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Why vaping reform in Australia makes economic sense

Posted on November 13, 2023 By Colin

REGULATING NICOTINE VAPES AS ADULT-ONLY consumer products like cigarettes would not only benefit public health but would also be a significant boost to the Australian economy.

This blog explores the economic impact of bringing Australian policy into line with other advanced countries such as NZ, the UK, EU and Canada.

The winners will be consumers and the government. The losers are organised crime and the cigarette industry.

Taxation windfall

Legalising and regulating vapes could potentially generate $510 million per year from GST, company taxes (retail and wholesale) and a 5% import tariff. These figures are based on calculations by UK consultancy Independent Economics, for the current market of 1.6 million adult vapers. There would also be personal income tax from employees.

Currently, a staggering 92% of vaping products purchased by Australians come from the black market, generating no tax revenue. Applying only a modest tax rate at the GST level like NRT (as in the  UK, New Zealand and France) would:

Government savings

Healthcare costs

Smoking-related healthcare costs in Australia were estimated to be a staggering $137 billion in 2015-2016. As vaping is considered at least 95% safer than smoking, substantial savings can be expected over time. A UK study estimated that if 50% of smokers switch to vaping, assuming a conservative 70% risk reduction, there would be annual savings of £518 million (approximately AUD 1 billion) for five disease categories.

Compliance costs

The necessary efforts to control the illegal vape network will incur hundreds of millions of dollars of costs annually. This includes border enforcement, policing illegal retail sales and prosecuting cases through the courts. On the other hand, there will be (much smaller) administration costs for running the new legal regulated market.

Reduced GP visits

The cost of an annual doctor's visit for a nicotine prescription amounts to $61 million (based on 1.6 million vapers at $39.75 per visit). The RACGP advises 3-monthly visits, at a  total annual cost of $242 million.

Reduced smoking cessation treatment costs

Vapers tend to quit on their own, usually without additional costs to the healthcare system. A more widespread adoption of vaping would also lead to reduced expenditure on PBS-subsidised smoking cessation medications, which cost $36 million in the 2020 financial year and fewer doctor visits.

Cost-neutral to taxpayers

Vaping products are paid for by consumers and are cost-neutral to taxpayers, unlike the hefty burden of healthcare costs associated with smoking cessation medicines and treatments.

It should be acknowledged that there will be some reduction in tobacco tax revenue over time due to fewer smokers, but of course that is the intended outcome.

Stimulation of the economy

Gross Value Added (GVA)

A legal vaping industry could contribute $601 million annually to the Australian economy by stimulating the retail and wholesale sectors, according to Independent Economics, including the employment of thousands of workers. Under the proposed crackdown, the retail vape industry will completely shut down.

Benefits also flow over to other industries as well. The Centre for Economics and Business Research in the UK found that for every £10 (AUD $20) of GVA directly generated by the vaping industry, a further £13.39 (AUD $26) of GVA is supported in associated industries, such as transport, printing, and packaging.

Manufacturing and export potential

Australia boasts numerous manufacturing facilities capable of producing nicotine liquids, which are currently limited to nicotine-free variants. Legalising vaping opens the door to manufacturing nicotine liquids for local markets and significant export opportunities, including markets in Asia-Pacific, the EU, Canada, and the UK.

Savings to smokers

Australia currently has the world's most expensive cigarettes. The average cost of smoking in Australia is $11,850 per year (13 cigarettes per day), while vaping costs from $500 to $2,000 per year, depending on the device used. This translates to potential annual savings of over $10,000 per smoker.

The high cost of smoking is causing significant financial stress for low-income and disadvantaged populations which have higher smoking rates, smoke more heavily and have greater difficulty quitting. This is of special urgency now, at a time of rising living costs and sluggish wage growth. The money saved can be redirected towards essential needs like food, housing, and heating.

The UK example

The United Kingdom's vaping sector serves as a compelling example of the economic potential of regulated vaping. According to a report by the Centre for Economics and Business Research:

In conclusion, legalising and regulating vaping in Australia presents an opportunity to boost government revenue, stimulate economic growth, achieve significant savings in healthcare costs and reduce the financial burden on smokers. By adopting best practice from other nations and implementing stricter controls, Australia can chart a path toward both a healthier population and a more prosperous economy.

References

CEBR report for UKVIA Economic impact assessment of the vaping industry. September 2022

Independent Economics. Tobacco & vaping in Australia. An updated economic assessment. March 2023

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