This section uses international data compilations and studies to compare tobacco prices and taxes in Australia to other countries. Much of the content in this section uses data collected by the World Health Organization. Every two years, the WHO collects information from its member states on the tax structure and pricing of cigarettes as part of its MPOWER monitoring activities—the ‘R’ in the MPOWER acronym refers to ‘Raise taxes on tobacco’—provides internationally comparable data on the cost, affordability, and taxation of tobacco products.1
13.9.1 International comparisons of the price of tobacco products
To accurately assess the prices of cigarettes in Australia compared with those sold in other countries, it is important to use consistent methods for collecting price data. Estimated prices for a single country will vary depending on the brand and pack size selected and the sorts of retail outlets from which data are collected. Cost-of-living surveys published at various times have tracked the price of a single brand of cigarettes, but none of these has been regular and long-running. Using 2022 MPOWER data1, Figure 13.9.1 shows the price, in international dollars, of 20 cigarettes from selected comparable countries, and countries that featured in the 2023 most expensive cities in the world.2
In 2022—as in 2020—Australia did not feature in the ten most expensive cities in the world but had among the highest-priced popular cigarettes (second only to Ghana in 2022). Singapore and Zurich were equally ranked as the most expensive cities to live in in 2023, but cigarettes were 28% more expensive in Australia compared to Singapore, and 2.5 times more expensive in Australia compared to Switzerland.
Cigarette prices have risen substantially between 2008 and 2022 in all countries shown in Figure 13.9.1 ranging from 1.7 to 3.3-fold increases over this period, other than South Africa (1.2-fold increase and Singapore (1.3-fold increase). Particularly large increases, ranging 33% to 55%, were seen between 2018 and 2022 for countries such as Australia, Aotearoa New Zealand, Ireland, France, and Denmark.
13.9.2 How price and price dispersion vary across countries
The WHO also reports on additional cigarette prices for the most recent year. Figure 13.9.2 shows the price in international dollars of a pack of 20 cigarettes from the cheapest available brand, and for Marlboro or another premium brand in 2022. The same countries as per Figure 13.9.1 are shown, except that data for the cheapest and premium brand were not reported for the United States. Figure 13.9.2 also depicts the level of price dispersion in the cigarette market for each country. Price dispersion is the percentage that a cheap brand makes up the price of a premium brand – that is, the share of the cheapest to the most expensive products on the market.1 Widely dispersed markets have a lower proportion (closer to 1%), in which there are many opportunities for people who smoke to shift to lower-priced brands. Less dispersed markets (dispersion closer to 100%) are desirable.
Figure 13.9.2 shows that while the price of a premium brand in Australia, was very high relative to other countries, it was also high relative to the cheapest available product. A price dispersion figure of 68% means the cheapest brand cost about two-thirds of the price of a premium brand, leaving many opportunities for down-trading to cheaper products. In contrast, cigarette prices in France were around half that of Australia, but dispersion was 90%. Price dispersion was also high in Ireland and Denmark.
Note, however, that the WHO measures the price of Marlboro or another premium brand. It does not record the most expensive product available, as it does the cheapest. It can be seen across Figures 13.9.1 and 13.9.2 that the premium brand is often very similarly priced to the most-sold brand. In Ireland, Singapore, France, Denmark, and Switzerland that these are identical, suggesting that Marlboro is the most-sold brand and may not be priced as a premium product. Further, in markets such as Australia where numerous pack size options exist, pack size—particularly large packs with large up-front costs but cheaper per stick prices—complicates the selection of the cheapest and most expensive products. (See also Section 13.4.1.) These other sources of price dispersion would therefore cause the full extent of price dispersion to be underestimated in many countries.
13.9.3 International comparisons of the affordability of tobacco products
Cigarettes tend to cost more in high-income than in middle-income and low-income countries. This is not surprising given that people also earn more in high-income countries. Therefore, cigarettes are not necessarily less affordable in higher income countries. Blecher and van Walbeek3 examined the correction between different measures of affordability in high-, mid-, and low-income countries. They examined:
- Affordability measured through the cost of 100 packs of cigarettes as a percentage of per capita gross domestic product (GDP), also known as Relative Income Price (RIP)
- Minutes of labour on medium income required to purchase a quantity of cigarettes
- Price measured through the cost of a standard pack in US dollars.
They found high levels of correlation in these measures for high income countries.3 For example, Australia ranked seventh, tenth, and sixth across these measures, respectively. Across all countries affordability measures were superior, particularly low- and middle-income countries experiencing rapid economic growth.4
The WHO reports cigarette affordability as the percentage of GDP required to purchase 2000 cigarettes from the most sold brand in that country. Figure 13.9.3 shows cigarette affordability for Australia compared to select countries in 2012 to 2022. Among these countries, cigarettes were least affordable in Australia, Aotearoa New Zealand, and South Africa, and most affordable in Singapore, United States, and Switzerland. In all countries examined, there were no countries in which cigarettes became less affordable in 2022 compared to 2020. However, significant declines in affordability were seen between 2012 and 2022 for Australia, Aotearoa New Zealand, United Kingdom, France, and Canada.
13.9.3.1 On a lighter note: The Big Mac Index of Cigarette Affordability
The Big Mac Index of Cigarette Affordability was proposed by Australian researchers in 1996 as another, more light-hearted way of assessing the relative affordability of cigarettes internationally.5 The index calculates the number of cigarettes that can be bought for the price of a Big Mac hamburger in each country. The index uses figures from the Big Mac index published every few years by The Economist magazine,6 which lists the price of a Big Mac in US dollars in a range of countries. Despite distortions caused by trade barriers on beef and other differences in input costs, several academic studies circa 2000 concluded that the Big Mac index provided a good indicator of purchasing power in each country, and an unexpectedly accurate predictor of exchange rates in the long run.7,8
A comparison of the Big Mac Index of Cigarette Affordability for 1996 and 2002 showed that 15 of the 16 countries included in both analyses reported declines in this indicator of affordability over the period.9 A further update showed that 12 of the 20 countries for which data were collected in both periods showed declines between 2002 and 2006.10 Figure 13.9.4 replicates the index for 2022, for the 50 countries where both cigarette price and Big Mac data were available in US dollars.
Australia was ranked first in the in Index in 2022, meaning that cigarettes in Australia were much less affordable relative to the price of McDonald’s fast food compared to cigarettes and McDonald’s fast food in other countries. For the price of one Big Mac, Australians could purchase 4 cigarettes from the leading brand. Australia and Aotearoa New Zealand were the only countries where a Big Mac cost more than 5 cigarettes. A Big Mac cost less than 10 cigarettes in a total of 7 countries, less than 20 cigarettes in a total of 25 countries. In 7 of the countries examined two packs of 20 cigarettes could be purchased for the price of Big Mac.
13.9.4 Differences in tax structure and tax share across countries
Figure 13.9.5 shows the total share of the final price of 20 cigarettes from the leading brand that was made up of tax for Australia and other selected countries. The figure also shows the contribution of each type of tobacco tax to the total tax share. In Australia, the total tax share for the leading brand was 77%, with 68% being specific excise and just over 9% GST (sales tax). Aotearoa New Zealand, Singapore, Canada, South Africa and the United States have a tax structure similar to that which applies in Australia.
All countries shown had a specific excise and sales tax. Several countries also levied an ad valorem excise, in which the tax value is determined by the final price of the product (e.g. as a percentage the wholesale or retail price of the product). France had the highest total tax share at 84%, the majority of which (55% of final price) was ad valorem excise. Israel and Switzerland also featured ad valorem taxes that were larger than the share of taxes made up by specific excise. The WHO recommends that total taxes should make up at least 75% of the final retail price of tobacco products,11 and that specific excise should make up 70% of the final retail price.12 Seven of the 12 countries shown in Figure 13.9.5 achieved the 75% total tax threshold, while only Australia (67.8%) and Aotearoa New Zealand (69.7%) were close to the threshold of 70% excise share.
Tobacco tax systems that heavily rely on ad valorem components, or specific taxes that are tiered according to product attributes such value, weight, or other product features, are more difficult to administer and more readily manipulated by the tobacco industry.13,14 The WHO best practice recommendations for tobacco tax structures note that tax systems that predominantly rely on specific excise are more effective.11 The 2022 WHO MPOWER report noted a global shift away from majority ad valorem taxes, with the number of countries relying on ad valorem taxes decreasing from 54 in 2008 to 34 in 2022.1 Of the 64 countries with mixed tax systems in 2022, more than half relied more on the specific tax component.
13.9.4.1 Rates of excise duty in Aotearoa New Zealand compared to Australia
As shown in Figures 13.9.1, 13.9.2, and 13.9.5 tobacco prices and taxes in Australia and Aotearoa New Zealand are very similar. Figure 13.9.6 compares the rates of excise duty in Australia and Aotearoa New Zealand from 2000 to 2024 as an index based on dollar values in the original currency. Excise increased very little during the 2000s, during a period of indexation-only adjustments in both countries. Australia introduced a 25% excise increase in April 2010, returning to indexation only for 2011-2012, then eight 12.5% annual increases occurred from 2013 to 2020. In contrast, Aotearoa New Zealand introduced 10% annual excise increases from 2011 to 2020. The effect of these two taxation approaches meant that excise in both countries was 80% higher in 2012 than it was in 2000.
From that point the compounding effect of the annual 12.5% versus 10% increases meant that tobacco excise tripled in Australia in 2012 from 2020, while it more than doubled in Aotearoa New Zealand over the same period. In Aotearoa New Zealand, increases from 2021 onward have been based on changes in the Consumer Price Index (CPI) over the preceding 12 months. In Australia, the excise was adjusted twice-yearly based on changes in Average Weekly Earnings for the preceding 6 months, then from September 2023 the first of three 5% annual excise increases was applied. Tobacco excise in March 2024 compared to 2012 was more than 2.8 times higher in Aotearoa New Zealand, and 3.6 times higher in Australia. Since both countries stopped their extended series of large annual excise increases in 2020, excise increase by 21% in Aotearoa New Zealand and 16% in Australia.
13.9.5 International data on tobacco revenue
Recent data on revenue from tobacco taxes that is comparable across countries is scarce. Figure 13.9.7 shows revenue from tobacco taxes as a percentage of total government revenue for European Union member states in 2016. On average, tobacco taxes made up 4.4% of tax revenue in EU member states, ranging 0.7% in Sweden to 14.5% in Bulgaria. Section 13.7.2 shows that total federal and state and territory government revenue from tobacco taxes in Australia made up 2.5% of total government revenue in 2018–19, similar to countries such as Ireland and the UK in 2016.
13.9.6 International comparisons of tobacco tax policy performance
The World Bank developed the Tobacconomics Cigarette Tax Scorecard to quantify and compare individual countries cigarette tax policy performance, first published in 2020.15 The scorecard assesses the degree of implementation of best-practice tax policy on four grading components, each ranked on a five-point scale. These rankings provide global assessment of tobacco tax policy, and actionable assessment of policy effectiveness for individual countries.
The four components, each rated on a 5-point scale, are:
- Cigarette price: Highest scores are achieved for countries where the price of a pack of 20 cigarettes from the most popular brand of cigarettes is at least 20 international dollars (in purchasing power parity adjusted prices).
- Changes in cigarette affordability: Highest scores are achieved for countries in which at least one excise increase has resulted in a statistically significant annual average change in affordability of 7.5% or higher between 2016 and 2022.
- Tax share: The average score from two factors forms this component. Highest scores are achieved for i) countries where the percentage share of final price that is excise is 70% or greater; ii) countries where the percentage share of final price that is total taxes is 75% or greater.
- Tax structure: Highest scores are achieved for countries where the tax structure is either: i) a uniform specific excise tax that is automatically adjusted, or ii) a mixed excise structure that includes a minimum tax and a specific component that is automatically adjusted, and that uses retail price as the basis for determining the value of the ad valorem component.
Globally, the 2022 Scorecard revealed an overall decline in tax policy performance. Scores increased from 1.89 out of 5.0 in 2014 to 2.25 in 2020, but declined to 1.99 in 2022—only just above the average score achieved in 2014.16 Three trends drove this change:
- Average percentage change in affordability decreased in all regions, and even became more affordable overall in Europe.
- There has been little change in tax structure scores over time.
- Cigarette prices declined in many countries from 2020 to 2022.
Table 13.9.1 summarises the Scorecard results for Australia and other selected countries in 2022. Australia and Aotearoa New Zealand received the same ratings for all measures, and a 3.63 score overall. Australia achieved the highest ratings on absolute price and tax structure, and rated 4.5 on tax share.
France scored highest out of the countries examined in Table 13.9.1, and was the only country to receive a rating above zero for change in cigarette affordability. Scores of zero reflect an increase in affordability or no statistically significant change over the 6-year period. Of the 188 countries examined in the Scorecard, 156 (83%) received a rating of 0. Of these, there was no tax increase and cigarettes became more affordable in 25 countries, there was a small tax increase that did not prevent cigarettes becoming more affordable in 16 countries, there was no tax increase and no change in affordability in 56 countries, and in the remaining 59 countries—including Australia and Aotearoa New Zealand—there was increase in tax but no statistically significant change in affordability over the 6-year period.16
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References
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