Smoking Tax Hike Is Shortsighted Smoke And Mirrors – Budget 2016

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One of the core functions to modern taxation is to influence behavior. Activities which have perceived positive benefits (such as taking up private health insurance, which eases pressure on the public healthcare system) are encouraged via tax-breaks … while goods, services and pursuits which seem to have negative consequences for users and those around them are discouraged via punitive additional revenue-raising.

We generally call these “excise taxes” or “sin taxes”, and while they’re often levied with the explicit and express purpose of “internalizing externalities” (to use the economics jargon) by putting money in the pocket of the state to pay for damages caused by the consumption or production of the product in question … but as we can clearly see with smoking (wherein the cost to the economy and healthcare system of smokers was long since paid for and then some by taxes levied on tobacco some time ago), there is also often a secondary purpose to these taxes.

Expressing societal disapproval.

Now whatever you might think about raising revenue as an overt form of condemnation of something we view as undesirable, something interesting occurred to me while looking at the figures from yesterday’s budget.

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The increase in price for a packet of cigarettes to around thirty dollars apiece is projected to generate about 425 million dollars worth of taxation revenue.

That’s just a little sort of the estimated $490 million per year which the top twenty tax-dodging multinationals suck out of our government’s coffers through creative and cunning unethical structurings of their financial affairs.

Now unless I’ve missed something drastic, despite vociferous demands from a number of quarters that the government’s 2016 Budget do something about this problem – both in the name of revenue-raising, and at least somewhat purely for the principle of the thing – it would appear that National’s still frankly unconcerned about this issue.

As mentioned at the outset of this piece, one role of taxation policy is to disincentivize certain behaviors – and, in extremis, to express societal condemnation for the activities in question.

Large-scale tax-avoidance to the tune of hundreds of millions of dollars per annum is quite clearly something which ought to be stamped out and disincentivized. I would also posit that the widespread popular scorn for such activities when they came to light again most recently in an NZ Herald expose additionally suggests that there is much societal enthusiasm for expressing condemnation at the perpetrators in question, and hitting them in their ill-gotten bottom lines.

It is a frank demonstration of their priorities and ethical valuations, along with who and what they care about, that National are prepared to prioritize levying a lower figure of revenue from smokers – ordinary people – over securing a higher figure through cracking down upon the dodgy dealings of the rich and powerful corporate few.

This is particularly the case given the well-known regressive nature of consumptive taxes in general, and excise taxes levied on smoking in particular.

The way it works is that people on lower incomes spend far more of their income than do the wealthy. Therefore, taxes upon what we spend consume a far greater proportion of their income than the incomes of the rich.

In addition to this, cigarette smoking is disproportionately a feature of the ‘working’ classes. It’s been steadily declining amongst ‘upper income earners’ and bureaucratic ‘movers and shakers’ for quite some time now. Thus, cigarette tax increases hit those in lower tax-brackets the hardest.

There are also racial preponderances when it comes to who in our society will be predominantly affected by this tax-hike. Thirty five percent of Maori, and twenty two percent of Pasifika people versus fifteen percent of the general population.

So what the government has in fact said with this curious decision to massively increase taxation revenue derived from smoking … is that they’re quite comfortable with extracting hundreds of millions of dollars more at the direct expense of the poorer, browner, and presumably less likely National-voting segments of their community.

And, in so doing, conspire to let their rich mates ‘off the hook’ when it comes to taxation policy reform elsewhere, while also putting a bit of extra ‘fiscal headroom’ in the tank to further ‘justify’ electoral-bribe tax-cuts either immediately before or immediately after the next Election.

Apart from this, about the only way this policy makes any semblance of strategic sense is if we conclude it’s one of those “Dead Cat” stunts we’ve recently heard so much about. If you’re unfamiliar with the technique, it’s what happens when a party that’s potentially vulnerable on an issue puts an even more immediately comment-inducing issue upon the table in the hopes of providing a bit of a ‘distraction’ from whatever it is that’s previously been plaguing it. In this instance, National may very well have held a back-room strategic discussion and decided the best way to take some measure of wind out of the sales of other swells of discontent as applies taxation policy (whether the aforementioned $490 million in taxes being dodged by top multinational firms here; or the wider demands for reform of NZ’s tax laws in the wake of the Panama Papers), is to put out a fairly prominent piece of new policy (the cigarette tax hike) which will get everyone talking  about that instead – yet which it’s very difficult for many sides to obviously and readily oppose. Progressives, after all, can’t really be let themselves perceived as pro-smoking.

Except one.

To nobody’s especial surprise, New Zealand First Leader (and inveterate smoker) Winston Peters is pretty much the only party-political figure of note coming out against the change.

He’s quite correctly pointed out that due to the nature of an addictive consumable like cigarettes (which are what economists would call a good that is “inelastic” in consumption), increasing the price of a pack isn’t going to lead to people cutting them out altogether. But instead, to money which could otherwise be diverted into worthy ends like feeding one’s kids being rather used to buy cigarettes.

This is a social outcome which really benefits nobody except the taxman.

But it gets worse.

As a number of commentators and observers have pointed out, the recent spike in thefts, ram-raids and burglary against dairies, service stations and convenience stores over the last few months has chiefly been driven by previous rounds of cigarette excise tax increases. The spiraling price of tobacco has put satiating their habits out of financial reach of many low-income consumers, yet it hasn’t necessarily lead them to stop smoking. Instead, cigarettes are stolen rather than bought – and a thriving black market in illicit tobacco has been created in consequence.

Will the $425 million in extra taxation revenue this policy creates be used to properly staff and resource Police so they can respond to ever more (occasionally quite brutal) cigarette heists? I think not.

All things considered, on both dynamics I’ve touched on in this article – increases in tax on cigarettes, and a complete lack of interest in properly enforcing tax-collection on wealthy multinationals – National has displayed an almost callous lack of foresight; prioritizing easy and low-hanging fruit limited revenue gains over genuinely useful (if a little more difficult to garner) policy initiatives that would actually be in our long-term interest.

Come to think of it, that pretty much sums up their attitude to government all up.

14 COMMENTS

  1. Good analyses particularly that of more burglaries to access cigarettes. Clearly the government never thought of the social consequences but as you point out, they never do.

  2. Winston was 100% correct in labeling this the ‘ get stuffed budget’.

    Housing, tax havens, education, poverty, creation of industry/ job opportunity’s , regional development… nil.

    And what was delivered is nothing more than a token gesture.

    THIS … was a foretaste of what was to come in a microcosm :

    http://www.stuff.co.nz/national/politics/10468960/Aroha-of-McGehan-Close-flees-NZ

    We did not heed the warnings of this prophetic incident. An incident that was to become a blueprint to what this Key led National govt was all about back in 2007-2008.

    And virtually none of the key issues back then have been adequately addressed. In fact , – they are worse.

  3. ‘one role of taxation policy is to disincentivize certain behaviors – and, in extremis, to express societal condemnation for the activities in question’

    That might be the case in a theoretical world but it certainly is not the case in the real world. In fact, quite to the contrary; people are strongly encouraged by the government to indulge in behaviours that ruin their lives and ruin the planet we live on.

    The end of everything is now coming faster than ever via runaway greenhouse which is a direct consequence of government failure (in NZ and elsewhere) ‘to disincentivize certain behaviors’.

    Daily CO2

    May 25, 2016: 408.09 ppm

    May 25, 2015: 403.30 ppm

    (An uninhabitable planet in a couple of decades, in case that is not already clear.)

  4. All well said – and past a certain point, people should be free to choose their poison whatever anyone else thinks about it.

  5. With tobacco approaching the status of brown gold, there must be a few dairy and convenience store owners wondering if they should minimise their danger from armed robbery and stop selling the stuff.
    My partner works at such a store and I am now more worried than ever that she may be the victim of an armed robber.
    In their pathological scrabbling for more tax to balance their dodgy books do National ever think of how their dartboard economics might actually affect the wider community?
    No, they don’t.
    How typically National.

  6. I’ve heard it said before cynically that the three-year electoral cycle in New Zealand works something like this:
    First year of government is spent paying for or reneging on all the promises/bribes that were made the previous year.
    The third year of government is spent promoting promises/bribes for next year.
    The second (middle) year of government is spent doing what the government actually wants to do: which in the case of the National government usually means as little as possible.
    They certainly haven’t broken any traditions here.

  7. Since this abhorrent government won’t entertain plain packaged cigarettes, I read these new taxes as an example of their contempt for the poorer classes and a clear act of class war, with a touch of racism thrown in. Unfortunately, most of us who have benefitted from privilege (I’m white, male, hetro, tertiary ed’ non-smoker) are blinded by it and generally lack empathy to try to understand the defferential association which dictates group behaviour. Instead, neoliberalism focuses on ‘governmentality’, a society that doesn’t acknowledge group behaviour but individual behaviour instead. The ideology is that there’s enough information out there telling us that cigarettes/sugar etc are bad, and it’s up to the individual to make the right choice. This gets neoliberal governments off the hook as far as regulating the market goes. People keep saying that this government are short sighted. I’m with Andrew Little, it’s not that they’re short sighted, they just don’t give a shit. They’re about maintaining established privilege, and that means denying it to others.

  8. And what will Labour promise next year, how many billions of extra spending will they promise?…I’ll go for $15b and of course they think they will get it all by higher taxes (no extra borrowing I assume as they have already bagged National for last 7 years on their borrowing). Can one assume that their appointed ‘tax panel’ will release it’s finding AFTER the next election so they don’t have to electioneer saying we will raise all taxes….another 3 years for National and another new Labour leader by December 2017.

  9. You are logical enough about expensive tobacco causing theft but I doubt that tobacco has ever paid its share of the health problems & early death it has caused. They might be contributing enough now but there is over 100 years of misery they still owe for. No one denies it is hard to quit smoking but I know many who have & price is proven to control demand eventually. Personally I would follow the same pattern with alcohol but there are no votes in that so you drinkers are safe. As for the actions of those who steal tobacco for profit because of the money involved if tobacco was cheaper they would just steel something else. Having been burgled 3 times over my life I would rather they went for tobacco & left my stuff alone, more chance of security cameras catching them also.

  10. and don’t forget the businesses now being started fot ‘shop security’.. along with the the ‘P-testing’ and ‘drug testing’ industries,,,, started by ex police..

  11. I heard someone from the New Zealand Initiative saying exactly the same thing- that increasing the tax on smoking would hurt the poor and be a threat to law and order.

    Hmmmm- NZ First and NZ Initiative saying the same thing.

    Winston can afford to smoke if he wants to.

    A party that actually cared about the poor being addicted to smoking would make all stopping smoking aids (eg nicotine gum, patches ) free. Then we might believe them.

  12. Lolz

    Oh look, there it is in black and white. Labour ‘the supposed party of the poor and the working class’ tag team up with national to gang bang the poor and the working class….

    ‘The Customs and Excise (Tobacco Products—Budget Measures) Amendment Bill has passed through all its stages under urgency.

    Ayes 109 (National 59, Labour 32, Greens 14, Maori Party 2, ACT 1, United Future 1)

    Noes 12 (NZ First 12)

    This bill amends the Customs and Excise Act 1996 to make four cumulative 10% increases to the duties on all tobacco products’

    ***Source***
    http://parliamenttoday.co.nz/2016/05/tobacco-tax-bill-passes-under-urgency/

    Watch all the wowsers and sanctimonious holier-than-thou-pricks justify this tax grab

  13. Smoking fags costs the country zillions in health care costs.

    So do idiot drivers.

    So do breweries and consumers of their fine fizzy products.

    So do people who eat barbecue’d foods.

    So does iatrogenic harm.

    Fags and other tobacco products stink when burned.

    So do petrol and diesel on a street, lawn, or highway near you.

    However, it is still absolutely legal to buy Nicotiana tabacum seeds, and grow the plants for personal use, in this country. Which just might produce a much healthier product that the usual pesticide-polluted floor-sweepings.
    https://www.hrw.org/news/2014/05/14/us-child-workers-danger-tobacco-farms

    The wowsers have never left us. ‘Just Don’t! We don’t like it! Naughty indigent people. No small pleasures or rewards for you!’

    And I’m not a smoker or taker – of anything.

  14. You ever been to a bogan party where there’s always the inevitable drunk bully swaggering around looking for a target?
    Until someone mercifully knocks him on his arse, drags him outside and locks the door.
    New Zealanders have been so bullied that, by and large we suffer from “bystander effect. ”
    https://en.wikipedia.org/wiki/Bystander_effect
    This phenomenon was highlighted in a study rising out of the actions of an attacker who killed a woman in plain sight in front of day time bystanders in NYC some time in the ’60’s. People stood back watching in horror as the guy assaulted his victim for more than twenty minutes. The cops said ” Well, that’s NYC for ya. ” Psychologists took it upon themselves and dug a little deeper and discovered a psychological anomaly that effected people when in large groups. Like the population of a small country. They are rendered seemingly powerless and become transfixed to the spot.
    That is until someone makes the first move. Then? It’s all on man.
    We can only watch on as bullies tell us how it is . Or else.
    I think we need to switch that around.
    If Andrew Little flattened jonky during,say, a televised debate, then rounded on the television and said ” Right ! One down ! Who’s coming with me to rid your parliament buildings of the rats that inhabit it? ”
    In NZ ? Would that angry crowd consist of a few hippy kids and a dopy, face painting clown preaching giggles and ice cream ?
    I’d say yep.

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