.J. and Lapsley, H.M., The
Social Costs of Drug Abuse in Australia in 1988 and 1992.
National Drug Strategy Monograph Series. No. 30. February 1996, p.
Table 3 shows the net revenues raised from
smokers relative to the public health costs associated with
smoking. The net revenue figure shows tobacco tax revenues minus
the income tax and indirect tax revenues that governments would
have received from the earnings and consumption of ill or deceased
smokers. The figures show quite clearly that, from a budgetary
point of view, governments benefit significantly from the existence
of smokers. Furthermore, it should be realised that, since 1992,
both the Commonwealth and the States have significantly increased
their taxation of tobacco products. Currently, Federal and State
revenues from tobacco taxation are in the vicinity of $4.5 billion
or $1.8 billion more than in 1992. While health costs would no
doubt also have escalated, the net budgetary benefit derived by
governments from smoking is now likely to be considerably higher
than the figure of $1.2 billion shown in Table 3.
A strong case can be made for government to play
a role in the prevention of smoking. Apart from the fact that the
annual social costs are, at $12.7 billion, extremely high, smoking
also generates a number of negative 'spillover' effects. Smoking
impacts not only upon smokers themselves but also on others through
passive smoking, unpleasantness, the pain, suffering and efforts of
carers, people killed or injured in smoking-related fires and so
forth. The existence of such spillover effects present a classic
case for government intervention.
It can also be argued that a large part of the
population has, until recent times, not been made aware of the
dangers of tobacco smoking. Certainly, the tobacco industry has not
fully informed the public about the likely deleterious effects of
smoking. This lack of market information represents another element
of market failure which warrants government intervention to
Even though governments have taken steps to
address the smoking problem, much still remains to be done.
Reviewing progress made under the National Health Priority Areas
initiative, endorsed jointly by Commonwealth and State governments,
the Australian Institute of Health and Welfare reported recently
in Australia, almost one in three men and one in
four women smoke regularly. Although there have been recent
declines in the proportion of men and women smoking, the target of
20 per cent smokers in both sexes by the year 2000 is unlikely to
To date, governments have adopted
interventionist policies involving three elements-regulation,
taxation and assistance to smokers.
Regulations, imposed through both Commonwealth
and State legislation, have attempted to restrict the sale of
tobacco products to minors, imposed warning labels on tobacco
products, restricted tobacco company sponsorship, stipulated
no-smoking zones in public places (applied in the ACT and proposed
in NSW and South Australia) and banned most tobacco advertising.
Several States have provided public funds to sports and the arts in
lieu of previous tobacco industry sponsorship. Smoking is also
banned on all domestic airline flights and is becoming increasingly
restricted on international flights.
With growing evidence of the health effects of
passive smoking, State occupational health and safety regulations
would also appear to apply to smoking in the workplace. Any
employer who does not heed the occupational health and safety
guidelines on this matter could be liable to claims for damages
from employees affected by smoking. Already many government
agencies and large companies have banned workplace smoking, but
more may need to be done in smaller enterprises. There is growing
evidence to suggest that workplace smoking bans may have played a
role in encouraging some smokers to quit or at least to reduce
their tobacco consumption.
Both the Federal and State governments have
relied significantly upon tobacco taxation as a way of regulating
consumption. The Commonwealth has applied excise and customs duties
on tobacco products since Federation while the States have applied
tobacco franchise taxes since the late 1970s. Both levels of
government increased tobacco taxation significantly during the
For example, in 1990, the Federal government
imposed excise on tobacco products at the rate of $50.02 per
kilogram. A first attempt to 'get tough' on tobacco use occurred in
the 1992 Budget, when a discretionary $5 per kilogram was added to
the excise rate for all tobacco products. It was stated that this
measure would complement the range of health policies the
Government already had in place which were aimed at discouraging
smoking and hence reducing the health care and other costs to the
community associated with smoking(8).
The 1993 Budget, which sought to impose
significant increases in excise rates on refined petroleum
products, also announced that excise rates on tobacco products
would be increased by 3 per cent on Budget night with a further
four increases in excise (each of 3 per cent) occurring at the time
of indexation, that is in February and August 1994 and February and
August 1995. However, several of the fuel excise hikes proposed in
the 1993 Budget were opposed by the Democrats, the Greens and
Senator Harradine. In order to recoup some of the fuel excise
revenue forgone, the Democrats proposed to the Government that each
of the remaining four increases in tobacco excise should be 5 per
cent, instead of the 3 per cent proposed by the Government. The
Government acceded to this request.
The timetable for imposing these increases was,
however, not entirely adhered to. The 1995 Budget imposed a
discretionary 10 per cent increase in tobacco excise rates (equal
to $7.18 per kilogram) effective from Budget night (9 May 1995).
Subsumed within this 10 per cent increase was the final 5 per cent
increase which was to have been imposed in August 1995. By 1996,
Federal excise was being applied to tobacco products at the rate of
$83.93 per kilo, a 68 per cent increase since 1990.(9)
A similar trend has emerged at the State and
Territory level. In 1990, business franchise fees on tobacco
products were imposed at rates of between 28 and 50 percent of
wholesale value. By 1997, all States and Territories were imposing
their franchise fees at the rate of 100 per cent of wholesale
In August 1997, the High Court declared State
tobacco taxes to be constitutionally invalid (along with similar
taxes on fuel and alcohol). The Commonwealth offered to collect
these taxes on behalf of the States. As a result, on 6 August 1997,
the Federal excise on tobacco was increased from $84.27 per kilo to
$251.27 per kilo. In view of tobacco industry concerns about the
impact of this large increase in weight-based taxation, the
Commonwealth replaced this tobacco tax regime on 17 September 1997
with an excise of $86.92 per kilo plus a sales tax of 50.32 per
cent of the listed wholesale price of tobacco products.
The rising level of tobacco tax rates has
certainly swelled government coffers over the 1990s. In 1990-91,
the Commonwealth raised $1322 million from tobacco excise while the
States raised $944 million, giving total revenue of $2266 million.
By 1996-97, Federal excise had increased to $1625 million and State
franchise tax had risen to $2855 million (a total of $4480
Another way of demonstrating the impact of these
taxes is to look at the proportion of tax in the price of tobacco
products. In 1996, Federal and State taxes represented 65 per cent
of the price of a pack of cigarettes. For a pack of 25 cigarettes
costing $6.49, the tax component was $4.20.(10) A packet-a-day
smoker thus pays over $1500 per year in tobacco taxes.
But what is the impact of these taxes on
consumption? The impact of price rises can be measured by looking
at the 'elasticity of demand' for tobacco products. The elasticity
of demand shows the proportional change in the quantity bought
divided by the proportional change in price.
The elasticity of demand for cigarettes for
people in the age group 12 to 17 years has been estimated at
-1.4.(11) This means that a 10 per cent increase in the price of
cigarettes will reduce demand by young people for cigarettes by 14
per cent. Thus the taxation of smoking is likely to contribute to a
significant reduction in demand by young people who are unlikely to
have already established a strong smoking habit.
However, the elasticity of demand for cigarettes
by adults (20 to 74 years) is only -0.42, that is, a 10 per cent
increase in the price of cigarettes will reduce demand by 4.2 per
cent. This is not surprising given the fact that such people
probably have a well established social and physiological addiction
to nicotine. The average elasticity of demand for all age groups
was estimated to be -0.47.(12)
It is interesting to use all the above
information to examine the impact of an increase in tobacco
taxation. Using the tobacco tax regime applying in 1996, for
example, an increase in tax of 15.4 per cent would, all else being
equal, increase the price of a packet of cigarettes by 10 per cent.
Demand would fall by 4.7 per cent. Thus overall spending on
cigarettes by smokers would actually increase by 4.8 per cent.
Incidentally, government revenue from smoking would also increase,
by 10 per cent.
Of course, if smokers increase their expenditure
on cigarettes, this money has to be found from elsewhere in their
budgets or from savings. The impact of the tax on the disposable
income of smokers is likely to be much greater for those households
on low incomes.
The Australian Bureau of Statistics' Household
Expenditure Survey for 1993-94 shows that households in the lowest
20 per cent of incomes spend 4.21 per cent of their weekly income
on tobacco products, compared with only 0.56 per cent for those in
the top 20 per cent income bracket.(13) Of course, these figures
represent an average of both smoking and non-smoking households in
each income group. These figures indicate that low income
households spend, proportionately, seven and a half times more of
their income on tobacco than high income households. Tobacco
taxation is thus arguably the most regressive of all taxes.
Incidentally, these figures for 1993 are based
on tobacco expenditures before most of the major hikes in tobacco
taxes were introduced. Given the inelastic demand for tobacco
products, it is likely that low income households now spend, on
average, much more than 4.21 per cent of their weekly income on
such products. The tax regime combined with an addiction to
nicotine would certainly appear to compromise low income smokers'
ability to provide their households with other necessities.
Difficulties can arise in attempting to use
households in the analysis of tax regressivity, since the structure
of households might vary between income groups. However, further
evidence of the impact of smoking taxation on low income families
can be gained from a recent survey by Hill et al(14). Their
findings show that not only are there proportionately more smokers
in the lowest occupational group but also that smokers in this
group consume at least the same number of cigarettes per day as
smokers in all other groups. They found that amongst 'lower blue
collar' occupations, 40.9 per cent of men and 31.8 per cent of
women were smokers. This compares with smoking rates amongst 'upper
white collar' occupations of 18.7 per cent and 16.7 per cent
respectively. Furthermore, in the 'lower blue collar' group male
smokers consumed an average of 21.0 cigarettes per day while women
smoked 19.1 cigarettes. In the 'upper white collar' group, average
consumption by smokers was 18.3 and 16.4 cigarettes
It is also instructive to look at estimates of
the elasticity of participation and the elasticity of individual
consumption. The elasticity of participation shows the proportional
change in the number of individuals smoking relative to the
proportional change in price, while the elasticity of individual
consumption shows the proportional change in the number of
cigarettes consumed per smoker relative to the proportional change
The elasticity of participation for young
smokers (12 to 17 years) has been estimated at
-1.2, meaning that a 10 per cent increase in the price of
cigarettes is likely to reduce the number of smokers in this age
group by 12 per cent. The elasticity of individual consumption for
young smokers was found to be -0.25, implying that a 10 per cent
increase in the price of cigarettes would cause an individual young
smoker to cut back the number of cigarettes consumed by 2.5 per
More telling, however, are the estimates for
adult smokers (20 to 74 years). For this group, the elasticity of
participation is estimated at -0.26 while the elasticity of
individual consumption is -0.10. Thus a 10 per cent increase in the
price of cigarettes would only reduce the number of smokers in this
age group by 2.6 per cent, while those who do smoke would only
reduce their consumption of cigarettes by 1 per cent.
Assistance for Smokers
The above analysis indicates that tobacco
taxation and regulation may discourage children and teenagers from
smoking, although one might conjecture about the extent to which
high prices for tobacco products might encourage illegal or
antisocial behaviour, as has happened in the case of expensive
However, unless governments are simply prepared
to wait and hope that the smoking problem will go away when the
next generation comes through the system, the problem of assisting
older nicotine addicts with well established habits must be
addressed. To date, relatively little appears to have been done. A
significant proportion of the funding provided by both Federal and
State governments through their National Drug Strategy programs has
been aimed at advertising the adverse health impacts of smoking.
The amount spent on active assistance to smokers has been
Whilst the Commonwealth has participated in such
programs as the National Drug Strategy, it has essentially taken
the view that the implementation of anti-smoking initiatives is the
responsibility of the States. Given the budgetary constraints
operating in many States, however, it is not surprising that they
have been hard pressed to find resources for this purpose.
Nevertheless, at the State level, certain programs have attempted
to provide cessation assistance to smokers.
Statistics on funding for anti-smoking programs
are shown in Table 4. These figures relate to funding by both
Commonwealth and State governments, along with funding provided by
national and state non-governmental bodies.
These figures show that for the entire ten-year
period 1987-88 to 1996-97, total spending on anti-smoking programs
in Australia amounted to around $130 million.(18) If sponsorship
funding is removed, expenditure over the period is approximately
$89 million. Further subtracting overheads, administration and
research costs not directly tied to activities of around $17
million (included in 'Other' in Table 4) yields total
activity-related expenditures of $72 million-an average of $7.2
million per year.
It might be noted that, over the same period,
the States and Territories raised $14 943 million in tobacco
franchise tax. For its part, the Commonwealth spent a little under
$10 million on anti-smoking campaigns over the ten year period.
Over the period 1987-88 to 1996-97, the Commonwealth raised $13 615
million in tobacco excise. The Federal Minister for Health and
Family Services announced in 1997, however, that the Commonwealth
would contribute $7 million over the two years 1997-98 and 1998-99
to the national anti-smoking program.(19) This funding is
principally being directed towards a national advertising campaign.
In the 1998-99 Budget, the Treasurer announced that a further $6.1
million would be provided over the three years from 1999-2000 to
2001-02 for a tobacco harm minimisation campaign, including the
development of a national response to passive smoking and school
education programs.(20) Funding in these latter three years is thus
a reduction when compared with the preceding two years
Source: Unpublished data collected by the Centre
for Behavioural Research in Cancer, Melbourne, 1997.
The Commonwealth has not provided a great deal
of targeted assistance. It has assisted Commonwealth employees to
attend 'quit' programs and, where such services are provided by
registered medical practitioners, hypnotherapy and acupuncture
therapies would attract Medicare benefits.
One avenue which has been investigated and so
far rejected by the Commonwealth is the inclusion of nicotine
replacement therapies (nicotine patches and chewing gums) in the
Pharmaceutical Benefits Scheme (PBS).(21) Studies have shown that
smokers using patches have more than twice the chance of ceasing to
smoke than motivated 'quitters' not using nicotine replacement
therapies.(22) Similarly, studies have shown that between 27 and 38
per cent of smokers who use nicotine chewing gums are still
abstaining from smoking after 12 months.(23) Overall, international
studies have confirmed that, regardless of the form of delivery,
nicotine replacement therapy is more effective than no therapy or
the use of placebo substances. One study has indicated that
nicotine replacement therapy could help around 15 per cent of
smokers motivated to quit.(24)
The Commonwealth and State governments have
commissioned studies on this issue. In 1996, the Ministerial
Council on Drug Strategy received a consultants' report on nicotine
replacement therapies (NRT). The report concluded that:
there is strong evidence to support the
effectiveness of all the commercially available forms of NRT as
part of a strategy to promote smoking cessation. They increase quit
rates approximately two-fold regardless of setting. NRT is most
effective when targeted towards smokers who are motivated to quit
(as demonstrated by their initiative to request assistance) and
have high levels of nicotine dependency...There is good evidence
from a number of economic studies that NRT is a cost effective
intervention, especially when included as part of a smoking
cessation program...At present, an estimated one in every ten quit
attempts involves the use of NRT. If this figure could be increased
modestly, this would result in a large amount of cessation and
public health benefit.(25)
However, such therapies are quite expensive to
users. Gums could cost potential quitters around $115 per month
(4mg gums) while patches cost approximately $375 for the
recommended 10-week program.(26) This may discourage some potential
quitters, especially those on lower incomes, from trying this form
of therapy. While the cost of these products may not be as great as
the cost of the cigarettes they replace, quitters who simply try to
go 'cold turkey' and frequently fail may be more likely to resign
themselves to the fact that they are 'hooked' and give up
In 1994, the Pharmaceutical Benefits Advisory
Committee recommended a limited listing of nicotine patches on the
PBS. Estimates of the cost of listing patches ranged from $17
million to $100 million a year although one manufacturer, Marion
Merrell Dow, offered to cap the cost at $30 million a year. The
Commonwealth rejected this recommendation, arguing principally that
there was a potential for waste if the use of such therapy was not
accompanied by a structured program of counselling and support(27).
To date, no similar condition appears to have been applied to the
prescription of anti-depressive or anti-anxiety medications on the
It is interesting to compare government
financial initiatives in relation to other health problems. Under
the National Program for the Early Detection of Breast Cancer (now
called BreastScreen Australia), for example, $53.4 million was
initially provided by the Commonwealth over the three years from
1991-92 to 1993-94. A further $236 million over five years was
announced in the 1994-95 budget. As shown in Table 1, almost eight
times as many people die from nicotine addiction as die from breast
cancer. The Commonwealth also spends $37 million a year, through
its road accident 'Black Spots' program, and millions more in
funding for general road works to help reduce the road toll. More
than nine times as many people die from nicotine addiction as die
in road crashes.(28) In the case of illicit drugs, governments
spend, annually, $30 million in methadone programs and $10 million
in needle exchange programs.(29)
It might be further noted that governments, both
State and Federal, spend many millions of dollars each year in
order to reduce public hospital waiting lists. The question arises
as to whether some money might be better spent reducing the number
of smoking-related patients in hospital beds or in hospital queues.
There has always been debate as to whether health funding is best
used in treating actual illness rather than being spent on
preventative measures. There will always be some doubt as to
whether such preventative programs will be cost effective. However,
given the high health risks associated with smoking, this is an
area where the benefits of successful preventative measures are
likely to be quite substantial.
Table 5 shows the impact of all anti-smoking
measures over the period 1976 to 1995. This period has shown a
marked decline in the proportion of adults in the population who
smoke. Unfortunately, the momentum of the significant decline in
smoking, especially amongst men, over the period 1983 to 1989 has
not been maintained. Over that period, the proportion of adult male
smokers fell by 10 percentage points while that of females fell by
4 percentage points. Over the three years from 1989 to 1992, the
male smoking rate dropped by a further 2 percentage points while
the female rate declined by a further 3 percentage points.
Sources: Winstanley, M., Woodward, S, and
Walker, N., Tobacco in Australia: Facts and Issues. Quit
Victoria. Melbourne. 1995, Table 1.1; Hill, D.J., White, V.M. and
Scollo, M., 'Smoking Behaviours of Australian Adults in 1995:
Trends and Concerns'. Medical Journal of Australia, Vol
168, No. 5, 2 March 1998.
Disappointingly, smoking prevalence rates appear
to be reaching a plateau. Over the three years from 1992 to 1995,
both the male and female smoking rates fell by only 1 percentage
point. Yet it was between 1992 and 1995 that the significant
increases in tobacco taxation occurred. Interestingly, Hill et al.
found that between 1992 and 1995, the mean number of cigarettes
smoked per day fell from 22.1 to 19.7 for men while there was no
statistically significant decline for women(30). Overall, then,
there was an average reduction in daily consumption of around 2 per
cent per annum over the three-year period. Thus it might appear
that the effect of taxation has caused smokers to ration their
tobacco use rather than encouraging them to give up smoking
entirely. These findings would be consistent with the low
participation and consumption elasticity estimates discussed
While causality is undoubtedly hard to prove,
Hill et al. posit that the levelling out of smoking rates in the
1990s may be due to reduced spending on anti-smoking campaigns by
governments. Measured in terms of 1989-90 dollars, total government
spending on such campaigns in 1983-84 was just under 30 cents per
adult. Expenditure rose to a peak of nearly 70 cents in 1989-90,
exactly mirroring the significant decline in smoking rates. By
1995-96, expenditures on anti-smoking activities had fallen to
around 25 cents per adult.(31)
Certainly, the figures in Table 5 are
encouraging in that they do at least show a significant decline in
the smoking prevalence rate over the past twenty years. There does
appear to have been a significant cultural change within Australia
over that period. Whereas smoking used to be relatively socially
acceptable, many smokers now almost feel as though they belong to a
'fringe group'. In a 1993 survey, 79 per cent of those questioned
supported workplace smoking bans, 73 per cent supported the banning
of smoking in restaurants and 71 per cent supported bans in
shopping centres. However, only 42 per cent supported banning
smoking in hotels and clubs(32). No doubt health warnings and
education programs have contributed significantly to the cultural
change that has occurred.
It is beyond the scope of this paper to canvas
the range and impact of anti-smoking initiatives in other
countries. Even within the United States of America, for example,
there would be a great diversity of approaches even amongst the
individual states. Nevertheless, a brief investigation of overseas
statistics yields some interesting results. The United States has,
on average, one of the lowest rates of tobacco taxation in the
world (35 per cent compared with 65 per cent in Australia), yet its
smoking prevalence rate is almost identical to that of Australia.
In the US in 1992, 28 per cent of adult males and 23 per cent of
adult females were smokers. In several European countries, on the
other hand, tobacco taxation rates are higher than Australia's, yet
smoking prevalence is also higher. In Denmark, for example, the
tobacco tax rate is very high at 85 per cent, yet 39 per cent of
men and 38 per cent of women smoke(33). It would thus appear that
there are many factors other than simply price which influence
people's decisions to smoke. A full range of anti-smoking policies
must therefore be targeted at overcoming such factors.
Nicotine addiction was estimated to have killed
almost 19 000 people in Australia in 1992. The social costs of
smoking have been estimated, for 1992, at $12.7 billion and even
this estimate is considered to be conservative. Moreover, the costs
of smoking are not confined to the smokers themselves. Their
addiction has direct impacts upon others. There is thus a classic
case for government intervention.
Although governments have responded to this
issue through regulation and spending on anti-smoking advertising,
they have substantially relied upon taxation to combat the problem.
This has been a win-win situation for governments who can argue
that they are addressing nicotine addiction while, at the same
time, raising $4.5 billion in tobacco taxes (in 1996-97).
Independent analysis has shown that governments, even if not
society as a whole, actually profit from nicotine addiction.
Whilst taxation measures and regulation may have
a significant impact on the uptake of smoking by young people, they
would appear to be less effective at dealing with hardened addicts.
Nevertheless, they are still an important means of controlling
consumption. However, despite the large tobacco revenues received,
governments spend a comparatively small amount on 'quit' programs
and other measures aimed at helping motivated addicts cure
themselves. Governments have spent much more on causes which kill
smaller numbers of people than does smoking. While this is not a
criticism of these other expenditures, it does show, at least from
the outlays side of the Budget, the relative unimportance that
governments have to date assigned to nicotine addiction. Even
though, to its credit, the Commonwealth has provided some funding
for anti-smoking campaigns, more resources may be
It may be argued that the consequences of
nicotine addiction are sufficiently serious to warrant a
re-evaluation of current policies on smoking. Whilst there is no
doubt an important and continuing policy role for regulation and
taxation, other avenues might warrant serious consideration. For
example, the inclusion of nicotine replacements on the PBS could be
reconsidered. Even if this measure does cost several million
dollars, this could well be a good investment if it makes inroads
into the $12.7 billion of social costs associated with smoking.
If there is concern that the provision of
nicotine replacement therapies may be more cost effective if
offered as part of an overall support program, governments might
consider subsidising smokers to undertake a prescribed range of
smoking cessation therapies, including nicotine replacement
therapies. Such a scheme could be administered by the Health
Insurance Commission and could even be means tested if it were
considered socially desirable to introduce some degree of
progressivity into the assistance provided.
Other initiatives could also be investigated.
For example, as with beer excise, a formula approach to tobacco
taxation could be examined, whereby lower nicotine content
cigarettes are taxed at a cheaper rate. More funds could be
directed towards the enforcement of existing regulations aimed at
restricting sales of cigarettes to children. It might be feasible
to legislate to impose a maximum limit on the nicotine content of
cigarettes (although a differential tax regime might well achieve a
similar effect). Support and education programs might also warrant
greater public funding than they presently receive.
In essence, a much more integrated approach by
both levels of government may need to be implemented if the
national problem of smoking is to be adequately addressed.
- This demand has been made by the Heart and Cancer Offensive
Against Tobacco. See 'Call to lift cigarette prices 25%'. The
Age, 7 April 1998, p. A6.
- Minister for Health and Family Services. New Anti-Smoking
Commercials Target Stroke and Quitting. Press Release. 22
- Winstanley, M., Woodward, S, and Walker, N., Tobacco in
Australia: Facts and Issues. 1995. Table 2.3
- ibid., p. 1.
- Collins, D.J. and Lapsley, H.M., The Social Costs of Drug
Abuse in Australia in 1988 and 1992. National Drug Strategy
Monograph Series. No. 30. February 1996.
- By way of comparison, the Bureau of Transport and
Communications Economics estimated the social costs of road
accidents in 1993 to be $6.1 billion. Of this total $1463.3 million
was attributed to the pain and suffering of victims (but not of
families)-an amount almost equal to its estimate of lost paid and
unpaid production ($1416.9 million). The remainder of accident
costs comprised vehicle damage ($1868.2 million), insurance
administration ($571.1 million), medical and other costs ($816.4
million). See Bureau of Transport and Communications Economics,
Costs of Road Crashes in Australia-1993, Information Sheet
4, December 1994.
- Australian Institute of Health and Welfare. First Report on
National Health Priority Areas. Canberra, 1996.
- Commonwealth Treasury. Budget Paper No. 1, 1992-93.
AGPS, Canberra, 1992, p. 4.14.
- It might be noted that, despite this increase in tobacco
taxation rates, Commonwealth excise revenue rose only by around 25
per cent. An important contribution to this result is that Federal
excise is applied on the weight of tobacco. Australian
manufacturers have responded to excise increases by reducing the
weight of tobacco in each cigarette. To keep the bulk, the leaf is
expanded by pumping various gases into it. Between 1982 and 1992,
the average cigarette weight fell from 823 milligrams to 712
milligrams. Australian cigarettes are the lightest in the world.
See Winstanley et al., op. cit., p. 89.
- Tobacco Institute of Australia. Fact Sheet. February
- US Department of Health and Human Services. Reducing the
Health Consequences of Smoking: 25 years of Progress. DHHS
Publication No. CDC89-8411, Washington, 1989.
- Australian Bureau of Statistics. Household Expenditure
Survey, 1993-94. (Cat. No. 6535.0). Canberra. 1995.
- Hill, D.J., White, V.M. and Scollo, M., 'Smoking Behaviours of
Australian Adults in 1995: Trends and Concerns', Medical
Journal of Australia, Vol 168, No. 5, 2 March 1998, p. 211.
- Although the figures quoted do show that smokers in the lowest
occupational group smoke more cigarettes per day than any other
group, the differences between groups were found to be
- US Department of Health and Human Services, op. cit.
- It might be argued that there is no need to assist smokers to
quit since most successful quitters manage to do so through their
own efforts. However, it is not these fortunate individuals who are
of concern. The problem of assisting those who are having trouble
quitting still remains. It might be noted that surveys have shown
that while more than 60 per cent of smokers say they would like to
quit, only around 3 per cent of them actually do so in any given
year. In general, even successful quitters make several quit
attempts before overcoming their addiction.
- There are obviously conceptual, classification and data
difficulties involved in identifying anti-smoking expenditures. The
data collected by the Centre for Behavioural Research in Cancer
represents a major attempt to collate reasonably reliable data on
- Minister for Health and Family Services. Wooldridge
Launches National Attack on Smoking. Press Release, 12 June
- Commonwealth Treasury. Budget Paper No. 2, 1998-99.
AGPS, Canberra, 1998, p. 1-42. In the same Budget, the Treasurer
also announced five-year funding of $215 million for anti-illicit
drug programs. Of this amount, $51.3 million will be used for
demand reduction and harm minimisation programs.
- Nicotine patches were listed on the Repatriation Pharmaceutical
Benefits Scheme from 1 August 1994. An authority is required from
the Department of Veterans' Affairs and patients are required to
have entered a support and counselling program.
- Gourlay, S., 'The Pros and Cons of Transdermal Nicotine
Therapy', Medical Journal of Australia. Vol 160, No. 2, 18
July 1994, pp. 152-159.
- See Lam, W., Sze, C., Sacks, H. and Chalmers, T.C.,
'Meta-Analysis Of Randomised Controlled Trials Of Nicotine Chewing
Gum', Lancet, Vol. 2, 1987, pp. 27-30 and Jarvis, M.J.,
Raw, M., Russell, M.A. and Feyerabend, C., 'Randomised Controlled
Trial of Nicotine Chewing Gum', British Medical Journal,
Vol. 285, 1982, pp. 537-540.
- Tang, J.L., Law, M. and Wald, N., 'How Effective is Nicotine
Replacement Therapy in Helping People to Stop Smoking?',
British Medical Journal, Vol. 308, 1994, pp. 21-26
- Silagy, C., Borland, R., Roberts, L. and Wakefield, M., A
Review of Literature into Smoking Cessation Services and Nicotine
Replacement Therapies. Consultants' Report to the Ministerial
Council On Drug Strategy. Mimeo, 26 July 1996.
- Note that gums and patches are now available over the counter
without prescription. While this has the advantage of making them
more freely available to users, it may detract from the support
services that might be offered by the family doctor.
- Commonwealth Government. Statement for Rejection of PBAC
Recommendation on Nicotine Patches. Mimeo, 1995. It might be
noted that the Senate Community Affairs Committee also tabled a
report in 1995 entitled The Tobacco Industry and the Costs of
Tobacco Related Illness in which it recommended that nicotine
patches be listed on the Pharmaceutical Benefits Scheme if
prescribed as part of a structured smoking cessation program. The
Government rejected this recommendation in its Response to the
Committee's report in September 1997, pending the outcome of a
review of the issue by the Ministerial Tobacco Advisory Group,
established in 1996. No deadline for such a review has been set,
- Programs such as BreastScreen Australia and the Black Spots
Program have been funded on the basis of favourable benefit-cost
studies. The favourable benefit-cost evidence cited by Silagy, et
al. has not, however, encouraged the Government to act in the case
of nicotine replacement therapies.
- See Commonwealth Department of Human Services and Health.
Review of Methadone Treatment in Australia: Final Report.
Canberra, October 1995 and Feacham, R., Valuing the
Past...Investing in the Future: Evaluation of the National HIV/AIDS
Strategy 1993-94 to 1995-96. AGPS, Canberra, 1995.
- Hill, D.J., White, V.M. and Scollo, M., op. cit, pp. 209-213.
- ibid., p. 212.
- Winstanley, et al., op. cit. p. 134.
- Winstanley, et al., op. cit. p. 19; Australian Cancer Council
and the National Heart Foundation, op. cit., p. 23.
- In their 1998 Budget submission, for example, the Australian
Cancer Society and the National Heart Foundation, on behalf of 58
other health and medical groups throughout Australia, recommended
that at least $64 million per year be spent on anti-smoking
education. See Australian Cancer Society and National Heart
Foundation. Tobacco Tax Solutions: May 1988 Budget.
Melbourne. 1998, p. 5.