Today's tobacco tax rise punishes low income smokers who cannot quit

Posted by DrMendelsohn on 31 August, 2017

Today’s tobacco tax increase will make cigarettes even more expensive, causing financial pain for many low-income smokers who are unable to quit. The tax on tobacco in Australia has almost tripled since 2010 and is helping to fill government coffers. However, it may now be doing more harm than good to the most disadvantaged members of the community.

Australia has by far the highest priced cigarettes in the world. A packet of Marlboro currently costs AUD$25 in Australia, compared to AUD$15 in the UK and AUD$8.50 in the US. A 20-cigarette-a-day smoker spends $9,125 per year on tobacco. After today’s 12.5% tax rise, smokers will be paying 77 cents tax per cigarette or $5,475 tax per year (including GST). Further annual 12.5% tax rises are planned for the next 3 years.

It is well established that higher prices reduce smoking rates. However, it is also likely that the law of diminishing returns applies after a certain price point. Most remaining smokers are addicted to nicotine and prioritise their cigarette purchase at any price, often sacrificing household essentials like food. At these unprecedented price levels, it is unclear if further price rises have a net public health benefit.

A diminishing effect from tobacco tax rises may be one explanation for the flatlining of adult smoking rates in Australia from 2013-2016. For the first time in decades, the number of smokers has risen during this 3-year period in spite of high prices and plain packaging. Low-income smokers are most affected. They have much higher smoking rates, are more heavily addicted and find it much harder to quit than more affluent people.

Smoking and social justice

Smokers on low incomes are more sensitive to price rises and some will quit when they occur. However, regular tax hikes create considerable financial hardship and stress for those who are unable to quit. A 20-cigarette-per-day smoker spends nearly two-thirds of the Newstart allowance just on smoking alone, leaving only $185 per fortnight for housing, electricity, food and other basic needs.

The tobacco tax is regressive and inequitable for low income smokers who pay a higher percentage of their limited household income to smoke. Smoking is often a pleasure or coping mechanism for difficult life circumstances and many feel they are being victimised and punished for a habit they are unable to quit.

High tobacco prices have also created a growing black market in contraband tobacco, often managed by organised crime networks. A packet of Marlboro is only AUD$2 in Indonesia and big profits can be made from smuggling tobacco into Australia. Considerable costs are involved in policing this illegal activity.

Some smokers switch to cheaper options, such as ‘chop chop’, loose unbranded tobacco which is often laced with mould spores, grass cuttings and other contaminants and is even more harmful than processed tobacco. Others have taken to growing their own tobacco, which is illegal in Australia.

Other solutions

There are other strategies which may be more effective and fairer. To show its genuine concern for smokers, the government could earmark some of the tobacco tax revenue for smoking cessation services such as smoking clinics, subsidised nicotine gum or lozenges and training for health professionals. Quit services are effective and highly cost effective and support the smokers who are paying the tax.

Another solution is to make a less harmful alternatives available, such as electronic cigarettes or Swedish snus. E-cigarettes deliver the nicotine smokers are addicted to and simulate the hand-to-mouth ritual. E-cigarettes have helped millions of smokers quit overseas and appear to be contributing to the rapid decline of smoking in countries such as the UK and US.

E-cigarettes could also relieve the financial stress of low income smokers who are unable to quit. E-cigarettes are around 10-20% of the cost of smoking and would save a pack-a-day smoker $7-8,000 per year. Disadvantaged smokers are aware of e-cigarettes and are willing to switch to save money.

E-cigarettes are also a very cost-effective solution for a cash-strapped government as they are purchased by the consumer with no cost to the public purse.  Once regulated they would generate income from sales taxes and GST and provide employment. There would also be a dramatic reduction in smoking-related disease and substantial savings from health care costs.

It is illegal to possess or use nicotine for e-cigarettes in Australia, however there are currently two Parliamentary Inquiries reviewing this situation (here and here).

Governments are ‘addicted’ to tobacco taxes which will contribute AUD$12.5 billion to treasury coffers this financial year (excise and GST). However, tobacco taxation decisions should not be driven by a desire to balance the budget or to punish smokers.  Tobacco taxes can be justified if they are improving public health and wellbeing. However, if further tax increases are failing to have that effect and are magnifying social and financial inequities, we need to find other solutions.

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