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Chapter 2

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Last updated: October 2024

13.0 Introduction

The pricing of cigarettes and other tobacco products is the most effective mechanism for tobacco companies to both maintain consumer demand and protect returns to shareholders. And, because taxes make up a substantial proportion of the price of tobacco products, and consumers are responsive to price changes, raising tobacco taxes is one of the most effective mechanisms for governments to reduce population consumption of tobacco.

The evidence for the effectiveness of tax and pricing policies is overwhelming.1-7 A review by a scientific panel convened by the International Agency on Research Against Cancer (IARC) in 2010 summarised the evidence (to that time) and issued ratings of the strength of the evidence for 18 elements of tobacco tax and price policies, ranging from sufficient to limited evidence. These conclusion statement ratings are summarised in Table 13.0.1 below.

Since the IARC review, the strength of evidence regarding tobacco tax and price policies has grown further, particularly in terms of evidence from low- and middle- income countries. Often in these countries the total tax burden on tobacco products is lower and the affordability of tobacco is higher. However, people living in low-and middle- income countries tend to be equally or more responsive to changes in the price of tobacco products compared to those in high-income countries.7,8

This chapter covers the importance of raising the price of tobacco products using taxation, the cost and affordability of tobacco products in Australia, factors that influence the price of tobacco products, the structure of and revenue from tobacco taxes in Australia, how this impacts tobacco use, and how these factors in Australia compare to those in other countries. Topics also covered include arguments against tobacco taxation, including how taxes impact disadvantaged populations, public opinion about tobacco taxes, and future policy directions. The issue of illicit tobacco is covered extensively in InDepth 13A: Avoidance and evasion of taxes on tobacco products.  

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References

1. US Department of Health and Human Services. Reducing the health consequences of smoking: 25 years of progress. A report of the Surgeon General. Rockville, Maryland: US Department of Health and Human Services, Public Health Service, Centers for Disease Control, Center for Chronic Disease Prevention and Health Promotion, Office of Smoking and Health, 1989. Available from: http://profiles.nlm.nih.gov/NN/B/B/X/S/.

2. US Department of Health and Human Services. Preventing tobacco use among young people. A report of the Surgeon General, 1994. Atlanta, Georgia: Public Health Service, Centers for Disease Control and Prevention, Office on Smoking and Health, 1994. Available from: https://www.cdc.gov/mmwr/PDF/rr/rr4304.pdf.

3. US Department of Health and Human Services. Reducing tobacco use: a report of the Surgeon General. Atlanta, Georgia: US Department of Health and Human Services, Public Health Service, Centers for Disease Control and Prevention, National Center for Chronic Disease Prevention and Health Promotion, Office on Smoking and Health, 2000. Available from: http://www.cdc.gov/tobacco/data_statistics/sgr/2000/complete_report/index.htm.

4. The World Bank. Curbing the epidemic: governments and the economics of tobacco control. Washington: World Bank, 1999. Available from: https://documents.worldbank.org/en/publication/documents-reports/documentdetail/914041468176678949/curbing-the-epidemic-governments-and-the-economics-of-tobacco-control.

5. International Agency for Research on Cancer. Effectiveness of tax and price policies for tobacco control. Handbooks of Cancer Prevention, Vol.14.Lyon, France: IARC, 2011. Available from: https://publications.iarc.fr/Book-And-Report-Series/Iarc-Handbooks-Of-Cancer-Prevention/Effectiveness-Of-Tax-And-Price-Policies-For-Tobacco-Control-2011.

6. World Health Organization. WHO report on the global tobacco epidemic: Raising taxes on tobacco. Geneva: WHO, 2015. Available from: http://www.who.int/tobacco/global_report/2015/en/index.html.

7. US National Cancer Institute and World Health Organization. Chapter 4: The Impact of Tax and Price on the Demand for Tobacco Products, in National Cancer Institute Tobacco Control Monograph 21. The Economics of Tobacco and Tobacco Control. Section 3—Price Determinants of Demand.  NIH Publication, Bethesda, MD: U.S. Department of Health and Human Services, National Institutes of Health, National Cancer Institute; and Geneva, CH: World Health Organization:  2016.  Available from: https://cancercontrol.cancer.gov/brp/tcrb/monographs/21/docs/m21_4.pdf.

8. Chaloupka FJ, Straif K, and Leon ME. Effectiveness of tax and price policies in tobacco control. Tobacco Control, 2011; 20(3):235–8. Available from: http://tobaccocontrol.bmj.com/content/20/3/235.abstract

Intro
Chapter 2