Taxing tobacco. Why is it important?
- Direct health and other benefits of tax increases
Establishing tobacco taxes can fund a range of government programmes, not just health. In 1990, Western Australia introduced a 15% tobacco tax increase; 10% of the additional funds generated (USD 6.6 million) was allocated for health promotion activities while an additional USD 60 million was retained in consolidated revenue for other government programmes. Similarly, in the State of Victoria in 1988, tobacco taxes increases earned the state government USD 60 million in the first year, after the allocation of USD 15 million for health promotion programmes.
In Thailand, where tobacco tax was incrementally increased from 55% to 71.5%, an additional USD 1 billion has been raised for the government since 1993.
The raising of taxes, which leads to price-induced decreases in cigarette smoking, translates directly into health benefits. It is estimated that one-third of people who quit because of a price increase will enjoy a significant increase in years of life.
Measures which encourage smokers to quit should also be regarded as excellent investments in reducing future health care expenditures. For example, it has been estimated that, within two years of quitting, there is an effective reduction in deaths and hospitalizations, even in those with very serious cardiovascular problems.
- Countering the tobacco industry
The tobacco industry spends hundreds of millions of dollars annually on research, marketing, advertising, promotion, and sponsorship in order to encourage more people to smoke and to retain those who are already addicted to tobacco. Governments must counter these tobacco industry efforts,
With funds derived from dedicated tobacco taxes, it is possible for the government to finance relevant tobacco control policy research and health promotion programmes to counter the tobacco industry’s efforts and strengthen tobacco regulatory policies.
- A fair return to smokers
Smokers, the vast majority of whom would like to quit, contribute huge amounts to governments by way of tobacco tax. In 2001, Australian smokers contributed approximately USD 2.76 billion per annum in government taxes on tobacco products. Barely half of 1% of that amount was devoted to anti-smoking education, or around USD 15 million per annum in combined federal and state jurisdictions. It is estimated that while more than 90% of smokers wish to quit, between 75% and 90% will fail even very serious attempts to stop. It seems fair and desirable, therefore, that a significant proportion of the tax smokers pay should be used to help them to stop smoking and to prevent young people from starting.
- The ability to invest in a range of long-term health-related initiatives
Within the budget allocation process, health prevention and promotion is generally considered less urgent and compelling than treatment. With dedicated taxes for health promotion, that income stream is separated from the main health budget; those dedicated taxes are more likely to remain untouched, even in a recession when there may be across-the-board budget cuts.
- A means to replace tobacco advertising and sponsorship
Norway and Finland were among the first countries in the world to adopt a comprehensive ban on tobacco promotion. Relevant legislation was introduced in Norway in 1975 and in Finland in 1978. Following the bans, with the exception of internationally televised tobacco- sponsored events and advertising in international press, very little incidental advertising was evident in those countries. In the five years following the introduction of the legislation, there was a marked decrease in the prevalence of smoking among both boys and girls, although subsequently the decline was less consistent and pronounced.
It is widely acknowledged that tobacco advertising and sponsorship, combined with tobacco promotion, are powerful risk factors, and their control should form part of a comprehensive approach to prevention. Funds from tobacco taxes have been successfully used, particularly in Australia, to phase out tobacco sponsorship and to break the nexus between tobacco and sports. The funds were used to compensate ponsored groups and organizations for specific periods to reduce financial hardship as they move away from tobacco support.
Critics of such measures will defend the rights of the tobacco and advertising industries to promote tobacco, which is a legal product. An appropriate response is to point out that the product in question, although sold legally, is one that kills, even when used exactly as the manufacturer intends.
- A lasting funding source, despite change
Progressive tax increases have resulted in some potential setbacks in Australia, but these have generally been overcome as governments have recognized the value of the health promotion activities to which they are applied. In the states of Western Australia and Victoria, after particularly large tax increases in the early 1990s, the governments of each state capped the amounts hypothecated from tobacco tax and administered by the health promotion foundations. In Victoria, this resulted in a one-off 25% reduction in the earmarked budget. However, following the fixing of earmarked amounts, the budgets of these organizations are now subject to annual review, with indexation awarded at around the level of yearly cost-of-living increases. This means that both foundations continue to receive and distribute significant funding for health promotion activities in their respective states.
Another change which had the potential to dismantle the dedicated tax system also occurred in Australia. In 1997, the High Court of Australia ruled that it was unconstitutional for states to collect tobacco, alcohol and petrol taxes. This was deemed the right of the Commonwealth Government, which would then forward the collected taxes to the states. At that time, Australia had four health promotion foundations in four different states, each of which were being funded through a percentage of the state tobacco franchise fees. Technically the decision of the High Court of Australia removed the entire financial resources of those organizations. However, the four state governments continued to support the organizations at the same level as before the High Court decision, using money allocated directly from federal consolidated revenue. This change had no material impact on the funding for the foundations or their ability to continue with their health promotion activities.
In South Australia in 1998, where the Government decided to abolish the Health Promotion Foundation, the funds administered by the organization continue to be allocated to health promotion through the Departments of Human Services, Arts and Recreation and Sport. Again the funding has remained secure and the health promotion benefits have been maintained, despite the administrative changes.
- Less susceptible to diversion of funding for purposes other than health promotion
Tobacco taxes dedicated for the funding of health promotion programmes are less vulnerable to competing needs and can avoid being channeled for other purposes.
World Health Organization. (2004). The establishment and use of dedicated taxes for health. World Health Organization Regional Office for the Western Pacific.
Vathesatogkit P, Yen Lian T, Ritthipakdee B. (2011). Lessons Learned In Establishing A Health Promotion Fund. Bangkok, Southeast Asia Tobacco Control Alliance (SEATCA).