Arguments In Favour Of Raising Cigarette Prices Are A Costly Smokescreen For Revenue-Raising

Another year, another hike in the price of cigarettes. 

This time, the first in a series of ten-percent increases that are going to hit once a year, every year, until 2020. The nominal goal for this exercise in extortion is to make New Zealand “smokefree” by 2025. Hidden in the small print is the caveat that “smokefree” in fact means less than 5% of the population smoking on a daily basis. And, slightly further into the ‘small print’, the revelation that simply throwing more taxation at the problem is unlikely to actually reduce consumption to the desired levels.

Meanwhile, ongoing price-increases in tobacco have already been fueling a crime-wave which targets the nation’s corner dairies, liquor stores and service stations; while the burgeoning black market in tobacco sourced from both theft and illicit importing(which, incidentally, allows punters to avoid the high price of taxation completely) shows no sign of abating.

So why are we doing it then? What motivates us year in, year out to place a highly regressive tax upon some of the New Zealanders who may be least in a position to afford it? (smoking, after all, being overwhelmingly a ‘pleasure of the working class’)

Personally, I think we went down this road because some of our politicians – specifically those in the Maori Party – felt an overweaning need to be seen to be Doing Something about an issue. To be fair, this is an issue which DOES disproportionately affect Maori – hence presumably the supposed ‘solution’ of disproportionately taxing them, instead.

But irascible, ‘gut-response’ policy-making is rarely either perspicacious about impacts, or particularly concerned with whether a given law-change will actually stand up to close scrutiny.

That presumably explains why the latest round of tax-hikes have had such unintended consequences while seemingly being ill-fit for purpose when it came to their stated objectives.

Let’s review the arguments behind the price-rises one by one.

The main argument people make in favour of placing exorbitant taxes upon smoking is that it’s necessary to do so in order to raise funds to cover the extra costs to the healthcare system which a smoking population imposes upon it. This is, from where I’m sitting, a pretty good argument – and one which smacks of both justice and forward-thinking. Except that we’re now in a situation wherein the average tax-take from cigarettes every year is more than three times as high as the estimated additional cost to our healthcare system of smokers. ($350 million relative to between $1.3 and $1.7 billion dollars – with this year’s increase alone looking set to provide $425 million) So we’ve long since passed the point wherein this is a well-supported motivation for any further tax-increases. That’s not to say it’s necessarily a bad thing that smokers are now subsidizing quite heavily the non-smoking population’s healthcare – if only because the next time somebody shoots you a dirty look, or starts fake-coughing in your presence as you’re lighting up … you’ll be fully within your rights to beam at them and proudly tell them they don’t have to thank you for your generosity.

But it’s nevertheless somewhat disquieting that an essential state service (in the form of healthcare) has to be funded off ever-increasing levies upon a small segment of the population in lieu of properly sorting out taxes elsewhere – and we shall return to this point later.

The next argument often made for price-increases on cigs is that it’s supposed to help people quit smoking. And maybe the first three or so rounds of price-increase actually did. But if you’re still smoking at this point, despite the fact that a twenty-pack of cigarettes now costs about as much as an entire *bag* of roll-your-own tobacco did when this set of price-rises started [incidentally, about the time I quit smoking because I decided I’d rather spend my money on cannabis] … then the chances are that a series of ten percent price-increases *probably* aren’t going to cause you to seriously reconsider your habit. (And if you don’t believe me saying it – this is actually the official position of the Heart Foundation advanced last year at Budget time when the ten percent tax-hike was last brought up)

Instead, as an addict, you’re probably in a situation of regarding your cigs as what economists call a “reputed necessity” – and, as a result, the relative “inelasticity” of your consumption-pattern just means you wind up spending more of your income on the same or slightly smaller numbers of cigs.

Which is a bit of a problem for lower-income earners – as if you’re using a greater proportion of your heard-earned cash on your nicotine habit (in some workplaces a virtual de-rigeur sanity-preservation tool in order to enable you to actually work the insufferable no-overtime shifts in the first place), then you’ve presumably got less money to spend on feeding yourself, or other items of what many now consider to be ‘discretionary spending’ such as visits to the doctor. (It is, of course, quite an irony that heavily subsidizing the healthcare of others might cause you to be able to access less of it yourself)

This is without mentioning the potential bugbear of low-income families having less to spend on their children – and that’s something which I include in a spirit of completeness, because somebody WILL be thinking it. Not because of any belief that working class parents habitually place their own small pleasures ahead of the needs of their children – instead, it quite often seems to be diametrically the opposite.

And before the predictable retort of “well, they should just give up then” is advanced in response to the above … that’s not how reality works, unfortunately – and if we’re interested in making a policy that’s actually fit-for-purpose, empty moralistic platitudes in place of sound reasoning or evidence just simply won’t do.

Although speaking of children … one of the more refined forms of the above ‘barrier-to-purchase’ argument is that increasing the cost of cigarettes helps to keep them out of the hands of young people and children.

This is, again, a pretty nice-sounding argument. Nobody seriously thinks that children should have access to cigarettes (not that they do legally, anyway), and getting 18 year olds to defer the decision to start smoking til they’re ‘older and wiser’ certainly doesn’t seem an implicitly bad idea. Except again – there’s a problem here with how the price-increases intersect with these (laudable) goals.

The expanding black market in tobacco – which has been created in no small part due to the tax-hikes – mean that it’s now even easier for young people who wouldn’t otherwise be legally able to buy cigarettes to come into contact with nicotine. At lower prices, too (because black-market cigarettes don’t have the tax on them, inter alia, and vendors are also considerably less likely to check for ID).

So while in theory it sounds fine to make the case that a twenty five dollar packet of cigarettes is now further out of reach of a teenager who’s scrabbled around to find enough pocket money to consider buying some smokes … in practice, the reality may be very different.

Now that being said, there ARE some legislative interventions which may be of some use in reducing the rate of young people who decide to take up smoking. One of these could be instituting what’s known as a raising age of purchase. The idea here would be to increase the age at which cigarettes can be legally bought by one year every year, til we reach 25 or some other arbitrary agreed-upon point at which people are mature enough to make bad decisions. (the policy could ALSO be run with no ‘ceiling’ to the continual increase – with a view to creating a situation in which it’s pretty much impossible for subsequent generations to take up smoking, without restricting the ability of people who already are legally able to purchase from so doing).

But New Zealand, as far as I understand it, isn’t looking into that – presumably because our lawmakers would much rather collect the extra taxation-revenue from an 18 year old smoking than they would actually attempt to ensure he’s less able to purchase them.

Because ultimately – as I said earlier, and as I’ve argued in previous pieces – that’s what this entire arrangement is about.

The Government, when instituting this long-running series of price-rises, had twin objectives.

First, to give their coalition partner a minor win which they could point to as evidence that shacking up with the National Party (with its attendant massive electoral cost) had actually been ‘worth it’.

But second, they wished to tap a pretty sizable source of new taxation revenue. And one which, handily, isn’t really allowed to complain when squeezed ever more tightly year-in and year out.

Having reviewed the evidence, it becomes fairly obviously apparent that this recent round of tax-hikes isn’t really a serious stab at reducing or eliminating the prevalence of smoking in our society. 

Instead, it’s the hallmark of a government playing parsimony when it comes to establishing wafer-thin ‘surpluses’, desperately attempting to scrabble down the back of the fiscal couch in search of a few hundred million more to make the books add up.

How else to explain the fact that the state raises so many more times in revenue off cigarettes what it spends on extra healthcare for smokers. How else to interpret Customs reports which place the emphasis upon illicit tobacco imports depriving the state of revenue, rather than expressing concern about putting a potentially dangerous substance on our streets. And Regulatory Impact Statements which stress that tobacco-taxes are a “reliable” and “very efficient” means of raising revenue. Why else, in short, would the state continue to make tobacco readily available for a captive (tax-paying) market rather than simply illegalizing it if it’s so genuinely worried about all our collective welfare.

It’s not hard to see what’s really going on here. You just have to follow the money, and look past the perfidious smokescreen.

If you want to.