Tobacco excise increase
Matthew Thomas
From midnight on 29 April 2010, the Government
increased the excise and excise-equivalent customs duty rate
applying to tobacco products by 25 per cent. The excise on
cigarettes was increased from $0.2622 to $0.32775 per stick and the
excise on loose leaf tobacco was increased from $327.77 to $409.71
per kilogram. The increase was expected to raise the price of a
pack of 30 cigarettes by around $2.16 and is calculated to yield an
extra $5.5 billion in tax revenue over the forward estimates
period.[1] The
Government has indicated that this additional revenue will, along
with existing tobacco excise revenues, be invested in improving
health and hospitals through the newly instituted National Health
and Hospitals Network Fund.
The last general increase in tobacco
excise—that is, other than adjustments for CPI—was a 10
per cent increase in the 1995–96 Budget.[2] Partly as a consequence of this,
Australia has lagged behind other OECD countries where it comes to
the rate of tax as a percentage of the final recommended retail
price of a typical packet of cigarettes. Prior to the latest
increase, taxes comprised around 68 per cent of the total cost of a
packet of cigarettes in Australia.[3] This is low compared with countries such as France
(80 per cent), the United Kingdom (78 per cent) and Canada (76 per
cent) and, as at 2003, Australia ranked 17th out of the
19 OECD countries for which data were available.[4] While cigarettes in Australia are
among the most expensive in the world, until the latest excise
increase the price of cigarettes was nevertheless typically lower
than in other OECD countries.
On the strength of the above factors, it may
be argued that a general increase in tobacco excise was overdue in
Australia on health grounds.[5] The Government anticipates that the excise increase
should cut total tobacco consumption by around six per cent, and
the number of smokers by two to three per cent—that is,
around 87 000 Australians.[6] (It is to be assumed that this is over the next 10
years, as per the National Preventative Health Strategy goal and
the COAG National Partnership Agreement on Preventive Health.)
Although it is difficult to quantify precisely the impact of such a
measure, it is reasonable to assume that the excise increase should
result in a significant reduction in the prevalence and incidence
of smoking; that is, a number of existing smokers are likely to
give up the habit, and less people are likely to take up
smoking.[7] A
substantial body of evidence supports the finding that real price
increases and reductions in the affordability of tobacco products
are the most significant policy intervention in reducing tobacco
consumption.[8]
However, as many public health commentators
see it, it is important that the reduction in consumption should
extend to people in low income groups and other disadvantaged
populations (especially Indigenous Australians), and not just be
confined to people who are more educated and from higher
socio-economic groups.
On this understanding, tobacco excise
increases have been described by some as regressive. That is, they
impact disproportionately on people from lower socio-economic
groups who are more likely to be smokers, and less able to afford
the increased purchase price of a product to which they are more or
less addicted.[9]
This much seems irrefutable.
That said, some have argued from a
preventative health perspective that this need not necessarily be
the case. As prominent Australian tobacco researcher, Michelle
Scollo sees it, ‘the key issue in determining whether tobacco
taxes are regressive is the extent to which people in various
socio-economic groups actually do reduce tobacco consumption in
response to price increases’.[10] Scollo’s rationale is that so
long as tobacco excise increases do indeed deter people from lower
socio-economic groups from taking up smoking or influence them to
quit, then they may be viewed as progressive. This is because it is
these people who stand to gain the most financially and in health
terms from excise increases that provide an incentive for them to
quit or reduce their consumption. A majority of research evidence
indicates that low income smokers are either as likely as, or more
likely than, higher income smokers to reduce their consumption or
quit smoking in response to tax increases.[11] Thus, Scollo suggests that tobacco
taxes can be described as being, on the whole, progressive.
However, arguably the degree to which the
Government’s tobacco excise increase is likely to prove
successful, and may be viewed as progressive, is heavily dependent
on the support provided to assist low income and disadvantaged
smokers to quit.
It is widely recognised that the achievement
of a decline in smoking demands a comprehensive approach. As the
National Preventative Health Taskforce notes, ‘the more
comprehensive the approach, the more likely it is that prevalence
will decline among all social groups’.[12] The Government has not introduced the
tobacco excise increase in isolation. It has also committed to
restricting Australian internet advertising of tobacco products,
increasing by $27.8 million over four years funding for
anti-smoking advertising campaigns and, in a world first measure,
introducing plain packaging for all cigarettes sold in Australia by
1 July 2012.[13]
What the Government has not done for low
income and disadvantaged groups is provide additional assistance
such as increased funding for smoking cessation programs. For
example, the Government has not adopted a March 2010 recommendation
by the Pharmaceutical Benefits Advisory Committee that nicotine
replacement therapy patches be placed on the Pharmaceutical
Benefits Scheme and subsidised by taxpayers.[14] This was also one of the
recommendations made by the National Preventative Health
Taskforce.[15] In
short, the tobacco excise increase is not as progressive as it
might have been had it been accompanied by further measures to
assist low income and disadvantaged groups, such as those outlined
by the National Preventative Health Taskforce.
[1]. K Rudd (Prime Minister), Anti-smoking
action, media release, 29 April 2010, viewed 12 May 2010,
http://www.pm.gov.au/node/6720;
Australian Government, Budget measures: budget paper no. 2:
2010–11, Commonwealth of Australia, Canberra, 2010, p.
51, viewed 12 May 2010, http://www.aph.gov.au/budget/2010-11/content/bp2/html/index.htm
The $5.5 billion estimate of tax revenue more or less tallies with
treasury modelling conducted last year of a rise in the price of
cigarettes of 21 per cent. The Treasury determined that such an
increase would raise additional tax revenue of $1.03 billion a
year.
[2]. There have been two other relatively
significant increases in excise since this time. The first of these
was as a result of a change in the way tobacco excise was levied.
Until November 1999, the levy was calculated per kilogram of weight
of manufactured cigarettes (including the filter and paper).
Subsequently, the levy was calculated per stick. The second price
increase was associated with the introduction of the GST in June
2000. M Scollo, ‘Policy measures associated with
quitting’, M Scollo and M Winstanley (eds.), Tobacco in
Australia: facts and issues, third edn., Cancer Council
Victoria, 2008, viewed 12 May 2010, http://www.tobaccoinaustralia.org.au/
[3]. M Scollo and A Lal, ‘The very latest
tobacco taxes, prices, production, expenditure, reported
consumption and revenue in Australia – as at February
2007’, Melbourne, VicHealth Centre for Tobacco Control,
2007.
[4]. Ibid.
[5]. Both present and former Opposition
Leaders—Tony Abbott and Malcolm Turnbull—have proposed
an increase in tobacco excise. In his 2009–10 Budget reply
speech, Malcolm Turnbull proposed a 12.5 per cent increase in
tobacco excise as means to increase government revenue while
improving public health. The tax hike was recommended as an
alternative to the Government’s policy to means test the
private health insurance rebate. Tony Abbott has in the past
proposed a 20 per cent increase in tobacco excise as a means to
subsidise the expansion of income management, or welfare
quarantining, to all families in receipt of income support
payments. While Abbott is reported to have labelled the tobacco
excise increase as a ‘tax grab’, he has nevertheless
indicated that the Coalition will support it. P Coorey,
‘Tobacco tax draws support for Rudd’, Sydney
Morning Herald, 11 May 2010.
[6]. K Rudd, op. cit.
[7]. There are many determinants of tobacco
consumption and econometric analyses are required to distinguish
the impact of price increases on tobacco consumption from the
impact of other policies that are calculated to reduce
consumption.
[8]. P Bardsley and N Olekalns, ‘The
impact of anti-smoking policies on tobacco cessation in
Australia’, Health Promotion Journal of Australia,
vol. 9, 1999, pp. 202–205; M Wakefield, ‘Smoke signals:
do anti-smoking messages really make a difference?’ in Nigel
Gray Oration, Melbourne, State Library: unpublished paper, 2006; P
Jha and F Chaloupka, ‘The Economics of global tobacco
control’, British Medical Journal, vol. 7257, 2000,
pp. 358–61; P Jha and F Chaloupka eds., Tobacco control
in developing countries, London: Oxford University Press,
2000.
[9]. For example, some have argued that while
some people on lower incomes will be driven to reduce their
spending on tobacco, others who are unable to quit or cut back may
go without food or other essential items rather than give up
smoking. Thus, the increases may have unintended consequences.
While the National Preventative Health Taskforce acknowledged this
possibility, it argued that ‘there is little direct evidence
of food insecurity attributable to tobacco use in Australia,
although it is likely that some heavy smokers already spend less
than is optimal on food, clothing and other goods and
services’. Australian Government, Australia: the
healthiest country by 2020. National Preventative Health Strategy
– the roadmap for action, The Department of Health and
Ageing/The Taskforce, Canberra, 2009, p. 176, http://dpl/Books/2009/AustraliaHealthiestCountry.pdf
[10]. M Scollo, ‘A regressive tax?’ in M Scollo
and M Winstanley (eds.), Tobacco in Australia: facts and
issues, op. cit.
[11]. Australian Government, Australia: the healthiest
country by 2020. National Preventative Health Strategy – the
roadmap for action, op. cit., p. 175.; M Scollo, ‘A
regressive tax?’ in M Scollo and M Winstanley (eds.),
Tobacco in Australia: facts and issues, op. cit.
[12]. Australian Government, Australia: the healthiest
country by 2020 – National preventative health strategy
– the roadmap for action, op. cit., p. 173.
[13]. K Rudd, op cit.
[14]. L Vasek, ‘Roxon ignored plea for nicotine patch
subsidy’, The Australian, 3 May 2010.
[15]. Australian Government, Australia: the
healthiest country by 2020 – National preventative health
strategy – the roadmap for action, op. cit., pp.
188–189.