As a non-smoker, I genuinely don’t care what the cost of cigarettes is. As a person with lungs who likes to sit outside at restaurants in summer, I actually rather selfishly don’t mind if a packet of cigarettes costs 40 bucks because it may prompt my local hipsters to spend their money on a couple more martinis instead.
But as someone who maintains a passing interest in tax system effectiveness, I can’t really let this one slide.
Labor’s proposal to solve ongoing budget revenue challenges by drastically hiking excise on cigarettes (again) is little more than short term, quick fix policy dressed up as a cogent contribution to the national tax reform conversation.
Interestingly, tobacco companies in Australia already do contribute quite a lot to government revenue: recent examination of British American Tobacco’s accounts suggests that on cigarette sales of $6bn in Australia, something like $4.4bn goes back to tax and duties paid to government.
On the other hand, the Department of Health suggests that smoking costs Australia something like $31.5bn in “social and economic costs” – money that is not offset by the amount of revenue that tobacco excise brings in. For some, and presumably for Bill Shorten, that’s a decent reason to increase excise.
Personally, I would question whether we really want to move towards a “user-pays” system of taxation, whereby your every vice is calculated for its effect on government spending and you are punished accordingly by the wagging finger of government through the tax system, but this isn’t really the point either: the real problem is in the ability of tobacco excise to deliver a reliable, long-term revenue base.
Shorten justifies his plan in opposition to the Turnbull government’s GST increase thought bubble. To listen to Shorten, Labor just wants to help smokers help themselves, while the Libs are horrible people who want to whack an extra 15 cents on your $1 bunch of asparagus.
Now, increasing the GST or broadening the base of its applicability may not be your bag as a tax policy solution, but at least it is a tax reform proposal that addresses structural revenue challenges, creating a more reliable and efficient base of revenue for the long term. Tobacco excise can’t provide this revenue reliability – especially if your aim is also to stop people from smoking.
Unfortunately, as we are all so very aware, broad-based tax reform is hard, because no one really likes to pay tax, and especially not on their avocados and raspberries. It’s a bit of an odd choice for Turnbull to come out with straight off the blocks, before an election when he needs quick policy runs on the board, not the risk of becoming bogged down in a Hewson-esque tax-based electoral nightmare.
Shorten, to his credit, gets that bit. It’s much easier to annoy a small and dwindling bunch of smokers than it is to increase tax for everyone who buys food. It’s nice easy messaging:
Labor wants to reduce the number of people who smoke; Malcolm Turnbull’s Liberals want to increase the GST and the cost of everything, including fresh food, school fees and going to the doctor.
Bill Shorten, the friend of the average Australian family.
The Abbott government stuffed up the communications on the budget so comprehensively that I couldn’t even begin to speculate on whether we have a revenue crisis at the moment, but we definitely will in the future if we fail to recognise that future budget pressures are a function of the structure of our tax system and the way it currently relies on people whose income capacity will cease to exist when they all retire in the next 10-20 years.
Raising tobacco excise can’t even begin to solve that problem: it’s not a long term revenue solution to increased tax pressures. And as our population continues to age and suffer from non-communicable diseases associated with eating too much and moving too little, pressures on the tax system will continue to grow.
If they really wanted talk about long term, structurally effective tax reform that doesn’t involve paying GST on kale, Labor would be better off drawing a distinction between income and wealth, and floating the idea of taxing the generationally wealthy – as opposed to those currently earning a high income – and closing tax loopholes that contribute to structural inefficiencies in the tax system.
As it is, Labor’s excise increase is accompanied by a weird communications plan. It’s about tax revenue, but it’s also about health and it’s especially about how bad Malcolm Turnbull is. Nor is their messaging consistent with Labor’s view of other sin taxes like gambling and alcohol – industries that they’re quite happy to receive campaign donations from.
The reasoning behind the policy is simultaneously about stopping people from smoking and about providing alternative structural tax reform to GST changes, even though those health and revenue aims will eventually be necessarily contradictory.
Sadly, the debate that we need to have about revenue and spending as baby boomers continue to retire is a lot harder than going for the quick grab about helping people to quit smoking while millionaire Malcolm is coming for your kids’ fruit and school fees.
So I guess, from the ALP at least, we’re stuck with smokers as an easy target for the foreseeable future.
