The impact of smoking on the Australian economy is complex. One might argue that there can be no benefit to the economy great enough to compensate for 19,019 deaths annually.(1) Notwithstanding this, attempts have been made to quantify the financial benefits as well as the costs brought to the community by smoking.
Estimates of economic costs of smoking consider factors such as health care, productivity loss through lost working days, and lost earnings due to premature death. Readers seeking a detailed comparative analysis of various methodologies currently in use are referred to Collins and Lapsley's research,(2) and the 1994 Review of the Tobacco Growing and Manufacturing Industries by the Industry Commission.(3)
There are a number of Australian studies on the economic costs of smoking, four estimating the costs on a national scale(4,5,6) and two which has researched the costs for Victoria alone.(7,8) A sixth has calculated the hospital costs of smoking for New South Wales.(9) Discussion in this chapter concentrates mainly on the more recent study by Collins and Lapsley(6) prepared for the Commonwealth Department of Human Services and Health, which estimated the total cost of tobacco to the Australian community in 1992 to be 12.7 billion annually*. These calculations take no account of the pain and suffering experienced by those with diseases and their families.
Also presented is discussion of the economic impact of the tobacco industry, based on two analyses commissioned by the Tobacco Institute of Australia (TIA), the public relations organisation which represented the interests of the tobacco companies operating in Australia. The first was completed by the Price Waterhouse Economic Studies Unit in 1990,(11) and the second, which adopts a new methodological approach, is a submission prepared by ACIL Economics and Policy Pty Ltd(12) for the Industry Commission review (see Section 8.2 below).
Estimates of the economic benefits of smoking are chiefly assessed in terms of the financial contribution which the tobacco industry makes to the economy, for example through primary industry, manufacturing and taxation. The ACIL report(12) also attempts to place a financial value on the excess which smokers would be prepared to pay for tobacco, deemed to be a consumer benefit. The tobacco industry uses this research to emphasise the financial importance of their industry, and influence on policy development by pointing out the apparent threat to revenue and employment accompanying tobacco controls.
Typically, these analyses undervalue death and disease costs and instead contend that the decline of the industry will leave a void of joblessness, government tax losses, and unspent consumer dollars. Given that, in reality, declines in tobacco consumption occur gradually, it has been observed that the only true economic costs of declining tobacco consumption lie in transition costs.(13) Further, it is unlikely that tobacco use would ever completely cease in the community, meaning that it is probable that the tobacco industry would continue to exist in some form.(13) The industry arguments also tend to assume that money no longer spent on tobacco products would depart from the economy, whereas of course consumer spending would simply be applied to other commodities and services, stimulating demand and production, and contributing to government revenue through other forms of tax.(13, 6)
* Note that this updated an estimate of $9.2 billion submitted to the industry Commission Inquiry in 1994 (10).
Tobacco taxes, which arguably constitute an economic benefit of tobacco use, are discussed in detail in Chapter 7.