Thursday, April 29, 2010

Cigarette Excise Up By 25%

Yesterday afternoon the federal government announced without warning that effective as of midnight, April 30th, the excise on tobacco would increase by some 25%. This means that you will now pay $6.55 in tobacco excise on a packet of B&H 20s like in the photo. (Then you have to pay GST as well). The tobacco excise is now 32.775 cents per cigarette, or $409.71 per kilo of tobacco if you prefer rollies.


Although I feel sorry for the small  proprietors who got all of 8 hours notice and hence probably spent most of the night calculating the new prices and re-labelling their shelves, personally it doesn't worry me that much any more as I no longer smoke. but it does worry me for another reason - these constant excise hikes and advertising/packaging restrictions forced upon us by a well-meaning but busybody health lobby without any requirement of scientific proof that said restrictions and taxes will have the desired effect. 

Head of the government's Preventative Health Taskforce, Rob Moodie, suggests there will be one million less smokers by 2020 as a result. But gives no evidence for such a dramatic figure (it's estimated there are currently around 3 million smokers). 

Worse yet, what if there are more smokers instead? It was also reported in the papers yesterday, rather embarrassingly for the likes of Moodie, that since 2004 tobacco sales have actually gone up. That's new graphic warnings, 6 monthly automatic price hikes and shock-tactic television campaigns notwithstanding! 






[The image to your left is a mock-up of the proposed plain packaging of cigarettes set to take effect in 2012. This is what a packet of Winnie Blues - the quintessential Aussie smoke - will look like after that.]
So, if the uptake of smoking does actually increase will that result in a reversal of the excises and restrictions and a serious review of PHT public policy? Of course not. This policy of tax hikes on tobacco and ever greater restrictions on tobacco advertising has been in place since the late 1980s and it has never been reviewed at all, nor has anyone seriously asked whether it's had a whole lot of success in cutting down smoking or not. After all, if it looks like a tax grab and sounds like one... The government has come clean that it needs an extra $5 billion dollars to fund its Healthcare Reform Package and smokers will be the ones paying for it with this tax hike. But it could backfire. Because what if, this time around, the tax hike actually has the effect it's ostensibly meant to have and causes smokers to quit in droves? Where will the money come from then?

Which brings me to the next point: what really worries me is that we can be pretty certain that it won't stop there. There's not much more the government can do about tobacco short of outlawing it, so watch the PHT put its interfering paws on alcohol next, and then junk food. Actually, the calls for a Volumetric Alcohol Tax along with health warning to be placed on alcohol have been growing increasingly steady over the last 12 months. That's going to be much less popular and much harder to get through, as wine and beer do not nearly have the same stigma attached to them as tobacco does. The opposite in fact, wine and beer are essential components of most social occasions, from romantic dinners in expensive restaurants, to an after work drink at the pub with the mates, to backyard BBQs on the weekends, to a quiet evening in front of the telly. If the PHT gets its way and the  volumetric tax is put in place, it will see a 4 litre cask of wine increase from about $15.00 to a whopping $35.00. Beer will also increase in price, though not quite as dramatically -  a slab costing $45.00 now might cost $55.00. I doubt the electorate will forgive any government which dare do that. 


One argument for the volumetric tax is that the way alcohol is currently taxed in Australia is irrational and convoluted, and such a tax would simplify this system, providing a level playing field. This argument is actually quite sound, except for the fact that if a volumetric tax were introduced the Health Taskforce would make sure the alcohol tax regime remained just as convoluted as ever. That's because under a real volumetric tax system, spirits and premixed  drinks would actually substantially come down in price. But of course the PHT has already stated it will oppose any fall in the price in any kind of alcohol, fair trade and level-playing fields be buggered.


[SOME BORING NUMERICAL FACTS ABOUT THE ALCOHOL EXCISE SCHEDULE: Currently most kinds of alcohol, inc. beer and spirits are excised according to a rate per litre of alcohol, but these rates vary wildly depending on what you're drinking, while wine is taxed at a flat rate of 29% of the wholesale price although the first 1.17 million litres are excise free - meaning small independent vineyards can effectively sell wine excise free.
The latter two points are why so many wines are so much cheaper than everything else. Currently a 4L cask of wine whose price before value added taxes are applied is, say, $10 would then get an alcohol excise of $2.9 and a GST of $1.29 making the retail price $14.30.
But if you're a small vineyard then you get the WET back so the retail price is only $11.30.
Compare that to full-strength beer which is taxed at around $42 per litre of alcohol and spirits (except for brandy) which are  taxed at around $71 per litre of alcohol. Brandy is taxed at around $66 per litre of alcohol because of an old law encouraging local grape growers. That means 4 litres of beer (a little less than a six-pack) with 5% alc/vol attracts a tax of $8.34 regardless of the wholesale price and a 4 litres (a litle less than 6 bottles) of spirits at 40% alc/vol will attract a tax of $112. You can understand why spirits are a lot more expensive but it seems beer brewers get a really bad deal out of all this, especially as more and more small, independent, local brewers start up. ]


Why does the PHT so badly want a dramatic tax hike on alcohol? The main reason here is also a lot more controversial than with cigarettes. The PHT argues that because a certain percentage of the population abuses alcohol, and some people are alcoholics, therefore every Australian who drinks alcohol must pay more for it in order to discourage those who abuse it. You can see how this is different from cigarettes. Most smokers are addicted and there is no such thing as a safe level of smoking. However not everyone, probably not even most people who drink alcohol are dependent on it and there does exist a safe, responsible level of alcohol consumption. Naturally most people would consider it really unfair that everyone has to pay high taxes on a product that only some people cannot consume responsibly. So it's going to be much, much harder for the Health Taskforce to convince the government, which has to then convince the electorate that a volumetric alcohol tax is really ultimately in everyone's best interests.


Nevertheless, the PHT is a powerful organization, with an incredible amount of totally unquestioned and never scrutinized authority and I have no doubt it will get its way eventually. In any case, the extra revenue is just too much of a temptation for any government to resist indefinitely. For tax to a government is as heroin is to a junkie - the more you have, the more you use; the more you use, the more you need.

Who knows, sooner or later a significant amount of we consume will be in plain packaging and taxed to the point of unaffordability...for the sake of public health of course - the new moralism.

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