David Uren, 24 November 2015

The federal budget is hooked on tobacco taxes, which now provide it with more revenue than taxing petrol, super or capital gains tax.

The nation’s 3.1 million smokers are expected to deliver $9.4 billion to this year’s budget bottom line, which works out at just over $3000 a person.

It is a tax which hits the poor hardest. Among the richest 20 per cent of the population, only one in 10 smokes. But almost a quarter of the poorest 20 per cent are smokers, according to the latest Australian Bureau of Statistics health survey.

It is also a tax which hits those in regional and remote areas. More than 30 per cent of the poorest people in remote Australia smoke, compared with 20 per cent in the cities.

A Treasury study when the Rudd government was contemplating a 25 per cent increase in tobacco tax looked at the impact on a smoker with a 30-cigarette-a-day habit. If the smoker was on the minimum wage, the cost of cigarettes would rise from 19.2 per cent of their weekly income to 22.4 per cent, representing an erosion of income of 3.2 per cent.

For someone on twice the minimum wage with the same cigarette habit, a 25 per cent lift in the excise would increase the share of income devoted to cigarettes from 9.7 per cent to 11 per cent, a rise of 1.6 per cent.

“A tax that is already considered regressive becomes more so as the rate of taxation is increased,” the study found.

It estimated the 25 per cent increase in tax would result in a 6.3 per cent fall in tobacco consumption and a 17 per cent increase in revenue. Another study indicated consumption had fallen 11 per cent two years later, although not all of this could be attributed to the tax increase.

Treasury cautioned that some of the cuts in smoking levels was the result of people quitting while the rest was people smoking less.

It cited US research showing that the health gains from the latter were marginal, as people compensated for smoking less by taking deeper drags from each cigarette.

Extracted in full from The Australia.