17.6 Do tobacco control strategies cause economic hardship in particular segments of the economy?

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This section provides evidence that the predictions of economic hardship by the tobacco industry and its supporters prior to the introduction of tobacco control policies have consistently proved to be unfounded.

17.6.1 Economic impact of advertising bans in the media

No major media outlet in Australia complained of reduced revenue as a result of advertising restrictions that came into effect on 1 September, 1976. As can be seen in Table 17.13, advertising revenue continued to increase after the ban.103 Due to restrictions in other media outdoor cigarette advertising became the biggest revenue source for outdoor advertising worth $75 million per annum.103 For more details refer to the previous edition of Facts and Issues.

17.6.2 Economic impact of smokefree policies in the hospitality industry

Faced with proposals to introduce smokefree laws in hospitality venues, tobacco industry and associated commercial organisations have invariably predicted falls in revenue and employment.104, 105 In Australia and around the world, many studies have investigated the economic effect of smokefree policies in restaurants and cafes.106 The studies vary in the measures selected and the analyses performed, ranging from subjective measures, such as surveys of public intentions of patronage and proprietor predictions of changes in sales, to objective measures such as independently collected revenue or unemployment data. Some studies are funded by industry groups, and others by health advocacy groups. Some are conducted by market research companies and some by academics in public health or economic faculties of respected universities. Some studies present simple before-and-after percentages, and others perform complex statistical modelling which controls for changing economic conditions and tests the statistical significance of any changes detected.

The problem with studies that present simple percentages before and after changes in polices is that they do not take into account underlying trends, or broader changes in economic conditions. A 5% increase in monthly sales after the introduction of a smokefree policy for instance could indicate a negative impact if sales had been increasing for some time by 10% per month. A 5% decline in monthly sales could indicate a positive impact if sales for that month compared to the previous month had generally declined by 10% in previous years.

In a review of the quality of the studies available up to September 2002 on the economic effects of smokefree policies in the hospitality industry, all of the well-designed studies—that is, those based on objective data, controlling for economic conditions and undertaking appropriate statistical tests—report no impact or a positive impact of smokefree restaurant and bar laws on sales or unemployment.106

Three studies using objective measures have examined the impact of smokefree laws on sales in restaurants and cafes in Australia. In South Australia, sales turnover in restaurants and cafes was examined in response to the smokefree law that came into effect on 4 January 1999.107 In a Victorian study, sales turnover in restaurants and cafes was analysed for the effect of the smokefree law that came into effect on July 2001.108
The third study examined the effect of smokefree laws in restaurants, cafes, bars and licensed clubs in Tasmania introduced in September 2001, which mandated smokefree enclosed work and public places with exemptions for bar and gaming areas where meals are not served or consumed. All three studies found no significant short- or long-term effect on sales.109

The picture appears not to be so clear-cut, however, for venues offering electronic gaming ('poker') machines. On 1 September 2002 a law was introduced in Victoria, requiring that smoking not be permitted in gaming venues with only one room and in the gambling room of venues with two or more rooms. Research on the effects of this legislation found significant immediate and long-term decreases in expenditure. Poker machine expenditure did not return to the level prior to the introduction of the law during the three-year period that was analysed after the law was introduced.110 Two studies from the United States have examined the effect of smokefree policies on electronic gaming machine expenditure, with mixed conclusions. They both examined the same venues but used different model specifications. Mandel et al.111 found no effect of the law on gaming revenue while Pakko found a significant decrease in revenue.112 It is possible that smokefree laws have had a progressive impact in that they may have reduced problem gambling among low-income groups among whom smoking is most prevalent, but this hypothesis has not been studied in detail.

17.6.3 Impact on small business of declines in retail sales

A report commissioned by British American Tobacco Australia and submitted to an inquiry conducted by the NSW Parliament in 2005 put forward the concerns of small businesses about proposed restrictions on the display of tobacco products.39 Sales of cigarettes and tobacco products comprise a considerable proportion of sales revenue for a large number of retailers across a range of different types of retail businesses.39 Smaller retailers were concerned about the expense of complying with the proposed regulations. Some claimed that the cost would force them to remove tobacco from their product mix and they were worried about the impact this might have on overall sales. (Proprietors argue that people coming to their shops to buy cigarettes also pick up other items such as bread and milk or snack foods while they are there.) It was even argued that restrictions could result in the closure of businesses, meaning a loss of retail amenity in some communities and a reduction in job opportunities, although the authors acknowledged the difficulties of quantifying the ultimate impact on employment arising from restricting sale or use of cigarettes and tobacco products.

It should be noted however that the number of very small mixed businesses operating in Australian regional towns and suburban neighbourhoods has already been declining significantly in recent years. This has resulted from changing consumer behavior due to influences such as increased female participation in the workforce, longer working hours, and greater personal use of vehicles as well as the competitive pressure placed upon en route trade stores by extended shopping hours for supermarkets and major shopping centres.39 Regardless of government policies on tobacco, the continuing decline in profitability of small corner stores in Australia is likely to lead to further concentration of cigarette and tobacco sales among supermarkets and grocery stores.

As discussed in Section 17.4.1, money not spent on tobacco products will be spent on other sorts of products and services. Junor et al.'s find that a 25% reduction in smoking prevalence would have a miniscule impact in 35 industry sectors in NSW, apart from in the tobacco industry where outputs would fall about 7% 41 Outputs in other industry sectors would barely change, ranging from a decline of about 0.3% in government administration to an increase of between 0.052 and 0.152% for food products other than meat and dairy products[12]. The impact on employment outside the tobacco industry and health care and related government services would also be miniscule. The number of people employed in retail trade would remain largely the same, with estimates of changes ranging from a decline of 208 to an increase of 275 depending on assumptions about the precise ways in which households would reallocate their expenditure.[13]