13.11 Are tobacco taxes regressive?

Increases in tobacco taxes are sometimes described as being 'regressive', in that poorer groups in the community are likely to pay a greater percentage of their income on tobacco taxes compared with more affluent groups. Since it is precisely the poorer, less educated and younger population sub-groups that provide a large proportion of the tobacco industry's customers, it could equally be argued that the tobacco market itself is regressive.

Tobacco use is more prevalent1 and quit rates2 are lower and duration of smoking longer3 among low compared with high socio-economic groups4 (see Chapter 1, sections 1.7 to 1.10 and Chapter 9, sections 9.1 and 9.2). There is no doubt that this creates a large financial burden in many low-income households5,2,6 (see Chapter 2, Section 2.4 and Chapter 9, Section 9.5) and in particular in many Aboriginal communities.7,8 Despite these factors, increases in tobacco taxes have been justified on the following grounds.

  • Smoking, within the limits of addiction, is discretionary. Tobacco is used by only one-fifth of the adult population (including less than one-third of low-income adults–see Section 1.7) and cannot be considered a majority behavior: cigarettes are not a 'staple item'. The tax can be avoided by remaining a non-smoker, or giving up smoking, and those who quit smoking realise substantial financial savings immediately. Even the most addicted smokers unable or unwilling to quit are able to reduce consumption to at least some extent.
  • Due to their higher smoking rates, a disproportionate amount of ill-health and premature death due to smoking-caused illness is experienced by lower socio-economic groups (see Chapter 9, Section 9.3). These groups stand to gain most in health terms from tax increases that provide an additional incentive to quit.
  • Raising tobacco taxes is beneficial in revenue terms for government and revenue from increases can help to cover the cost of comprehensive smoking-control programs including campaigns, services and treatments to assist smokers or the cost of other programs that benefit low-income groups.
  • Taxation increases have been considered an appropriate tool for prevention by all major health organisations,9,10 and community support for such taxes has increased over the years in Australia, particularly if the taxes are used to promote health education (see Section 13.12).

It is clear that increases in tobacco taxes are most felt among poorer sub-groups:11 that is what makes them an effective preventive tool. The key issues in determining whether tobacco taxes are regressive are: first, the extent to which people in various socio-economic groups actually do quit in response to price increases; and second, what the consequences are for those low socio-economic smokers who do not quit.

13.11.1 Findings from early overseas studies

Early research suggests that people on lower incomes tend to be more price sensitive than higher income groups.12,13 Analysis of British data from the 1980s, for instance, has shown that men and women in lower socio-economic groups are more likely to reduce their cigarette consumption because of price increases than in response to health publicity about tobacco.14,12 Considered from this angle, tobacco taxes can be described as progressive in their deterrent effects on uptake or influence on quitting. The US Centers for Disease Control analysis of data from the US National Health Interview Survey indicated that (while smoking intensity was less responsive) smoking prevalence among people below the median income level was more price responsive than among people above the median income level.15 Analysis of some later US data challenged this view, finding that low income smokers in the US in the late 1990s were less likely than middle or high income smokers to quit following price increases, and that among remaining smokers, consumption was likely to fall equally among all income groups.11,16 As time has gone on, evidence has strengthened that low income smokers are more price sensitive.17–20 DeCicca and McLeod notably detected increase cessation among in response to large price rises among older, less educated adults on low incomes.21

13.11.2 Conclusions of major reviews

Three major reviews have analysed multiple studies examining whether tax increases are effective (or more effective) in reducing smoking among disadvantaged groups. These are:

  1. Thomas S, Fayter D, Misso K, Ogilvie D, Petticrew M, Sowden A, et al. Population tobacco control interventions and their effects on social inequalities in smoking: systematic review. Tobacco Control 2008;17(4):230–717
  2. Bader P, Boisclair D and Ferrence R. Effects of tobacco taxation and pricing on smoking behavior in high risk populations: a knowledge synthesis. International Journal of Environmental Research and Public Health 2011;8:4118-3922
  3. The International Agency for Research on Cancer. Effectiveness of tax and price policies for tobacco control. Handbooks of cancer prevention, tobacco control. Vol. 14. Lyon, France: IARC, 201123 summarised in Chaloupka FJ, Straif K and Leon ME. Effectiveness of tax and price policies in tobacco control. Tobacco Control 2011;20(3):235-8.20

13.11.2.1 Thomas et al 2008

In their review of the effects of six different population interventions on social inequalities in smoking, Thomas and colleagues17 used a 'harvest plot' methodology to show the strength of evidence for the hypothesis of negative gradient (greater effect on the more disadvantaged) and the competing hypothesis of a positive gradient (greater effect on the more advantaged). Twenty-eight studies concerning price increase were assessed. Each study was represented by a mark in each row for which that study had reported relevant results. Studies with hard behavioural outcome measures are indicated with full-tone (black) bars, and studies with intermediate outcome measures with half-tone (grey) bars. The suitability of study design is indicated by the height of the bar, where the highest bars represent the most suitable study designs (categories A and B) and the lowest bars represent the least suitable (category D). Each bar is annotated with the number of other methodological criteria (maximum six) met by that study.

The authors concluded that price increases was the only one of the six population strategies studied for which there was strong evidence of a negative gradient for income, occupation, employment, education or ethnicity. The evidence was strongest for income and occupation, with some indication that the gradient may have been positive for education.

 

Figure 13.11.1.jpg

Figure 13.11.1
Extract from Thomas et al 2008 harvest plot of studies examining relative effectiveness of cigarette price increases among
disadvantaged groups

Source: Thomas et al 200817

13.11.2.2 Bader et al 2011

Several years after the publication of the Thomas review, Canadian researchers Bader and colleagues undertook a further synthesis of the results of studies that examined the effects of price increases among low-income or low-education populations. The majority of studies (rated strong or moderate) reported significant smoking participation and consumption effects. Twenty-four studies (22 published, two unpublished) met selection criteria. Nineteen published and two unpublished studies were rated as strong or moderate. Studies were conducted in Canada, the US, the UK, other European countries, New Zealand, China/Russia and Mexico. Twelve studies found that persons of low socio-economic status (SES) were more responsive to price than the general population3, 11,12,14,17, 24–29 Five indicated that low SES groups had the same responsiveness to price as the general population, that is, increased price appears to benefit all socio-economic groups equally in terms of reducing smoking participation and consumption30,16,31 32, 33

13.11.2.3 IARC review 2010

The International Agency for Research on Cancer convened an expert scientific panel that in 2010 undertook a major review of international evidence of the effectiveness of tax policies in reducing smoking.23 It commented that while some studies found no differences between SES groups, the majority were consistent with economic theory in finding greater price sensitivity among low-income populations. The panel noted that some of the inconsistent findings might be attributable to differential access over time to cheap tobacco products.19 The panel concluded that there was 'strong' evidence at least in high-income countries of stronger responsiveness to price among lower-income populations.19,20

13.11.3 Findings of research in Australia

After several years of no change, it is interesting that smoking rates fell significantly among Australians in the most disadvantaged social group between the 200734 and 20101 National Drug Strategy Household Surveys following the first real increase in excise and customs duty in Australia in 10 years. Three Australian studies suggest that tax increases over time in Australia have indeed had greater effects among those on low incomes.35,36,37

A study published in 200335 examined changes in the prevalence of smoking over the period of the National Tobacco Campaign (May 1997 to November 2000) based on interviews with 2 969 to 5 112 people who also reported on smoking among other members of their household (bringing the total enumerated sample to between 6 536 and 11 923). During the first stage of the campaign (which comprised a number of TV and other advertisements graphically explaining the health effects of smoking) the prevalence of smoking declined more sharply among white collar than blue collar groups. During the second stage of the campaign (when advertising continued at a somewhat lower rate but the prices of large packs increased sharply due to the reforms introduced between November 1999 and June 2000–see Section 13.2), smoking declined much more sharply among blue collar smokers–refer Table 13.11.1

Table 13.11.1
Summary of changes in smoking prevalence over the period of the Australian National Tobacco Campaign in adults 18–40 years (manufactured and RYO cigarettes)

 

Benchmark

Follow-up 2

Follow-up 4

% change

% change

 

May 1997 (%)

Nov 1998 (%)

Nov 2000 (%)

May 97 to Nov 1998

Nov 98 to Nov 2000

Enumerated sample
(total)

29.5
(n=6536)

27.9
(n=10306)

26.7
(n=11923)

–5.42

–4.30

Blue collar

33.4

32.6

30.6

–2.4

–6.1

White collar

25.1

23.0

23.2

–7.6

0.9

Informant sample
(total)

30.8
(n=2969)

28.6
(n=4562)

27.1
(n=5112)

–7.1

–5.2

Blue collar

34.1

33.1

32.1

–2.9

–3.0

White collar

25.6

22.6

22.0

–11.7

–2

Source: Scollo et al 200335

Note: From National Tobacco Campaign evaluation respondent surveys

A study by Siahpush and colleagues used Australian population survey data collected monthly from January 1991 to December 2006 to estimate Poisson regression models to assess the impact of the price of cigarettes on smoking prevalence across three income groups. Analyses conducted in 2008 found strong evidence that real price and prevalence were negatively associated (p<0.001) and that the association was stronger in lower-income groups (p<0.001). One Australian dollar increase in price was associated with a decline of 2.6%, 0.3% and 0.2% in the prevalence of smoking among low, medium and high-income groups, respectively. They concluded that increasing the price of cigarettes not only is an effective tobacco-control strategy to lower smoking prevalence in the general population, but also may provide a means of reducing social disparities in smoking.36

A more recent study in New South Wales examined the impact of the April 2010 increase in customs and excise duty among various income groups. Responses to the price increase included smoking-related changes (trying to quit, cut down) and product-related changes (changing to lower priced brands, started using loose tobacco, bought in bulk). Recent quitters were asked how much the increasing price of cigarettes influenced them to quit. Overall, 47.5% of smokers made smoking-related changes and 11.4% made product-related changes without making smoking-related changes. Multinomial logistic regressions showed that low or moderate income smokers (vs. high income) were more likely to make smoking-related changes compared with no changes.37

13.11.4 What about highly disadvantaged groups suffering entrenched disadvantage?

There is little research about the effects of tax increases among those with psychotic illnesses, the homeless and so on. A study by Ong et al in 201038 found that a 10% increase in cigarette prices was associated with 18.2% less smoking participation among individuals with alcohol, drug, or mental disorders, except those with alcohol dependence. They conclude that increasing cigarette taxes could be effective in reducing smoking among individuals with alcohol, drug, or mental disorders.

 

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