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Tobacco taxation – trends, principles, a
review, and the case for reform
Trends
Each December the excise
tax on tobacco is adjusted for inflation. But the price has not been
increased above the rate of inflation since 2000.
The costliness of cigarettes
(costliness in relation to income) has not increased since 2002. See Figure 1. The time required to earn 20
cigarettes has remained at around 30 minutes for four years. Unless the real
tax rate on cigarettes is increased, smoking will become more affordable
and wage rates rise above the level of inflation. The annual adjustment
of tax for inflation every December 1 does not adjust for rising wages.
Cigarette tax rise above the level of inflation overdue
Tax should be
risk based. Price rise should not
apply to cigars, pipe tobacco and snuff
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Figure 1. Costliness of cigarettes associated with the trend in
adolescent smoking more than with adult smoking 1990-2004
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The increase in costliness of
cigarettes can be traced to major tax increases in the mid-year
Budgets: 1991, 1998 and 2000.
Costliness did not dent the annual
adult smoking prevalence, (due to addiction causing relapse?) but when
cigarette costliness increased (1998-02) adolescent smoking decreased.
The quit campaigns since 1999 have not
been associated with noticeable decreases in adult smoking but have
been accompanied by a major decline in adolescent smoking. The recent
decline in adult smoking was in 2004 after the bill was passed to ban
smoking in bars.
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Keep the
price of cigarettes high to keep adolescents from smoking.
- Health advertising on dangers of
smoking aimed at adults decreases
adolescent smoking.
- Supply more adequate dosing of nicotine
to smokers, & decrease nicotine content of cigarettes.
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Smoking
fell 1% point in 2004, after the bill to ban smoking in bars and
factories passed, (but not in 2005 after it came into effect.)
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Principles
PROPOSED PUBLIC HEALTH POLICY
PRINCIPLES FOR THE TAXING OF TOBACCO
Smokeless NZ
maintains that in the light of new information on how very addictive
tobacco products can be to many smokers, and on how cigarettes and other
smoking tobaccos are far more dangerous than smokeless tobacco, it is
time for government to review the basis of tobacco taxation – to not just make smoking pricey, but costlier, and also review why those addicted to nicotine and tobacco
should be denied the choice of less dangerous (smokeless) products. We
propose a nicotine-based tax alongside a basic tobacco tax, and that the
tax be levied in proportion to the risk of using
that class of tobacco product.
Principle 1. Increased costliness, not just a higher price
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Figure 2. Minutes required at
average wage rates to earn the price of 20 cigarettes 1990 -2005
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In 1981 only 10 minutes was
needed to earn 20 cigarettes.
In 2002 to 2004, the average worker
was taking 30 minutes to earn the price of packet of cigarettes.
Costliness has not increased
since 2002.
Comment In the
1986-92 recession, Government needed revenue,
and so repeatedly increased tobacco tax, with considerable health
gains. Now, as wages rise, tobacco tax needs to increase again to make
smoking less affordable.
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Principle 2 The smoker who pays the tax
should get some benefit such as increased choice of reduced harm
products.
Addicted smokers pay over $1000 a
year in tobacco tax, cannot buy a truly less addictive or even a truly
low emission product. (All cigarettes currently sold contain ample
nicotine to maintain addiction). Taxation could be used to favour products low on nicotine and low on toxicity.
This principle leads on to the next two principles:
Principle 3 Use tax to assist smokers to
quit - tax to favour
reduced-nicotine-content cigarettes
Smokers addicted to nicotine have
reduced ability to avoid paying tobacco tax, which is a transfer tax that
falls heavily on Maori, of whom half are smokers. The labeling should be
accurate, and based on nicotine content, and if this was the basis of
taxation (rather than current packet labels), smokers would at least have
properly labeled choices.
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Cigarettes are laden with much
more nicotine than most smokers need.
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Many smokers feel they are in
the grip of a very fierce addiction.
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A 30% reduction in nicotine
content would not bother most smokers, and would assist others to quit. www.smokeless.org.nz/lowernic.htm
Principle
4 Levy the tax
in proportion to the risk from using the product
The current basis of tobacco taxation is based on the fallacy
that the risk of consuming a kilogram of tobacco products is the same,
whether of cigarettes or cigars. Cigars and pipe smokers (who have not
smoked cigarettes) have risks (over and above that of never smokers) of
about one third that of cigarette smokers. Smokeless tobacco is only one
twentieth as dangerous as cigarettes smoking. (For a bar graph showing the relative
risks of various tobacco products
see www.smokeless.org.nz/oralsnuff.htm
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Thus tobacco products thus vary
at least 20-fold in their risk of causing early death.
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As the ultimate cost to the
taxpayer and society depends on the risk, it makes sense to recover tax
according to the risk generated by the use of that class of tobacco
product.
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Cigarettes would attract the
highest rate, and smokeless tobaccos (snus) a much lower rate.
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Cigarettes would attract 20
times as much tax as smokeless tobaccos (oral snuff).
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Review
WHO
REPORT ON TOBACCO TAXATION IN NEW
ZEALAND
The
World Health Organization recently published a report on Tobacco taxation
and smuggling control: New
Zealand: www.healthnz.co.nz/TobaccotaxWHO.pdf
(10 pages, 344 Kb, printable version)
“Taxation
has been a common method of revenue collection for over 100 years in New
Zealand and has been the major policy instrument to reduce tobacco use
since the comprehensive tobacco control programme began in 1985. Tobacco
tax rates have been raised once or twice a year since that time. In 2000
cigarettes were the second most costly in relation to income among 22
OECD countries, after the UK. The 1986-92 recession
saw the government increase tobacco tax for revenue reasons.
Consumption
of tobacco products fell more rapidly in New Zealand than in other OECD
countries from 1985 to 1998, due to reliance on taxation to increase
revenue, but prevalence did not fall as rapidly in relation to some
countries – prior to 1999 there was little support to help smokers
to quit (no Quit advertising, no toll-free Quitline)…..”
Reform
Tobacco
tax was last reformed substantially by Finance Minister David Caygill in
the late 1980s, when tobacco tax was applied on the basis that tobacco
was a toxic substance, and all tobacco was equally toxic. Today we know
that tobacco is not equally toxic – when tobacco is lit and smoked,
it is much more toxic than when chewed or sucked. www.smokeless.org.nz www.smokeless.org.nz/cigarettesmokingrisks.htm
Current
tobacco taxation (excise): http://www.customs.govt.nz/manufacturers/Excise+Duty.htm
Moist
tobacco content is the current basis of taxation. Since 1979
the new Toxic Substances Act had classed tobacco as a toxic substance.
The Sullivan review in 1988 accordingly based tobacco excise on the
tobacco content (by weight) of the product, regardless of whether the
product was a cigarette or a cigar. A cigarette is currently assumed to
contain 0.8 grams of tobacco for taxation purposes. The average weight of
tobacco of most brands of manufactured cigarette is known. However
hand-rolled cigarettes may weigh less or more than this - usually less.
Thus the average weight of the average
New Zealand overall may be changing up or down but no-one knows exactly.
Moisture
adjustment Logically, tax should be based
on the active ingredient. As it is, the water content is also taxed.
There is no adjustment for moisture. Moisture in the tobacco varies
– in manufactured cigarettes moisture is 13.5%, in RYO and pipe
tobacco 19%, in cigars, 12%, in dry snuff 25%, in moist snuff 50%.
Inflation
adjustment Under the Customs Act, since
March 1990 tobacco excise has been automatically adjusted according to
the consumer price index. The excise is altered (usually increased) each
December 1st to adjust for inflation, so that the tax rate
remains constant in real terms. Manufacturers usually increase their
dollar take and the recommended retail price at the same time.
Income adjustment There is no such automatic adjustment of tobacco
tax, as there is for inflation.
Risk adjustment. Not currently the case, but strongly recommended.
See www.smokeless.org.nz/taxandrisk.htm
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