Tobacco Excise Tax in Australia

We have all been there in line waiting to purchase something from the store; we step up for our turn take out money that we believe should be enough only to find out that we forgot to count in the taxes and now have to dig into our purse, wallet or pocket to find the extra change, or in some cases dollars. There is a joke that there are a few things we are guaranteed in life, taxes and death. While it may be a joke it holds a fair amount of truth, depending on where you live. Taxes are everywhere “invisible” or obvious taxes, but lets focus more closely on the taxes involving cigarettes. To me as a non smoker it makes sense and I am for it, taxes help the governments budget and other areas. However one must begin to wondered the effects taxes on one of the biggest markets in the United States have, for those who do smoke and those who enjoy an, excuse my banter, but live shaver.

If we consider this supply and demand diagram prior to Government intervention (red line), the market leads to equilibrium price and quantity (P1, Q1) determined at the intersection of the supply (or MPC) and demand curve. Due to the

This figure is up 1billion pounds when compared to the same figure last year, which was 1.7billion. And the only reason it is not higher is because so many smokers have given up in recent years – a fall from 12 million to 9 million. Also the government has made significant cuts to the healthcare budget (Around £800million between 2010 and 2012) (BBC News Channel, 2009). Therefore, the NHS should not pay for smoking related diseases. However, firstly, Smokers contributed to the UK economy by 10billion According to statistics from the Tobacco Manufacturers’ Association (TMA) in the 2006/07 financial year in revenue tax (Tma, 2017). According to lobby group forest argues that smokers pay over £9billion a year in tobacco tax. It has also been claimed that the government has made tobacco manufacturers not allowed to have any kind of trademarks on any of their smoking product its illegal. It has been stated tax revenue from tobacco in 2012/2013 amounted to £12.3billion - £9.7billion in excise duty plus 2.6billion in VAT. In addition, on a usual box of 20 cigarettes the total tax burden of £6.98 accounts for 82% of the recommended retail price (RRP) of £8.50. On some of the least expensive brands the total tax burden accounts for up to 90% of the RRP (Tma, 2017). Therefore, the NHS should pay for smoking related diseases as smokers have already contributed by paying taxes on tobacco and taxes that go to the NHS

History has proven that government penalties, in the form of taxes, deter smoking. The 2000 U.S. Surgeon General’s Report, Reducing Tobacco Use, found that raising tobacco-product prices decreases the prevalence of tobacco use, and tobacco tax increases produce significant long-term improvements in health. From its review of existing research, the report concluded that raising tobacco taxes is one of the most effective tobacco prevention and control strategies (7). Along with price increases, mass-media campaigns and smoking bans have made cigarette smoking pretty much unacceptable in today’s society. “Today, approximately 22 percent of adults age twenty-two and older are smokers, compared with 33 percent in 1979” (Thorpe 1440). It is clear, from these examples, the use of penalties to deter the unhealthy behavior of smoking is a successful intervention.

When quantity supplied do not equal quantity demanded the outcome is either excess supply or excess demand, and a tendency for price to change. As this happen the consumers will increase their quantity demanded, and the movement toward equilibrium caused by excess supply is both the supply and demand sides. When the excess supply occur quantity supplied is greater than quantity demanded. While the reverse of excess demand quantity demanded is greater than quantity supplied. The excess demand pushes prices upwards in decreasing the quantity demanded and increasing the quantity supplied. This movement takes place along both the supply curve and the demand curve.

If the Canadian government decide to impose a sales tax of $ 1 on every gallon, this excess burden taxation of taxation will have tremendous impacts on the viability of the project. However, the government will raise an estimated revenue of $ 5 million all things being equal at the equilibrium point E1. By levying additional tax of $1 dollar on every gallon of product demanded, the new price shifts to $5 per gallon, this as well affects the equilibrium quantity.

Increased supply without changes to the demand creates a surplus leading to a lower equilibrium price and decreased supply. Without changes to the demand, our cost structure would lead to a higher equilibrium price due to shortage.

The purpose of this economics report is to illustrate the economic concerns and arguments around smoking in Australia and the methods of taxing aimed at reducing the smoking rate. The report will use a variety of research articles, economic theories and models to report on this issue so that the CEO of the Cancer Council of Australia has a thorough understanding.

Smoking is injurious to health and a preventable cause of premature death. In the U.S.; it is estimated that one in each five adults smoke currently and about 480,000 people die prematurely from diseases caused by smoking or secondhand smoke exposure. (CDC tobacco use). The economic burden of tobacco use is also significant. About $100 billion per year is spent in medical expenses and another $100 billion per year in lost productivity. There is no safe level of smoking

Tobacco smoking is one of the more prominent lifestyle behaviours contributing to health risk in Australia. Circulatory diseases ' health and economic

The above graph shows that at the original price level(P), the marginal private benefit(MPB) of cigarette is greater than the marginal social cost (MSC). This means that cigarette is over-consumed and the green triangle between MSB and MPB shows the welfare loss. The government may decide to increase the indirect tax to cigarette as the cost of cigarette(healthcare) outstrip the taxation it collects. The supply curve shifts to the left from S=MPC=MSC to S+tax. The quantity consumed will decreases from Q to Q1 and the problem of over-consumed will be solved as the yellow triangle that represents the decrease in consumption is equal to the original welfare loss triangle.

There are many cities who have implemented bans on cigarettes, but China overall is still the leading consumer of cigarettes in the world. A countrywide tax on cigarettes has been proposed to their Ministry of Finance, and Ministry of Economics and Trade, but a decision has yet to be made. Tobacco production provides substantial revenue to the government and a tax increase will have a significant effect on the central government and reduction of consumption of cigarettes. According to a study done by the group proposing the tax, “a 25% tax increase will have an overall monetary benefit that far exceeds the negative impact on the cigarette industry and tobacco farmers. In financial terms alone, not counting the number of lives saved and medical care cost savings, the gain of the central government tax revenue (24.58 billion Yuan) twice exceeds the loss of tobacco farmers’ earnings, tobacco industry workers’ earning and loss of industry and local government revenue (11.74 billion Yuan)” (Hu TW 107). There many components to this calculation, but some factors included the reduction of cigarette consumption, the number of lives saved, savings in medical care costs, gains in productivity due to avoidance of premature death, industry revenue lost, lost jobs in cigarette industry, loss of tobacco income, and loss of local government

Changes to indirect taxes in particular can have an effect on the pattern of demand for goods and services. For example, the rising value of duty on cigarettes and alcohol is designed to cause a substitution effect among consumers and thereby reduce the demand for what are perceived as “de-merit goods”. In contrast, a government financial subsidy to producers has the effect of reducing their costs of production, lowering the market price and encouraging an expansion of demand.

Smoking causes serious damage to person’s health. This section look at the cost smoking have on government, most notably, the cost of smoking to the NHS such as prescription costs and the cost of the ‘stop smoking’ campaigns which puts an substantial deficit for the NHS budget. A report published by Health & Social Care Information Centre revealed that the illness and disease associated with smoking gives rise to costs in the NHS (Eastwood, P & Head, S 2013). The costs of smoking can be categorised into direct and indirect. The direct costs of smoking is the cost of smoking arise from GP consultations, prescriptions for drugs and various costs related to treating diseases attributed to smoking. The indirect cost of smoking would be the psychological impact of smoking in children and other family members, the effect of smoking in employment and social exclusion and isolated resulting from smoking. Research carried out by Oxford University (2009) estimated that smoking costs of NHS in UK was £5.2 billion in 2005 which was approximately 5.5% of the total healthcare costs. It is important to consider that this cost does not take into account the costs related to working days lost or social security ill health payments and most importantly the cost related to effects of second-hand smoking.

Figure 2 demonstrate how any change in one of the other determinants causes demand to rise or to fall by shifting the whole curve to the right or the left. Other factors that determinates of demand