17.2 The costs and benefits of smoking to the Australian economy

In 2015–16, the total estimated cost of smoking in Australia was $136.9 billion: $19.2 billion in tangible costs and $117.7 billion in intangible costs¹ (see Figure 17.2.1 and Table 17.2.1).

Note: a brief update of these figures produced by the George Institute for the year 2022–23 has put the total figure at $159.7b—$22.5b of tangible costs and $137.3 of intangible costs. Tangible costs included health care ($7.9b), other workplace costs ($5.8b) premature mortality ($4.7b) and other tangible costs ($4.7b).ⁱ 

17.2.1 The evidence for greater health care expenditure for people who smoke

17.2.1.1  Greater health service utilisation and costs among people who smoke

Studies comparing actual health care utilisation rates (or health care costs) between people who do and don’t smoke have consistently reported higher health service usage and costs for those who smoke.

An early Australian study that compared hospitalisation rates over the period 1978–94 in Busselton, Western Australia² found that the hospitalisation rates among people who smoke were 1.32 times higher than those of never smokers and their use of hospital bed-days was 1.4 times higher. Rates among those who had quit smoking for hospitalisation and bed-days were 1.13 and 1.22 times higher than among never-smokers, respectively. A recent Australian study found that patients who smoked had significantly greater length of stay and higher readmission rates following elective surgery, and a significantly higher cost per hospital readmission.³

In the United States, a survey of about 2,500 members of a health maintenance organisation between 1967 and 1974 and found that people who smoked used 20% more hospital days than non-smokers.⁴ Other researchers studied almost 8,000 members of a Minnesota health plan in 1999 over 18 months.⁵ They found that medical costs were 16% higher for people who smoke than for never smokers. Even in middle-age, prior to the onset of most fatal smoking-related illnesses, research in Finland found smokers visit primary health care professionals more often.⁶ Studies in Japan,⁷ Hong Kong,⁸ China,^9-11 Korea,¹² India,¹³ South Africa,¹⁴ Ireland,¹⁵ Italy,¹⁶ Spain,¹⁷ Finland,¹⁸ Denmark,¹⁹ Belgium²⁰ and Iran²¹ have similarly found higher healthcare costs for people who smoke and a significant economic burden of smoking on healthcare expenditure. A recent meta-analysis that examined direct health care costs concluded that people who smoke consistently incur greater mean annual health care expenses compared with non-smokers, with the average annual cost attributed to smoking $1,916.50 (2025 US dollars) for both hospitalised and non-hospitalised people in the general population.²² 

There is also greater health system utilisation among people exposed to secondhand smoke. US research in the late 1990s and early 2000s²³ found that exposure to smoking inside the home was associated with an increased risk of the child being taken to the emergency department and being admitted to hospital. Of children exposed to smoking at home, 4.3% were admitted to hospital for respiratory conditions at least once per year, compared with 1.1% of children living in homes without an adult smoker. Annual expenditures for care of respiratory conditions were $117 higher ($274 versus $150) for exposed children. Other US research has documented the higher resource and urgent care utilisation, hospital admissions, and emergency department visits among children exposed to secondhand smoke,^24-26 resulting in hundreds of millions in excess annual healthcare costs.²⁵ A study in England found that the average cost difference for children of people who smoke was £91.18 at age one, and £221.80 at age five, largely due to greater hospital in‐patient care.²⁷ Infants and children of women who smoke during pregnancy also have higher healthcare costs during their early childhood. Research in the US found that exposure to smoke was associated with emergency department, intensive care unit, and outpatient visits and a longer time in the ICU among pregnant people and their infants. It estimated that a 5% reduction in smoking would correspond to a potential median cost savings of $150 533 from ED visits of parents and infants.²⁸ Other US research has similarly documented the potential economic benefits of reducing smoking during pregnancy, for example by reducing the risk of Sudden Infant Death Syndrome.²⁹

Research has also shown that smoking increases hospital admissions and the duration of hospitalisations for all diseases, not just smoking-related illnesses.  For example, Danish research in the early 1980s³⁰ found that for men who smoked more than 20gm of tobacco per day, the risk of an admission to hospital over the next 20 years for a smoking-related condition was 2.77 times that of a non-smoker, and the risk of admission for other conditions was 1.32 times higher than for non-smokers.

The pattern is more complex when costs for people who have quit are compared with those who are still smoking or who have never smoked. A 2003 review³¹ concluded that people who quit smoking recently (up to four years ago) consistently have higher health service utilisation and health care costs than both current smokers and never-smokers. Individual studies have also noted higher healthcare costs among people who have quit than among those who still smoke.⁹ This counterintuitive finding occurs because many people who quit do so because they are already unwell, a phenomenon referred to as the ‘quitting ill’.  After three to five years, their health care utilisation rate falls to that of people who smoke, and after many years ex-smokers’ health care costs approximate those of those who have never smoked. This can be partly attributed to ‘survivor bias’, i.e. the sicker ex-smokers are no longer included in the study sample because they have died. For example, in the US study of health maintenance organisation members,⁴ mentioned above, the usage of most health services was higher for people who had quit than those still smoking, but the longer the time since quitting, the lower the hospital discharge rate.

Other studies^32,33 similarly find an association between cessation and healthcare costs. The high costs of healthcare (particularly in countries without universal healthcare) can prompt quitting behaviours, with a study of 8000 health plan members in Minnesota in the mid-90s finding that higher health care costs increased the likelihood of a smoking cessation attempt. Reductions in smoking are likely to result in substantial savings both to the healthcare system,³⁴ and to individuals. A US study estimated that overall, about 70% of current smokers' excess medical care costs is preventable by quitting.³⁵ Another US study estimated that a 10% relative drop in smoking prevalence (about a 2.2% absolute drop) combined with a 10% relative drop in consumption per remaining person who smokes (about 37 fewer packs/year) would be followed in the next year by a $63 billion reduction in healthcare expenditure (in 2012 dollars).³⁶

It should be noted that excess utilisation of services could be due partly to other risk factors that might also be higher among people who smoke. On the other hand, studies observing excess utilisation of health care services would pick up the effects of all diseases caused or worsened by smoking, including those for which aetiological fractions have not yet been developed. The authors of the Busselton study point out that the estimates of the number of hospitalisations and bed-days in Australia attributable to smoking are about 40% higher than estimates obtained using the aetiological fraction methodology normally used, and described in Section 17.1.4.1.

17.2.1.2 Lifetime health and welfare costs for people who smoke

While people who smoke no doubt use more health services than non-smokers of the same age, some commentators have claimed that these higher costs are likely to be offset by the fact that people who smoke die earlier, thereby reducing total lifetime use of health care services.

Models developed to estimate the lifetime costs for smokers and non-smokers link data on life expectancy with per capita cost data. Note that the magnitude of the lifetime cost will depend on the age from which the estimate starts; lifetime costs from age 20 years, for example, will be larger than those from age 40 years, if all other assumptions are identical. The discount rate is also relevant. As mentioned in Section 17.1.2, economists discount future streams of costs and benefits to present value.³⁷ The higher the discount rate, the less impact costs occurring at the end of life have on a lifetime cost estimate.

Some researchers looking at this question have indeed concluded that the lifetime health care costs for people who smoke are lower than for non-smokers. In the models these researchers used, the health care cost savings attributed to premature death from smoking-associated illnesses more than offset their higher annual medical costs.^38-40 Other analysts have found the reverse—that although people who smoke do, on average, die earlier than people who have never smoked, this ‘saving’ in terms of medical expenditures does not fully offset their higher medical costs—the lifetime medical costs for people who smoke are higher than for non-smokers.^41-44 Research in Finland found that while lifetime healthcare and pension costs were lower among people who smoke, once disease burden (‘quality-adjusted life years’) was considered, the net effect was reversed in favour of non-smokers (i.e. non-smokers had lower lifetime costs).⁴⁵

Several critiques of studies that report lower lifetime costs for smokers^41,44 argue that their results are due to underestimation of annual health care costs for people who smoke and discount rates that are too low. For example, one study assumed that per capita health care costs for male smokers are 40% higher than for non-smokers, whereas the actual peak difference in costs is over 100%. Further, such studies may inappropriately focus on undiscounted lifetime costs. The recommended discount rate for future costs is between 3 and 5% (see Section 17.1.2), and when such rates are applied, estimates of lifetime costs for people who smoke are greater than those of non-smokers, even when smokers’ per capita health care costs are substantially underestimated.

A major report published in 2016 by the National Cancer Institute and World Health Organization concluded that in high-income countries, lifetime health care costs are greater for people who smoke than for non-smokers, even after accounting for their shorter lives.⁴⁶

As well as healthcare, many smokers who develop smoking-related disease require social care. That is, support to help them complete day-to-day activities such as washing, dressing and eating. A number of studies in England have found that the costs of smoking-related social care are high to both local authorities and to people who smoke:^47,48 £625 million for domiciliary care and £565 million for residential care in 2017–19. The implicit costs of smoking to informal carers (such as family members) and the costs of meeting unmet need are both very high, at £8.2bn and £5.9bn, respectively.⁴⁸ People who smoke tend to develop a social care need at an earlier age, and are more likely need help with activities, compared with people who have never smoked.⁴⁷

A recent meta-analysis concluded that people who smoke are at 41% higher risk of receiving a disability pension than non-smokers.⁴⁹ Studies in Finland,⁵⁰ Germany,⁵¹ and Sweden^52,53 have similarly found that the likelihood of receiving a disability pension is higher for people who smoke. One of the Swedish studies, for example, followed over 45,000 men for 38 years and found that men who smoked more than 10 cigarettes per day were twice as likely to receive a disability pension as non-smokers.

17.2.2 Burden of death and disease attributable to tobacco

Worldwide, smoking is a leading preventable cause of morbidity and mortality, and in Australia is consistently one of the leading risk factors contributing to disease burden and deaths. A major study investigating the mortality associated with smoking among Australians aged 45 years and over, found that smoking kills more than 24,000 people each year, equating to approximately 66 deaths per day. Smoking (current or past) was estimated to be responsible for 15.3% of deaths among Australians aged 45 years and over in 2019.⁵⁴ The Australian Burden of Disease study estimated that in 2024, tobacco use contributed to 7.6% of the disease burden, making it the second leading risk factor contributing to the total disease burden in Australia. Tobacco use remained the leading risk factor contributing to the fatal disease burden, with the study estimating that it was responsible for 11.7% of the years of life lost.⁵⁵ The Global Burden of Disease study estimated that worldwide, there were 6.18 million (9.1%) deaths attributable to smoking in 2021.⁵⁶

See Section 3.30 for a detailed discussion of the burden of death and disease attributable to tobacco use in Australia.

17.2.3 Estimates of health care costs attributable to smoking

Excess healthcare use among people who smoke leads to substantial costs to healthcare systems. Based on the Busselton study of excess health care utilisation among people who smoke, it was estimated that 300,000 hospitalisations and 1.47 million bed days costing $682 million could be attributed to smoking in Australia in 2001–02 alone.⁵⁷ This estimate was likely conservative; the actual costs would be even greater because costs for those aged 80 years and over, and costs of pharmaceuticals provided from hospital, were not included.⁵⁸

A more recent major study based on international rather than local estimates of smoking attributable risk puts health care expenditure attributable to smoking in Australia at $6.8b in 2015–16.¹ The Australian Institute of Health and Welfare (which examines a more limited number of health care expenditure items) estimated that in 2023–24, tobacco use was the third leading risk factor contributing to health spending at $5.7 billion, behind overweight and obesity ($10.1 billion) and high blood sugar (6.1 billion). The conditions with the greatest expenditure due to tobacco use were lung cancer, chronic obstructive pulmonary disease, and coronary heart disease.⁵⁹

Estimates of the cost of smoking have been produced for many other countries. It was estimated that the amount of healthcare expenditure due to smoking-attributable diseases globally totalled US$422 billion in 2012, or 5.7% of global health expenditure. The total economic cost of smoking (from health expenditures and productivity losses together) totalled US$1436 billion in 2012, equivalent in magnitude to 1.8% of the world’s annual gross domestic product (GDP).⁶⁰ A study estimated that in 2019, smoking-attributable low back pain and rheumatoid arthritis alone cost the global economy $65.8 billion in healthcare costs.⁶¹

Researchers estimated that in 2010, 8.7% of annual healthcare spending in the US could be attributed to smoking, amounting to as much as $170 billion per year.⁶² In 2014, smoking-attributable healthcare spending was estimated at $225 billion dollars, or 11.7% of all spending.⁶³ A Canadian report concluded that smoking was responsible for $6.1 billion in healthcare costs in  2017.⁶⁴ An earlier Canadian study estimated that in 2012, the total direct health care costs attributable to smoking were more than $6.5 billion. Hospital care represented the largest proportion at $3.8 billion, followed by prescription drugs at $1.7 billion and physician care at $1.0 billion. Cardiovascular diseases (particularly coronary heart disease), respiratory diseases (especially COPD) and malignant neoplasms (such as lung cancer) were the disease categories responsible for the bulk of the direct costs.⁶⁵ In England, healthcare costs attributable to smoking were estimated to be £1.9 bn in 2023.⁶⁶ An Irish study estimated that the current smoking population (18% in 2022) would experience 5.9 million years with a smoking-related chronic disease, incurring accumulated healthcare costs of €20.2 billion over their lifetime.⁶⁷ German researchers projected that lifetime healthcare costs of smoking were twice as high in people who smoke than in never smokers under tobacco control policies implemented at the time of the study.⁶⁸

In England, a report published in 2015 estimated that the additional cost to the NHS of illnesses among non-smokers due to exposure to secondhand smoke was £242m.⁶⁹ Research in India⁷⁰ and Thailand⁷¹ also notes substantial healthcare costs attributable to secondhand smoke exposure.

A recent review highlighting the heterogeneous nature of international research on the costs of smoking recommended adoption of an agreed list of health conditions, a standard methodological approach (such as that outlined in WHO guidelines), and the standardisation of cost areas for inclusion (i.e. tangible and intangible costs and social costs as opposed to private costs). Despite the lack of comparability between countries and likely systematic underestimation, the research to date overwhelmingly concludes that the costs associated with tobacco use are substantial.⁷²

17.2.4 Productivity costs attributable to smoking

The indirect costs of smoking, such as lost productivity, often greatly exceed the direct costs to the health system.⁷³ Globally in 2012, it was estimated that 1.4 million of the total 2.1 million smoking-attributable deaths were among adults who otherwise would have been in the workforce. The number of labour years lost (which includes the future labour years foregone until retirement) due to smoking-attributable diseases was 26.8 million years, with 18.0 million years lost due to mortality and 8.8 million years lost due to disability.⁶⁰ In Australia in 2014–15, it was estimated that costs to the workplace from sick days due to tobacco-related illness and injury and reduced productivity while at work totalled $5.0 billion¹ (see Section 17.2.5, below).

A novel Australian study published in 2018 calculated productivity-adjusted life years (PALYs) lost due to smoking in Australia. PALYs are a construct similar to quality-adjusted life years (QALYs), but account for loss of productivity (accrued from a combination of premature death, sick days, and reductions in productive capacity while at work) rather than loss of quality of life. Assuming follow up of the current Australian smoking population to the age of 70 years, it estimated that 2.4 million PALYs would be lost to smoking, as well as more than 3.1 million years of life lost and 6.0 million QALYs. At an individual level, this is equivalent to 1.2 years of life, 2.4 QALYs and 1.0 PALY lost per person who smokes. The economic impact of this lost productivity over the working lifetime of Australians who smoke would amount to $A388 billion.⁷⁴ A 2018 report estimated that smoking costs the Victorian economy approximately $1,680.5 million per year in workforce costs, including costs associated with reduction in workforce ($693.4 million), absenteeism ($355.1 million) and smoking during work breaks ($632.0 million).⁷⁵

A systematic review and meta-analysis published in 2019 found robust evidence that smoking increases both the risk and number of sick days in working populations, regardless of study location, gender, age, and occupational class. Smoking was associated with an 31% increase in risk of sickness absence, and with 2.89 more sickness absence days per year, compared to non-smoking.⁷⁶ Recent research in England examined health-related economic inactivity—that is, people reporting that they are not in paid work because of long-term illness or disability—by smoking status. Findings showed that the prevalence of inactivity was highest among people who currently smoked and had increased over time. By February 2025, one in nine working-age adults (approximately 700,000 people) who smoked was not working due to long-term illness or disability, with about one quarter under the age of 35.⁷⁷ Studies in the United States,^78,79 Canada,⁶⁵ Finland,^80,81 Sweden,⁸² Ireland,⁶⁷ Japan⁸³ and Indonesia⁸⁴ have similarly found that smoking is associated with substantial productivity costs. One of the Finnish studies found that smoking and obesity were the two health-related behaviours most associated with sick leave; 16.4% of self-certified absences in men and 10.3% in women were due to smoking.⁸⁰ A major Canadian report estimated that the total lost production costs attributable to smoking in 2012 was $9.5 billion. Long-term disability represented the largest proportion of indirect costs, at $6.8 billion.⁶⁵ Another Canadian study estimated the annual indirect costs of smoking in British Columbia to be $2154 per person, ranging from $1379 for light smokers to $3462 for heavy smokers.⁸⁵ Research in the US estimated that in 2018, productivity losses from smoking-related disease totalled $184.9 billion.⁸⁶ Taking into account absenteeism, presenteesim, smoking breaks, healthcare costs and pension benefits for smokers, a 2013 US study estimated the annual excess cost to employ a person who smokes is $5816.⁸⁷ Another US study found that in 2013, people who smoked had significantly greater absenteeism, presenteeism (working while sick), and total indirect costs compared with ex-smokers, regardless of how recently they quit, highlighting the almost-immediate reduction in indirect costs associated with quitting smoking.⁸⁸ Research in Japan has similarly found that smoking cessation increases workplace productivity and decreases costs associated with loss of work impairment.⁸⁹

17.2.5 Other tangible costs of smoking

Dealing with litter resulting from discarded butts and cigarette packaging is another major cost of smoking to society—see Section 10.16.1.

Other tangible costs of smoking include the costs of property damage from housefires started by cigarettes left burning inside, and property loss and environmental damage caused by bushfires started by cigarettes discarded outdoors.

17.2.6 Estimates of total social costs of smoking

The costs of health care and other effects of tobacco caused disease is only one of many costs attributable to smoking that are born by Australian society. Over the past 50 years in Australia, several major research programs have attempted to quantify all the major costs associated with smoking to Australia society.

In work spanning three decades, economists Professor David Collins and Ms Helen Lapsley have undertaken a comprehensive series of studies aiming to estimate the total costs of tobacco use to the broader Australian economy. In reports for the Department of Health and Ageing, Collins and Lapsley have estimated the social costs of tobacco use in Australian society for the years 1988,⁹⁰ 1992,⁹¹ 1998–99⁹² and 2004–05.⁹³ They also estimated the costs of tobacco use in 1998–99 for Victoria,⁹⁴ New South Wales⁹⁵ and Western Australia⁹⁶ in reports for these state governments. The main features of the approach and the findings for the 2004–05 report (the final in the series) are summarised below (17.2.6.1).

A study undertaken by Curtin University has extended the Collins and Lapsley program and—using a slightly different method—produced an updated estimate for the year 2015–16.¹ This report is summarised in 17.2.6.2.

A study produced by the Rethink Addiction project with assistance from KPMG published in 2022 updated the Curtin University estimates and provides the most recent estimate available for Australia for the year 2021.

17.2.6.1 Collins and Lapsley’s studies of social costs

Three methodologic points need to be noted in relation to Collins and Lapsley’s cost estimates. First, they use the term ‘abuse’ when referring to tobacco use, on the basis that virtually all consumption is harmful.

Second, in contrast to the human capital studies described in Section 17.2.2, Collins and Lapsley use what they refer to as a demographic approach (see Section 17.1.4.2). They compare the actual population size and structure in the specified year with a hypothetical alternative population in which there was no past abuse and there is no current abuse. Costs of past and present abuse are estimated in the year of the study only. So, for example, the cost in 2004–05 of a death due to tobacco smoking (death that occurred either in or before the year 2004–05) is estimated as the value of lost productive capacity in that year only. The value of a lost life, i.e. production foregone in subsequent years because of that death, is not estimated.

Third, Collins and Lapsley estimate the net costs of smoking, taking into account both those costs that are made greater and those that are reduced because of current and past tobacco use. For example, smoking increases some health care costs because of the higher prevalence of diseases caused by smoking (in smokers and ex-smokers who are still alive). These are the gross health care costs attributable to smoking. However, certain other health care costs are lower than they otherwise would be because of the premature deaths of many people who smoked over the past 40 years. These people did not live to use health care that they otherwise would have, so Collins and Lapsley subtract the costs that would have been incurred from the gross health care costs attributable to smoking in order to estimate the net cost. Similarly, in terms of labour (production) costs first costs that are made greater by smoking are estimated. For example, the time spent undertaking domestic duties because a home-maker is ill or has died prematurely is costed assuming domestic help will be hired. Then, savings due to reduced consumption—for example, household spending on food and clothing—are subtracted because these costs will be lower when there are fewer people in the household as a result of smokers dying earlier.

Collins and Lapsley estimated that in 2004–05 the total cost of smoking in Australia was $31.5 billion (Table 17.2.2), an increase of 23.5% from the 1998–99 estimate (adjusted to 2004–5 prices).⁹³ This increase occurred despite steady falls in smoking prevalence since the mid-1970s, and a decline in the annual number of deaths attributable to tobacco use from 19,429 in 1998–99 to 14,901 in 2004–05. Costs did not decrease because the impact of the previous decades of tobacco use was still being observed in 2004–05. Collins and Lapsley predicted that ‘as the lagged effects work their way through the system, and assuming that smoking prevalence continues to decline, real smoking costs (adjusting for the effects of inflation) should eventually fall very significantly’.⁹³

Of the total estimated social cost of tobacco abuse in 2004–05, $12 billion (38%) were tangible costs and about $19.5 billion (62%) were intangible (Table 17.2.3). Collins and Lapsley include the following resources in their estimates of tangible costs: lost productive capacity due to premature death or smoking-associated illness (labour costs), health care for smoking-associated illness, fires attributable to smoking, and abusive consumption (i.e. the cost of purchasing tobacco, estimated at market prices, less taxes). They define the intangible costs of tobacco abuse as the sum of the psychological costs of premature death (incurred by family and friends) and the loss of enjoyment of life (incurred by the smoker) as a consequence of smoking-associated illness. Intangible costs are difficult to value and only the intangible cost of premature death was included in Collins and Lapsley’s report for 2004–05. They used the Bureau of Transport Economics’ estimate of $2 million as a reasonable valuation of a lost life. Adjustment to 2004–05 prices and reference to the average life expectancy of the Australian population gave an estimate of $53,267 for the average intangible value of the loss of one year’s living (as opposed to the loss of a life).

Estimates of tangible costs are summarised in more detail in Table 17.2.3. Collins and Lapsley disaggregated lost productivity (labour) costs into ‘workforce’ and ‘household’ costs because different valuation methods were used for paid work and unpaid domestic work. Workforce labour costs were further disaggregated into reduction in the workforce due to premature death and absenteeism due to smoking-associated illness. Reduced on-the-job productivity due to smoking was not included in their estimates because of lack of data. Costs due to the reduced workforce size were estimated from national accounts data. The estimate for absenteeism was based on Australian research which found that smokers were 1.4 times more likely to be absent from work, and ex-smokers 1.3 times more likely, than those who had never smoked.⁹⁷

Household labour costs due to smoking were valued using Australian Bureau of Statistics methodology; the cost of hiring the market replacement for each individual household function was used to estimate the value of time lost due to death or illness.

Table 17.2.3 shows that loss of household and workforce labour due to illness and premature death caused by tobacco abuse is the biggest component of the tangible costs of smoking, representing 67% of the total in Australia. Spending on tobacco products by people who smoke is also a major component of total costs (30%). The net health care costs attributed to smoking were $318.4 million (2.65% of the total). The gross health care costs attributable to smoking, before adjustment for savings due to premature death, were $1.836 billion.

Collins and Lapsley’s estimates of the social costs of tobacco abuse are extremely conservative; the actual costs are likely to be much higher. Lack of data prevented Collins and Lapsley assigning values to many of the social costs known to be attributable to smoking. For example, the following are not included: the purchase of over-the-counter medicines, domiciliary care and allied health services.⁹³ As mentioned previously, reduced on-the-job productivity was not costed. However, a study published in 2006 estimated that between eight to 30 minutes per day are lost due to smoking. If five minutes are spent daily on smoking outside of normal break times, the employee is 1% less productive.⁹⁸

Collin and Lapsley also note that some of their cost estimates were almost certainly too low.  For example, the cost of pharmaceutical products is based only on the highest volume drug categories on the Pharmaceutical Benefits Scheme. The hospital cost estimates are based on average treatment costs for each condition and do not reflect the fact that health care costs for smokers are likely to be higher than for non-smokers.⁹⁹ For example, smoking up to the time of any surgery increases cardiac and pulmonary complications, impairs tissue healing and is associated with more infections, therefore increasing the average length of stay, staff workload and requirements for medicines.^100,101 Costs associated with the management of birth complications for women in the United States who smoke during pregnancy exceed those of non-smokers by 66%.¹⁰² Costs for people who smoke having orthopaedic surgery can be up to 38% higher than those of non-smokers due to infections resulting in prolonged hospital stay and double the re-admission rate.¹⁰³

17.2.6.2 Social costs of tobacco use to Australia 2015–16

In 2019, an updated estimate of the social costs of tobacco use in Australia was published, produced by The National Drug Research Institute at Curtin University.¹ It concluded that in 2015–16, the total cost of smoking in Australia was $136.9 billion: $19.2 billion in tangible costs and $117.7 billion in intangible costs (see Figure 17.2.1 and Table 17.2.1, at the top of this section).

The total of $136.9 billion appears to be significantly greater than Collins and Lapsley’s estimate of $31.5 billion for 2004–05. However, different assumptions and methods were used in each study, particularly in relation to the estimation of the intangible costs of premature mortality (see chapter 11 of the report for a detailed discussion).¹ The 2015–16 estimate also included new cost areas such as the burden of informal care (e.g., caring for a sick partner or family member), intangible costs of ill-health, and the cost of litter. Conditions now known to be caused by smoking were added to the list of adverse health outcomes (e.g. type 2 diabetes, liver cancer, reduced fertility, rheumatoid arthritis, orofacial clefts and stroke due to secondhand smoke), and the extent of smoking’s contribution to several conditions was updated. Other factors such as the ageing of the Australian population, and the increase in the population, have also contributed to the higher overall cost of smoking in 2015–16.¹

Tangible costs of premature mortality

Tangible costs of premature mortality include: the present value of lost expected lifetime labour in paid employment; costs to employers of workplace disruption; the lifetime value of lost labour in the household; and, a net cost saving of avoided lifetime medical expenditure by government.

The total present value cost to GDP of premature smoking-attributable mortality which occurred in 2015–16 assessed over 30 years was $3.4 billion. In addition, employers face one-off costs to recruit and train new employees to replace deceased workers. The estimated cost of this was $6,422 per prematurely deceased employee in 2006 values. Applying the estimate of 3,560.8 fewer employees in 2015–16, gives a total cost of $28.0 million.

A household activity is considered unpaid work if someone could be paid to complete the same task; for example, domestic activities, childcare, purchasing of goods and services, and volunteer and community work. These services would be lost by the community in the event of the death or severe illness of the person supplying them. Per adult estimates in 2015–16 values of unpaid household work were $19,613 per man and $35,016 per woman. Assessing the present value of lost labour in the household over a 30-year timeframe gives an estimated cost of $623.7 million.

Premature deaths of people who smoke produce reductions in lifetime healthcare costs which would have incurred in future years had the person lived to their expected age at death. The estimated total net present value (over 30 years using a seven per cent real discount rate) of healthcare costs avoided due to premature tobacco attributable mortality was a saving of $2.3 billion.

The estimated total cost of stillbirths in Australia was $141.2 million in 2016 or $56,188 per case. The estimated average number of smoking attributable cases of stillbirths was 92.9, which adds a further $5.2 million to the tangible costs total.¹

Other workplace costs

Along with the costs associated with premature death, other costs to the workplace include absence from work due to tobacco-related illness and injury, and reduced productivity while at work (also known as ‘presenteeism’). In 2016, people who currently smoke or had quit smoking reported missing an extra 11,309,323 days from work per year compared to workers who had never smoked. These differences ranged from 1.707 to 3.726 additional days per year. Overall, this equated to a financial cost of $4.2 billion dollars in 2015–16. Further, it was estimated that people who smoked accounted for over 2 million extra days of presenteeism each year at a direct cost of nearly $759.5 million.¹

Healthcare costs

Smoking is associated with a plethora of adverse health outcomes and therefore costs arising from the use of health services in treating these conditions. Such costs include hospitalisations, excess emergency department visits, outpatient treatment, general practitioner visits, nursing home care and medications.

Across all conditions, the total cost of hospitalisations caused by smoking in 2015–16 was $1.5 billion. Chronic obstructive pulmonary disease was the costliest condition caused by smoking, with total costs of $347.3 million, followed by ischaemic heart disease ($205.9 million) and tracheal, bronchus, and lung cancer ($152.8 million). Other diseases that imposed substantial costs included stroke ($106.5 million), low birthweight ($90.5 million) other CVD and circulatory diseases ($69.4 million), influenza and pneumonia ($48.0 million), hip fracture ($38.7 million), kidney and bladder cancer ($36.4 million), oesophageal cancer ($18.8 million) and pancreatic cancer ($13 million). Outpatient and emergency department costs were $289.3 million and $252.7 million, respectively, while the smoking attributable cost of ambulances was $200.2 million.

Primary healthcare costs in 2015–16 comprised GP Visits ($508.2 million) and referred medical services, such as seeing specialists ($949.9 million). The total cost of smoking attributable PBS listed medicine costs for treating smoking-related conditions was $451.1 million, while for smoking cessation aids, total costs included cessation medications ($44.5 million), co-payments ($10.1 million), and over-the-counter NRT products (98.9 million).

High-level residential care (i.e., nursing home care) likely includes some people with smoking-related health conditions. Further, a substantial amount of care is provided informally by family and friends. The smoking attributable cost to government of high-level residential care was $293.6 million and the smoking attributable cost to government of other aged care services was $126.6 million. The estimated smoking-attributable cost of informal care was $2.0 billion.¹

Other tangible costs

Smoking also leads to harm through the role of discarded butts and matches and accidental access to lighters or matches by children, as an ignition source for house fires, bushfires and other fires. The cost of smoking-attributable structural fires (both residential and commercial) was estimated to be $32.0 million, while the salaries and other resources attributed to smoking caused fires was $48.8 million. The cost of landscape fires was unable to be estimated.

Discarded cigarette butts and packaging have a substantial environmental impact; in 2014–15, cigarette butts were the most frequently identified litter item in Australia (see Section 10.16). The total cost to Australia of litter removal in 2014–15 was estimated to be $73 million.

The costs of tobacco consumed by smokers was also calculated, where the costs were borne by the smoker themselves and where the expenditure was not fully voluntary nor well informed (i.e., expenditure by dependent smokers).  The social cost arising from expenditure on tobacco by dependent smokers was estimated to be $5.5 billion.¹

Intangible costs

In addition to the tangible costs of smoking, there are substantial intangible costs (e.g. the value of life lost, pain and suffering), both from premature mortality and from the lost quality of life of those experiencing smoking attributable ill-health. In 2015–16 the intangible cost of smoking attributable premature mortality was estimated at $92.1 billion, while the intangible costs of ill-health were estimated at $25.6 billion.¹

17.2.6.3 Other Australian estimates of the social costs of smoking

A report prepared by Rethink Addiction and KPMG estimated that in 2021, tobacco-related harm incurred a cost of $35.8 billion to Australia, equating to 45 per cent of the total cost of addiction. The highest costs were related to household and workplace productivity ($13.2 bn and $11.0 bn, respectively) followed by harmful consumption ($7.0 bn) and healthcare costs ($4.5 bn).¹⁰⁴

17.2.6.4 International research on the social costs of smoking

Smoking imposes a heavy economic burden throughout the world. One study has estimated that the total economic cost of smoking totalled US$1436 billion in 2012, equivalent in magnitude to 1.8% of the world’s annual gross domestic product (GDP). Almost 40% of this cost occurred in developing countries.⁶⁰ A review found that the economic burden of tobacco use in included countries ranged from 0.33 to 1.19% of the GDP.¹⁰⁵ A systematic review of the social costs of tobacco use in Europe found a high degree of variability across countries. Price per capita ranged from €10.55€ (Sweden) to €391 (Germany). Percentage of GDP ranged from 0.28% (Sweden) to 1.17% (Germany). The share of indirect costs ranged from 12.2% (Denmark) to 74% (Sweden). Direct costs ranged from 26% (Sweden) to 87.8% (Denmark).¹⁰⁶

A major study in England estimated that in 2023, the total cost of smoking to the economy was £49.2 bn, including £32.0 bn in productivity costs, £1.9 bn in healthcare costs, and £15.0 bn in social care costs.⁶⁶ The cost of smoking to the UK in 2023 was estimated to be £89.3 billion, or about 3.9% of the 2022 UK GDP.¹⁰⁷ In Canada, a major report concluded that tobacco accounted for $12.3 billion or 26.7% of the total costs of substance use.⁶⁴ In eight countries in Latin America, economic losses due to tobacco use (including medical costs, lost productivity, and caregiver costs) were estimated at 1.4% of countries’ aggregated gross domestic products.¹⁰⁸ Other studies have estimated the total economic burden of smoking as ranging from less than one per cent of GDP (e.g. 0.3% in Hong Kong;⁸ 0.67% in Korea¹⁰⁹ and Estonia;¹¹⁰ 0.94% in the Czech Republic;¹¹¹ 0.97% in South Africa¹⁴) to over one per cent (1.04% in India;¹³ 1.4% in Bangladesh;¹¹² 2.29% in China¹¹³) up to almost 4% in Greece¹¹⁴ and 4.7% in Jordan.¹¹⁵

17.2.7 The economic benefits of the tobacco industry

The tobacco industry has often argued both in Australia and elsewhere that it generates much-needed employment and government revenue. Although there is a lack of consistent and comprehensive data on trends in global tobacco-related employment (growing, manufacturing, and retailing), evidence strongly suggests that it has decreased over time,⁴⁶ and studies consistently show that revenue accrued by the entire tobacco economy is less than the cost to the economy.¹¹⁶ There has been no tobacco growing in Australia since the 1990s, and as of 2016, no tobacco products were manufactured in Australia (see Chapter 10). Australian researchers have documented the ubiquity of tobacco retail outlets, which are disproportionately concentrated in disadvantaged neighbourhoods^117-119 (see also Section 11.9). Although retailers often perceive tobacco to play an important role in their overall profitability and patronage, there is little evidence to support this—see Section 10.5. Most tobacco products in Australia are sold by retailers who also sell nontobacco products.⁴⁶

Researchers have highlighted two key flaws in the industry’s economic arguments against tobacco control.¹²⁰ First, industry arguments typically ignore the health effects of smoking. Second, they overstate and inaccurately reflect the economic importance of the tobacco industry by assuming that resources devoted to tobacco production and distribution would disappear if tobacco sales declined. If smoking prevalence were to reduce significantly, some, if not all, expenditure previously allocated to tobacco would be reallocated to alternative goods and services.

Australian researchers modelled the macroeconomic and distributional effects of annual reductions in smoking prevalence from 2002–03, leading to a 25% reduction in expenditure on tobacco products by 2007–08 and a 50% reduction by 2012–13. The change in NSW economic output varied from an increase of 0.003% to a decrease of 0.006%, depending on how the released smoking expenditures were reallocated. State employment did decrease under all assumptions, but only by a maximum of 0.034%, i.e. a reduction of 908 jobs.¹²¹

Collins and Lapsley, in a report for the Cancer Council Western Australia,¹²² concluded that a reduction in tobacco use would be unlikely to cause a contraction in the Australian economy, although it would undoubtedly cause a contraction in the tobacco industry itself. In fact, they predicted that a reduction in the Western Australian smoking prevalence rate to 5% (a 15.5% absolute reduction) would result in social benefits for the state. If the reduction occurred over 10 years, the predicted social benefit would be approximately $4.4 billion.

A report commissioned by the tobacco company Philip Morris, when the Czech government proposed raising cigarettes taxes in 1999, concluded that the effect of smoking on the public finance balance in the Czech Republic in 1999 was positive, an estimated net benefit of 5,815 million CZK (Czech koruny), or about US$298 million.¹²³ The analysis included taxes on tobacco, and health care and pension savings because of premature death among people who smoke, as economic benefits of smoking, and these benefits exceeded the negative financial effects of smoking, such as increased health care costs. The report created a furore; public health advocates found the explicit assumption that premature death is beneficial morally repugnant. The controversy was described by the journalist Chana Joffe-Walt on the radio program This American Life,¹²⁴ and was reported in the British Medical Journal.¹²⁵ According to This American Life, Philip Morris distanced itself from the report in response to the controversy, banning its employees from citing the findings. In fact,  the report’s claim that smoking was beneficial relies on its inclusion of taxes as a benefit, not any savings due to premature deaths.¹²⁶ Costs associated with smoking while the person was still alive totalled 15,647 million CZK, 13 times more than the ‘benefits’ associated with early death. The net benefit reported in the analysis arose because the tobacco tax revenue of 20,269 million CZK was regarded as a benefit. As detailed in Section 17.1.1, taxes are not an economic cost (or benefit); they are a transfer payment. The recipient (the government) gets richer, while the taxpayer gets poorer.

A major report by the National Cancer Institute and World Health Organization published in 2016 summarised the evidence on the employment impact of tobacco control, and concluded:⁴⁶

1. The number of jobs that depend on tobacco—tobacco growing, manufacturing, and distribution—is low and has been falling in most countries.
2. Adoption of new production technologies and improved production techniques, together with the shift from state to private ownership in many countries, has reduced employment in both the tobacco-farming and -manufacturing sectors.
3. In nearly all countries, national tobacco control policies will have either no effect or a net positive effect on overall employment because tobacco-related job losses will be offset by job gains in other sectors.
4. In the few countries that depend heavily on tobacco leaf exports, global tobacco control policies could lead to job losses, but these losses are expected to be small, gradual, and unlikely to affect the current generation of tobacco farmers in these countries.

For a discussion of ethical issues related to tobacco farming and production, see Section 10.14.

i See Gadsden T, Craig M, Jan S, Henderson A, and Edwards B. Updated social and economic costs of alcohol, tobacco, and drug use in Australia, 2022/23. The George Institute, 2023. Available from: https://www.georgeinstitute.org/sites/default/files/documents/cost-of-alcohol-drug-use-in-aus-report.pdf

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