Right: Opponents of increasing tax on tobacco products claim that the hardest hit would be the poor, the elderly and the uneducated.'
Arguments against taxing cigarettes more heavily
1. Increasing the tax on cigarettes imposes a disproportionate burden on the economically disadvantaged
It has been repeatedly claimed that taxing cigarette consumption places an unfair burden on the economically disadvantaged. This claim rests on two facts. Firstly, a far greater percentage of the lowly paid and relatively less well-educated section of the population smokes. Secondly, the excise they pay on the cigarettes they smoke affects them proportionately far more as this section of the population has lower incomes.
This claim has been made by Judith Sloan, contributing economics editor for The Australian and Professor Judith Sloan, Honorary Professorial Fellow at the Melbourne Institute. Professor Sloan has stated, 'Labourers and related workers are three times likelier to smoke than professionals.
Smoking rates among indigenous Australians are also significantly higher than among the rest of the community. In 2008, it is estimated that nearly half of male indigenous Australians smoked and 44 per cent of female indigenous Australians.
The rate of smoking among indigenous Australians has not changed in more than a decade.'
Professor Sloan has further noted, 'the bottom 20 per cent of households pay one-third more tobacco excise tax on average than the top 20 per cent. It is the poor who smoke and pay a disproportionate share of the excise. In the words of Julie Novak, a senior fellow at the Institute of Public Affairs, it is a case of "soaking the poor" - not the rich.'
As Professor Sloan notes, Dr Julie Novak , a senior fellow with The Institute of Public Affairs has claimed that a tobacco tax increase unfairly punishes lower-income families, who 'pay up to three times as much as wealthy families in nanny state taxes'.
In her background paper 'Nanny State Taxes: Soaking the Poor in 2012', Dr Novak states, 'The lowest fifth of income earners pay over six per cent of their total income as tax on alcohol, foods and tobacco. For all income categories the average tax paid out of income is about three per cent, and as low as two per cent for the highest earners in the Australian income distribution.'
Referring to the currently proposed increase in tobacco excise, shadow treasurer, Joe Hockey has stated, 'It is going to increase the cost of living for smokers but smokers could be pensioners, low-income people, it could be smokes and beers might be the thing that is important to them.
I want to know what the impact is on lower income people of just increasing their cost of living.'
2. Increasing the tax on cigarettes will encourage the illegal tobacco industry in Australia
A spokesperson for British American Tobacco, Scott McIntyre has claimed that the illegal tobacco market was also to 'flourish' as a result of higher taxes on cigarettes. He said the market would be flooded with illegal products in order to provide cheaper tobacco to consumers.
Mr McIntyre claimed, 'It's alarming the illegal tobacco market has grown nearly 150% in just three years, from 6.4% of the total market in 2007 to 15.9% in 2010.'
Mr McIntyre has stated, 'We've just seen the Australian Crime Commission... release a report that says organised crime groups see illegal tobacco as a low-risk, high-profit activity. They see it as a market where large profits can be made with minimal detection...
Essentially, this tax grab hits smokers in the hip pocket while it lines the pockets of organised criminal gangsters.'
The British American Tobacco Internet site notes that a 2012 report on the illicit trade of tobacco in Australia found that counterfeit and contraband tobacco has tripled in one year. A total of 407,000 kilograms was estimated to be consumed in 2011 compared to an estimated 116,000 kilograms in 2010.
Contraband cigarettes are counterfeit or genuine packs but have been smuggled into the country and tobacco excise has not been paid on them. The same report stated 'Organised crime gangs importing loose leaf tobacco, counterfeit and contraband are now the fourth largest tobacco player in Australia just behind Imperial Tobacco which holds 17% of the legal market.'
The report further concluded, 'It seems when the Government increases price through excise, consumers look for cheaper alternatives, with ... lower price [being] a key reason 60% of people bought illegal products.'
3. Increasing the tax on cigarettes is a politically expedient budgetary measure
It has been claimed that increasing the tax on cigarettes is primarily a revenue-raising measure that the government is masking behind the claim that it is a public health initiative.
In an analysis printed in the Courier Mail on August 1, 2013, it was claimed, 'Average cigarette packets will be pushed well over $20 under the plan the Government says is aimed at cutting smoking rates. But Labor will only spend a portion of the money raised on cancer treatments, despite portraying the hike as a public health initiative.'
When he was last Prime Minister, Kevin Rudd lifted tobacco excise by 25 per cent in April 2010; the increase was directed into the health budget. On this occasion, the treasurer, Chris Bowen, has indicated that he would only commit to spend some of the money on tobacco-related diseases.
Mr Bowen has stated, 'This increase in excise serves several purposes: it provides funds for cancer-related health services; it deters young people from taking up smoking; and of course, it alleviates some of the revenue impacts on the Budget.'
The shadow treasure, Joe Hockey has been openly sceptical of the Government's attempt to link the increase in excise to public health issues.
Mr Hockey has stated, 'Again, it's Kevin Rudd running out of taxpayers' money and just going for the nearest solution, which is not about health.'
Judith Sloan, contributing economics editor for The Australian argues that smokers are taxed at a fair higher rate than would be required to meet the costs they impose on the public health system. Ms Sloan has stated, 'According to the Cancer Council, tobacco use accounts for less than 8 per cent of the total burden of disease and injury in Australia. The social cost of smoking probably amounts to several hundred million dollars a year; $1bn at most. hundreds of millions of dollars per year - a billion dollars, at most.
Given that total excise from tobacco will be $8.3bn this financial year, there is absolutely no doubt that smokers are grossly overtaxed, even before the higher rates of excise come into effect.'
4. Tobacco taxes are not a stable source of government revenue
It has been claimed that increasing taxes on tobacco products is not a reliable means of gaining taxation revenues. Two reasons have been offered for this.
One is that as the excise level increases, mainly seriously addicted smokers, who cannot give up the habit, buy their cigarettes illegally on the black market. These cigarettes obviously yield no taxation revenue to the government.
The other reason offered is that the number of people smoking within the Australian community has dropped dramatically over the last twenty-five years and so the taxation base from which the excise can be drawn has declined and is likely to decline further.
This paradox was explained by Annabel Crabbe in the ABC's opinion site The Drum. Crabbe has argued, 'In truth... you can't have a tobacco tax increase that is both a successful public health initiative and a robust ongoing source of revenue.
The long-term success of either purpose is entirely predicated on the failure of the other; either you eliminate smoking altogether, in which case no revenue, or you continue coining it for generations, in which case people continue to die with cancer.'
5. Smoking rates are falling without the addition of further taxes
There are some critics who dispute that continually increasing the cost of cigarettes through increasing the excise on tobacco is necessary to prevent people smoking.
In an article published in Crikey on August 2, 2013, it was noted 'Australia's tax rate on tobacco currently accounts for 61.3% of the final price of a typical pack of cigarettes according to 2012 Treasury statistics. This means that Australia is falling short of the World Health Organisation's benchmark that cigarettes be taxed at 70%. Australia's tax rate is less than the 72.27% in New Zealand and well short of the 79.89% in France or 79.16% in Spain.'
Despite this, Australia has been highly successful at decreasing the rate at which its population smokes. Australia has some of the lowest rates of smoking in the world. Generally, smoking rates for Australia have declined over recent years from 34% in 1980 to16.6% in 2007 being daily smokers.
Current smoking and smoking rates have declined in teenagers of every age. Between
1999 and 2005, rates almost halved among students aged 16-17 years. Among younger students, the rate in 2005 was barely one-third the rate in 1984.
Among people who still smoke, the number of cigarettes smoked each day has been steadily declining since 1989. The percentage of people who can be classified as heavy smokers has also been declining, with corresponding increases in the percentage of people who self-classify as light smokers.
Critics of the recently proposed tax increases note that Australia's suite of anti-smoking measures, including bans on smoking in work places and public areas; restrictions on the age at which cigarettes can be purchased; plain packaging of cigarettes and the wide-spread public education campaign warning of the dangers of cigarette smoking have been demonstrably successful in reducing rates of smoking.