Addiction Instead of Taxation

By John McGregor, a translator and political violence researcher

The 2023 Irish budget will include a 50% increase on the tax on a packet of cigarettes. The Irish Heart Foundation argued that the increase should have been higher to assist in the fight against tobacco. Australian governments have shown a similar dedication to crushing smoking through tax increases over the last 20 years. Whilst they have no doubt been effective in dissuading some smokers, the continued application of new taxes means that a small percentage of the population, often those who can least afford it, are burdened with maintaining fiscal revenue that governments have come to rely on.

By January 2022, excise and customs duty on an individual cigarette in Australia was roughly AUD 1.10; the price of the most popular 40-pack of cigarettes was approximately AUD 65.00. Total taxes and duties account for over 75% of the final price. In February 2010, excise and customs duty on an individual cigarette was about AUD 0.26.

The increases in duties have been so rapid that that total revenue from cigarettes has increased even as the number of smokers has declined. This inverts the situation prior to 2010, when a Treasury report noted:

As mentioned above, in spite of this decline in per capita smoking rates, the excise revenue collected from tobacco is relatively stable. This is due to the effect of this per capita decline being largely balanced by the rate of population growth and the indexation on tobacco excise…
However, in real terms, tobacco excise can be seen to be in decline. Finally, tobacco excise as a
proportion of government revenue is also declining, from a high of 2.7% to 1.6% in 2008/09.

By 2020, tobacco excise had become the fourth largest individual tax collected by the federal government. Of course, that means governments have been left disturbed by the declining smoking rate even though it is the public aim of the increases in duties.

Tax increases on tobacco are popular, a relatively rare politically acceptable way for governments to increase revenue. A large part of their popularity, however, is derived from the fact that they disproportionately target an increasingly restricted pool of people. Information on the demographics of Australian smokers shows that this pool is often largely composed of those who have less.

The most recent statistics show that 24.1% of unemployed people and 32.5% of people unable to work smoke, compared to 14.7% of employed people (and 4.7% of students). People in remote areas (23%) smoke at higher rates than people in major cities (12.6%). Single people with dependent children (29.9%) smoke at more than twice the rate of people in couples with dependent children (12.2%). Over 40% of Aboriginal adults smoke. Higher levels of formal education align with lower rates of smoking.

In terms of socioeconomic status, 21.2% of the most disadvantaged quintile smokes while only 8.1% of the least disadvantaged does so. JobSeeker, the welfare support for most unemployed Australians, was recently increased to AUD 46.00 per day. This sum is already barely enough for anyone to live on and the 24.1% of unemployed people who smoke will be returning most of this back to the government (with a sizeable cut for the international tobacco companies).

The government points to the declining rates of smoking as a success of the plan to continue increasing prices and yet the combined effects of two decades of anti-smoking campaigns have been most pronounced among the most advantaged quintiles. According to the Centre for Behavioural Research in Cancer, the wealthiest quintile dropped from a rate of 16.5% in 2001 to 6.7% in 2019. The next wealthiest quintile declined from 22% to 9.9% over the same period. The most disadvantaged quintile went from 26% to 20.5%.

Despite the rewarding outcomes in terms of the overall number of smokers, it seems unlikely that the increases in price are the most effective cause for the decline if the most disadvantaged group has shown the lowest change.

What can be seen is that the same financial burden is placed onto an increasingly smaller and less advantaged group of people. Instead of looking for more revenue from international corporations, the extractive industries, or the rich, the government has come to rely on a section of the most disadvantaged for stable income.

Australian governments have previously thrown disadvantaged and addicted people under the bus to raise easy revenue. As James Boyce explained in 2019:

During the 1980s and early 1990s, state governments became cash-strapped because of the abolition of various taxes (including death and gift duties), and burgeoning demands on health, education and community services. With the exception of resource-rich Western Australia (where pokies are confined to the casino), governments turned to poker machines to help resolve the revenue shortfall. Pokies were introduced into pubs and clubs not in response to public pressure but in spite of it. In Victoria, Tasmania and South Australia the policy change was opposed by a majority of the population. Their governments pressed on regardless.

The end results of this mass liberalization of gambling were of course felt more acutely by socioeconomically disadvantaged households. A 2017 study found that:

Gamblers living in low-income households spent a much greater proportion of their household’s total disposable income on gambling than high-income households (10% vs 1% on average) – this despite spending less in actual dollar terms ($1,662 vs $2,387).

Gamblers who had problems spent much more of their households’ income on gambling than other regular gamblers, with those experiencing severe problems in low-income households spending an average 27% of their disposable household income on gambling – equivalent to four times their yearly household utility bills, or more than half the grocery bills for that income group.

It is obviously not just government revenue that the gamblers fund, but whole segments of the sports and entertainment industry. Even within that section of the population that gambles, small subsections do a disproportionate amount of gambling. For example, 20% of poker machine players make 80% of losses.

When the Australian Labor Party took power earlier this year, it pledged to uphold the planned tax cuts from the former Liberal government. These income tax cuts will overwhelming favor higher income earners as they eliminate one tax bracket, lower another, and raise the thresholds. While it was still in power, the former Liberal government introduced a temporary cut in the fuel excise due to the recent radical price increases for petrol. Labor let this lapse after six months, as planned, arguing Australia couldn’t afford to lose the revenue.

Governments continue to increase duties on tobacco as part of publicized plans to lower smoking rates. These policies are, however, least effective amongst the least advantaged segments of the community. Over time, the effect of these approaches is to push an increasingly larger share of the burden for government revenue onto a smaller, and more disadvantaged and addicted section of the population. When even these plans fall short, Australian governments have even shown themselves willing to introduce new forms of addiction, such as poker machines, to uphold their income without increasing corporate or income tax.

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  1. PlutoniumKun

    The biggest shock of the high prices of cigarettes in Ireland comes to immigrants from eastern Europe, Brazil or China who (well, the men) are usually heavy smokers. But its certainly true that taxes on cigarettes hits the poorest hardest, but then again, in Ireland there is higher taxes on wine than beer, which has the opposite impact.

    I think one motivation for particularly high taxes in Oz and Ireland is that being largely non-landlocked, its easier to prevent smuggling. In Europe there is a vast business involving people driving to places like Luxembourg or Andorra for goods with the lowest taxes, especially alcohol and cigarettes.

    But the reality is that aggressive anti-smoking policies, including high taxes, are very effective. Its quite rare now to see teenagers in Ireland smoke – it was the norm when I was younger. They just can’t afford it and they can’t get them, and its not seen as particularly cool (partially of course because its increasingly associated with sad middle aged unemployed men hanging out around bookies shops).

    1. square coats

      I live in Massachusetts, which has one of the higher cigarette taxes in the u.s., notably almost $2 higher than immediately-north-of-MA New Hampshire’s tax. MA is small enough that with some caveats it would be feasible enough no matter where one lives in the state to regularly go to NH to buy cigarettes and I’m sure a lot of resident MA smokers do just that, particularly if they live closer to NH.

      Also MA banned menthol cigarettes a couple years ago and I know that some people go to NH to buy them and then resell them in MA. I think larger operations could be easier to crack down on, but probably plenty of people are doing this regularly on an individual basis with none the wiser.

      Just some thoughts I had wrt your theory about taxes and being landlocked, adding to your Luxembourg/Andorra examples. Looking at color shaded maps of tax per state, it does seem like there’s a general gradient effect, rather than more drastic immediate differences (e.g.) but I do idly wonder what else goes into tax rate deliberation.

    2. juno mas

      Tobacco taxes appear to reduce the number of people who take up smoking, but don’t seem to reduce the advanced users from stopping. The statistics cited in the article are similar to those in California.

      For some users, cigarettes are a stress reliever (the poor, single mothers, stressed males). But no matter the stress, nicotine is highly addictive and long-term users rarely quit. This is why keeping teens from taking up smoking is essential.

      Unfortunately, flavored nicotine in e-cigs is undermining that trend.

      (See: lyman alpha blob below.)

    3. HotFlash

      I rarely see young people smoking here in Toronto, but oh my, the vaping is very big with millennials and Gens X and Z. Older and up, not so much. Of course, cannabis is legal here, so there is a lot of that as well — not all that many over all, I think, but if young people are smoking something, it is more likely to be weed.

      Older people, poorer people, sad people, sick people, as you observe, are still buying cigarettes. My local convenience store posts a price of $11.50 for pack of 20, this is probably not ‘premium’ brands, nor even mediocre — actual cigarettes are not on view but kept in closed cabinets. And yes, packs have horrifying pictures of diseased lungs, etc. (“Hey kids, collect ’em all!”). Premium brands are supposedly $13 or more. Sale of single cigarettes is illegal but, um, available if you know where/who to ask. Convenience stores here make most of their $$ from sales of cigarettes and lottery tickets, then on to the basics of life — milk, bread, canned soup, condoms (?).

      Brief discursus on govt-sponsored lotteries: I see many pensioners and people (prob) on disability buying and scratching way more tickets than makes sense. No ticket is no chance, 1 ticket, you got a chance, 100 tickets, your chances of a win have not materially improved. Just another tax on being poor.

      Beer and liquor sales were mostly relegated to official Beer Stores (originally a consortium of Cdn brewers under provincial supervision, but now including “over 100 brands”, many international), and the Liquor Control Board of Ontario (or insert name of your province here), which sold wine and spirits. Retails sales were very rare — an exception was the winery-owned single-brand stores, which peddled their somewhat horrible Ontario wines. These two outlets are a major source of revenue for many provinces, although Quebec (and maybe others?) have always allowed sales of at least beer and wine in groc and convenience stores. The LCBO’s other provincial arm is the LLBO (Liquor License Board of Ontario), which covers bars and restaurants that serve alcohol. Licencees pay a lot more for beer, etc. than do ordinary folks — dunno the reasoning here, but a beer that costs me $2.60 at the LCBO costs $5 in a restaurant or bar. However, chain grocery stores have been successful in lobbying to sell beer and wine, and what with Covid, restaurants etc have been permitted to do take-out booze (used to be illegal). Can’t see that being rolled back, evah.

      Quoted by Christopher Morley in Shandygaff, 1918:
      “When all things were made none was made better than this; to be a lone man’s companion, a bachelor’s friend, a hungry man’s food, a sad man’s cordial, a wakeful man’s sleep, and a chilly man’s fire, sir; while for stanching of wounds, purging of rheum, and settling of the stomach, there’s no herb like unto it under the canopy of heaven.” Quoted from Westward Ho, by Charles Kingsley, 1855; full text here @ Gutenberg.

      There is also The Beatles. “And curse Sir Walter Raleigh, he was such a stupid git.” reddit wants me to believe that J. Lennon was cheesed b/c he was addicted to cigarettes. I thought then, as now, and that was the consensus of my peers back then, that John was just PO’d that Sir Walt brought back tobacco when he could have brought back cannabis s.

      Oh gosh, seems I am rambling.

  2. lyman alpha blob

    I’ve always hated the idea of taxing tobacco at high rates as a way to promote public health due to the hypocrisy described above. If governments are so “concerned” with the health of their constituents, then ban them outright, just like they do with any number of other harmful substances.

    Who really is the bigger addict? The smoker who can’t quit tobacco or the government that can’t give up the easy tax revenue?

    And to be clear, I’m not actually in favor of banning tobacco. I would love the see regulation that required tobacco companies to disclose what they add to cigarettes and a ban on any additives used for the purposes of increasing addiction.

    No idea what the situation is in Ireland regarding vaping, but in the US tobacco smoking is way down while vaping has been all the rage among the younger generations. Vaping is perhaps the stupidest fad I’ve ever seen – all the addiction without the pleasures of smoking, plus you look like an idiot doing it.

    Now get off my lawn.

    1. ChrisRUEcon

      > Who really is the bigger addict? The smoker who can’t quit tobacco or the government that can’t give up the easy tax revenue?

      Ding! Ding! Ding!

      “Taxes for revenue are obsolete” as Beardsley Ruml said three quarters of a century ago on the advent of the post-gold-standard era. Granted then, that Ireland being on Euro is effectively on a modern day equivalent of the gold standard, but lyman’s question still rings true, especially for Australia. What happens when people stop buying? I guess you now have a manufactured tax shortfall anyway. I wonder if that’s priced in somehow … but I doubt it.

    2. paul

      Only from personal experience, but vaping is a definite good thing.

      For smokers, it provides a more benign and affordable,but less taxable, alternative to combustible consumption.

      Which is why it is banned in turkey,australia,thailand, china and the WHO takes a dim view.

      It has been taken up by smokers quite heavily in the UK, in the millions, and there has been absolutely no identifiable stress on clinical services.

      I’m happy with looking like an idiot if it entails minimising harm to myself and others, and not funding hip moron malcolm gladwell or warren buffet.

      As for kids doing stupid things, there are a lot worse out there, like ‘social media’

      1. Jonathan Holland Becnel

        Give it time. In 10 years we will prolly see the gruesome reality of Vaping heavily.

        1. paul

          We’ve already had 10+ years plus in the UK, show me the problem, let alone a gruesome reality
          It’s a very valid, if low margin, harm reduction technology.

    3. Scewball

      Who really is the bigger addict? The smoker who can’t quit tobacco or the government that can’t give up the easy tax revenue?

      I’m in small town Ohio out in the sticks. I buy some meds via a foreign seller. I heard one of the meds were getting confiscated by customs on the way in and people were not getting them. I know my mailman pretty well so I asked him if he knew of such things going on. He said only with cigarettes people were buying from somewhere. I think he said Russia, and this way before the current war had starteD. At least a year ago.

      So I think you have a valid point – they like the revenue.

    4. Anon

      The pleasures of smoking? Like yellow teeth, black gums, bad breath, pungent skin/clothes, tarry lungs and the cough to go with them? With the right genes, maybe some lung/throat/tongue cancer?

      As a smoker of 16 years, I have to say that vaping was a godsend, as the thing I craved (nicotine) was supplied without any of the above, and I saw instant improvements in my health, and sociability. Being able to lower the dosage was an added benefit and I am currently off the stuff altogether. Thinking about introducing it to my neighbor as I can no longer tolerate his clouds, and wonder how I managed to consume the stuff for so long.

  3. Basil Pesto

    As far as I can tell, the majority if not all of the imposts collected from the sale of tobacco in Australia are implemented by the federal government. MMT conditions apply to the Australian dollar, and the federal government is not dependent on tobacco taxation for revenue in any sense (see eg ). Although whether those guiding these policies understand that or believe it to be true is an open question. But true it be.

    This is different from pokies, where the tax revenue is collected by the respective state governments, who do depend on that revenue as they are currency users (like Ireland as well), not issuers.

    The tax does seem to have done a measure of good vis à vis levels of smoking in Australia, but seems to have reached a ceiling of usefulness. A more, let’s say humane society would theoretically look at the underlying conditions that lead to the working poor having a greater dependence on smoking and seek to ameliorate those conditions, rather than make durries cheaper. But we don’t live in a humane society

  4. Portia

    the continued application of new taxes means that a small percentage of the population, often those who can least afford it, are burdened with maintaining fiscal revenue that governments have come to rely on.

    In countries with public health care, I think it’s like taxing the people who are most likely to need chronic care. In the U.S., where people pay for insurance, lower rates are available for non-smokers (at least they used to be). Helping people quit smoking is a good way to spend the money also.

  5. IF

    For instance in the US and Germany home growing tobacco is legal. This could be a way out for poor/rural users to handle their own consumption. In Australia it seems to be not legal though. Mhh.

    1. La Peruse

      Met a guy on a recent road trip through the Snowy Mtns that now spends his day commuting the east coast of Australia between his children’s houses due to a recent ’empty nest’ divorce.

      He had a usual looking 50gm rollie tobacco pouch that he reckoned costs about $150 retail. His was filled with chop-chop, the excise free alternative. His observation was that the price of chop-chop had dropped considerably, I think down to ~$100 for 500gms, but as a traveler was much harder to find. This would seem to indicate that supply is not the driving factor, but law enforcement against the network effect has been successful.

      He also commented that the quality these days was pretty good and consistent compared to a few years ago. One advantage of chop-chop is that is more likely to be natural (and bad for one) rather than loaded with flavourings and other enhancements (like burn modifiers) as per contemporary manufacturing process. It smelt nice but have no idea how it tasted as I don’t smoke.

      1. JBird4049

        He also commented that the quality these days was pretty good and consistent compared to a few years ago. One advantage of chop-chop is that is more likely to be natural (and bad for one) rather than loaded with flavourings and other enhancements (like burn modifiers) as per contemporary manufacturing process. It smelt nice but have no idea how it tasted as I don’t smoke.

        Yes. From my little experience in talking to smokers, and having family being nicotine addicts (and smelling from) burning loose tobacco for rolled cigarettes or pipe is much better that the processed junk in most cigarettes. Think of the comparison between processed food product and simple, preferable organic or home grown, food. Homecooked cheeseburger with everything including fries vs. McDonald’s. Neither might be healthy, but the additives in the Big Mac is probably more dangerous than whatever is in your own creation. Maybe that is also why pipe tobacco is less repellent to me. I certainly know what I prefer to smell all day.

        (We are talking about drug dealers here when it comes to the Tobacco Industry, but seriously, it seems like they don’t mine making their product more lethal.)

  6. Pat

    Please, it isn’t just tobacco. Alcohol, gas, sales taxes, taxes and fees on numerous items and services, all of them are an easier sell because they either hit the lower classes more, they can be written off for businesses reducing their overall tax rate, or they can be passed off as a cost of doing business for those with complex income taxes. IOW, our political class know darn well they are not allowed to tax the wealthy or prosperous businesses in any meaningful way, but they still need to find funds to operate, for instance pay their own salaries and perks.
    Without our extraordinarily complex tax and fee structure, a huge portion of American government would grind to a halt. (And yes, I know that taxes don’t fund government, except for state and local based governments which cannot print their own money they do.)
    It isn’t just the smoker, or the drinker, that gets hit. And lets not get started on the lotteries and the casinos.

    1. HotFlash

      Yeah, I am so old (how old is she?) that I remember when gambling, lotteries, and (ahem) exorbitant interest for loans was criminal. No one did it but the Mafia. How times change!

      I also remember when I could buy 3 packs of Marlboroughs for $1 at the White Rose gas station.

  7. Tom Stone

    $.35 a pack and $3.10 per carton when I started buying cigarettes.
    It is an extremely addictive drug with few medical uses,the fact that Pot is a schedule 1 drug and nicotine delivery systems are legal is one more irrational nature of our laws.

  8. BlakeFelix

    I think that this sounds like a success story, and think that there should be more sin taxes and fewer or no other kinds of taxes. Our main source of government income, ignoring MMT(call taxes inflation reduction rather than income if you like), are payroll taxes which also burden lower income wage earners and income taxes which burden people without weasels to cook their books. The problem of increasing income inequality by burdening the poor is real, but a UBI is a far more efficient way of reducing that inequality and the resulting suffering than by reducing the cost of smoking and gambling. A poor gambling addict may spend 2k a year, give him 12k and let him have his fun and maybe he will become a rich gambler and make it to Wall Street and pay 200k a year in cocaine and hooker taxes… More likely he will increase his gambling and lose 4k, but still when he loses 4k someone makes 4k, the societal losses from gambling(and arguably Wall Street) come from the increases in income inequality and the wasted time and effort. Carbon and pollution emissions sin tax is what we really need IMO, but there was a time before prohibition when the American government was funded by mercantalist import tariffs and taxes on booze and our economy was more equal and grew faster and was based less on big government and war. We have run on sin taxes and it worked, we moved to income/payroll taxes to supress wages and support our warmongering.

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