7.5.1 Large packs a peculiarly Australian phenomenon
The introduction of large pack sizes in Australia closely followed rises in excise duty in the mid-1970s and 1980s and the introduction and subsequent doubling of state franchise fees throughout Australian states around 1987.
Large packs have become a dominant component of the Australian market, with the majority of smokers now using pack sizes of 30, 35, 40 or 50. In every other country, cigarettes are virtually always sold in packets of 20.
As can be seen in Table 13, Australia is virtually the only country that combines an excise based on weight with ad valorem fees based on wholesale value of sales.
Lighter cigarettes attract less excise duty. This effect is amplified by the manner in which ad valorem surcharges are imposed and final retail price calculated, providing an incentive for lighter cigarettes and for packaging many cigarettes in the same packet.
7.5.2 Why health groups were concerned
Budget brands were around ten per cent lighter per stick that premium brands, however they attracted almost 20% less tax and were more than 20% cheaper. Health groups argued that the weight-based tax system therefore failed to provide the consumer with signals that would help regulate consumption.
Health groups also believed that using larger pack sizes may be a significant factor in the transition between occasional and regular, addicted smoking.
Data from household surveys indicates that smokers of 50s tend to smoke, on average, 60% more cigarettes per week than smokers of 25s (25 compared to 16 cigarettes per day). In their regular survey of secondary school children, Hill et al found that children smoking the larger pack sizes smoked about twice the amount smoked by children smoking the smaller pack sizes.
The degree of risk posed by smoking depends not so much on the weight of the tobacco, but rather on the level of dangerous constituents delivered, and the duration of smoking.
People who smoke light cigarettes inhale harder to get the same delivery of nicotine and, in the process, also receive more of the substances that cause disease, in particular tar and carbon monoxide. Although thay may consume less tobacco in each cigarette, the exposure of budget brand smokers to carcinogens and other dangerous carcinogens is likely to be higher than that of premium brand smokers, due both to compensatory smoking and to the greater number of cigarettes consumed. For each cent of tax paid, budget cigarette smokers would receive much higher exposure levels than would premium brand smokers.
Duration of smoking has an even greater impact on the risk of dying prematurely. People who smoke light cigarettes in large packs handle the pack, light up and draw back more often: the more often these behavious are repeated, the stronger the smoking habit and the harder it will be to quit. Budget brand smokers may therefore be more likely to smoke for a long period, and be at much higher risk of dying prematurely.
Large packs fit less easily into small casual handbags and pockets, so they are often carried in the hand are therefore much more visible to children. Children's estimates about the prevalence of smoking among young adults are a very strong predictor of them taking up smoking themselves. Large packs are also more likely to be shared among young people, thus incraesing the risk of children being pressured to try or even buy cigarettes from their peers.
7.5.3 What was lobbied for? How? What was achieved?
Since 1990 when the Office of Prices first highlighted this problem (48), the Australian health agencies argued that the simplest way of reducing the affordability of budget brands would be to levy excise simply on the basis of the number of sticks, with automatic excise increase each six months in line with CPI, with a slightly higher level of duty payable on heavy cigarettes, and with a mechanism for maintaining the relative price of roll-your-own tobacco.
In a shift to a per stick system there would be a small immediate impact on total population tobacco consumption. Once the new system was in force, price-sensitive smokers would no longer have the option of switching brands. In the long term even greater reductions could be expected in response to further tax increases.
Changing the excise duty on tobacco from a weight to a stick based system, it was argued, would lead to increases in the price of popular children's brands, and a reduction in differential between budget and premium brands. Under a per stick system, by contrast, the differential in final price would be more in line with the weight differential.
Each year between 1990 and 1998, health agencies submitted a proposal to the Federal Treasurer calling for introduction of a per stick system (56,57,58,59,60,61,62). A per stick system, it was argued, was preferable on health grounds and, along with tobacco tax increases, would raise substantially higher levels of tobacco revenue, even taking into account predicetd drops in consumption in budget brands.
In the early 1990s, health group proposals were drafted and submitted to the Federal Treasurer and several of his key Cabinet colleagues, by the Perth-based Australian Council on Smoking and Health. Limited funds were available for personal representations with politicians or for wider lobbying for the proposal among key party and parliamentary figures.
In 1996 further work was done by the Anti-Cancer Council of Victoria, quantifying the predicetd drops in children's consumption of budget brands, and the predicted increases in government revenue(8). This formed the basis for more sophisticated proposals lodged in 1996 and 1997 (63,64). During 1996 and 1997 a handful of visits were made to key politicians in support of the proposals, funded mainly by the Australian Cancer Society.
Feedback from several politicians and Departmental officials indicated that several key policy personnel had doubts about the likely health impact of this measure. Considerable effort was put into meeting with officials and providing information related to their queries.
At the end of 1997, a significant opportunity arose.
The Coalition government announced that it intended to go to the next election on a platform of major tax reform, the central plank of which would be introduction of a goods and services tax.
The government set up departmental and parliamentary task forces and the business and welfare sectors established several independent and joint committees to help define principals for and build community support for tax reform.
In late 1997, the Victorian Smoking and Health Program developed a comprehensive proposal to put to the government's tax reform task force(65). The proposal was submitted by Heart and Cancer charities on behalf of almost 60 health and medical groups around the counrty. In addition to a shift to a per stick tax on cigarettes, the proposal called for imposition of the GST on top of the per stick excise. Adding a GST to the retail cost of tobacco products - with no compensatory decrease in excise duty - would prevent tobacco products becoming more affordable. A GST on tobacco would help to prevent any decrease in consumption (and rvenue flow) from any items for which cigarettes act as a substitute.
The National Heart Foundation and Australian Cancer Society joined forces to provide funding for visits to a large number of politicians, and discussions were held behind the scenes with the business and welfare groups.
State tobacco replacement payments are proving to be complex and time-consuming. The government needed tp persuade the electorate and, in particular economic and media commentators, that it was committed to wide-spread tax reform, not just introduction of a GST. The per stick proposal provided a solution to both these problems.
On the 13 August 1998, two weeks prior to calling an election, the government released its long awaited Tax Reform Package, titled Tax Reform: Not a New Tax; a New Tax System (66). The proposal incluede plans to introduce a per stick system in July 1999, a year ahead of the introduction of the GST. Shortly afterwards, the Labor Opposition released its tax package; it also undertook to support the per stick proposal (ALP 1998) (67).
As this edition goes to press, arrangements are in place to introduce the per stick system, as planned, on the 1 July 1998. Cigarettes will be excised at xx cents per stick, and roll-your-own tobacco and other tobacco products at $xx per kg (quote draft Bill if available) (68).