17.2 The costs and benefits of smoking to the Australian economy

Last updated: January 2020

Suggested citation: Scollo, MM & Greenhalgh, EM. 17.2 The costs and benefits of smoking to the Australian economy. In Greenhalgh, EM, Scollo, MM and Winstanley, MH [editors]. Tobacco in Australia: Facts and issues. Melbourne: Cancer Council Victoria; 2020. Available from: https://www.tobaccoinaustralia.org.au/chapter-17-economics/17-2-the-costs-of-smoking


This section first describes several major sets of studies relevant to understanding the cost of smoking to Australian society: studies that have observed excess health care utilisation among smokers ( 17.2.1); estimates of lifetime health care costs for smokers compared to non-smokers ( 17.2.2); burden of disease studies ( 17.2.3); studies of the effects of smoking on productivity ( 17.2.4); and, finally, comprehensive reports estimating the broader social costs of smoking ( 17.2.5). Studies examining the cost of smoking to individual smokers are summarised in Chapter 9, Section 9.4. Claimed economic benefits of the tobacco industry in Australia are covered in Section 17.2.6. Revenue from taxes on tobacco is discussed in Chapter 13, Section 13.6.

It is important to note that many of the historical estimates of the costs associated with smoking do not consider the technological advances in the treatment of smoking-related diseases over the past several decades, nor the current state of evidence on the full extent of health effects now definitively attributed to smoking.1 Further, a recent review highlighted the heterogeneous nature of international research on the costs of smoking and 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 likely systematic underestimation, the research to date overwhelmingly concludes that the costs associated with tobacco use are substantial.2

17.2.1 Smokers' excess health service utilisation and costs

Studies comparing actual health care utilisation rates (or health care costs) for smokers and non-smokers have consistently report higher health service usage and costs for smokers.

An early Australian study that compared the hospitalisation rates of smokers, former smokers and never smokers over the period 1978-94 in Busselton, Western Australia3 found that smokers' hospitalisation rates were 1.32 times higher than never smokers and their use of hospital bed-days was 1.4 times higher. Former smokers' rates for hospitalisation and bed-days were 1.13 and 1.22 times higher than never-smokers, respectively. Another study using this method estimated that almost 300,000 hospitalisations and 1.47 million bed days costing $682 million could be attributed to smoking in Australia in 2001-02 alone.4 This estimate was likely still conservative; the actual costs would be even greater than $682 million because costs for those aged 80 years and over, and costs of pharmaceuticals provided from hospital, were not included.5

In the United States, a survey of about 2,500 members of a health maintenance organisation between 1967 and 1974 and found that current smokers used 20% more hospital days than non-smokers.6 Other researchers studied almost 8,000 members of a Minnesota health plan in 1999 over 18 months.7 They found that medical costs were 16% higher for smokers than never smokers. More recently, 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.8 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 smoker (about 37 fewer packs/year) would be followed in the next year by a $63 billion reduction in healthcare expenditure (in 2012 dollars).9

Danish researchers studied hospital admission data over a 20-year period for approximately 12,000 people enrolled in the Copenhagen City Heart Study in 1981-83.10 Smoking increased hospital admissions and the duration of hospitalisations for all diseases, not just smoking-related illnesses. For example, for men who smoked more than 20gm of tobacco per day in 1981-83, 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. German researchers projected that lifetime healthcare costs of smoking were twice as high in smokers than in never smokers under current tobacco control policies, and without strengthening these policies, they estimated that the German smoking population will incur €41.56 billion life-time excess costs compared with never smokers.11 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.12 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).13

A 1995 study of 43,408 people living in rural Japan found that male smokers' medical costs were 11% higher than those of non-smokers over a 30-month period. Costs for female smokers were not higher.14

The pattern is more complex when costs for smokers who have quit are compared with those of smokers and non-smokers. A 2003 review15 concluded that former smokers who quit recently (up to four years ago) consistently have higher health service utilisation and health care costs than both current smokers and never-smokers. This counterintuitive finding occurs because many smokers 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 current smokers, and after many years ex-smokers' health care costs approximate those of never smokers. 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,6 mentioned above, the usage of most health services was higher for former smokers than current smokers, but the longer the time since quitting, the lower the hospital discharge rate.

Other studies16, 17 similarly find an association between cessation and healthcare costs. A study of 8000 health plan members in Minnesota from 1995 to 1997 found that higher health care costs increased the likelihood of a smoking cessation attempt. Another found that it took twice as long (10 years rather than five years) for medical charges after smoking cessation to drop to the level of non-smokers if the smoker had one of three smoking-related chronic conditions (arthritis, allergies or back pain). A US study estimated that overall, about 70% of current smokers' excess medical care costs is preventable by quitting.18

It should be noted that excess utilisation of services by smokers could be due partly to other risk factors that might also be higher among the population of 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.

17.2.2 Lifetime health and welfare costs for smokers compared to non-smokers

While smokers 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 smokers 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.19 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 smokers are lower than for non-smokers. In the models these researchers used, the health care cost savings attributed to smokers' premature death from smoking-associated illnesses more than offset their higher annual medical costs.20, 21 Other analysts have found the reverse--that although smokers 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 smokers are higher than for non-smokers.22, 23

The key studies addressing this issue are summarised in Table 17.2.1. Several critiques of studies that report lower lifetime costs for smokers22, 24 argue that their results are due to underestimation of annual health care costs for smokers 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 smokers' lifetime costs 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 smokers than for non-smokers, even after accounting for the shorter lives of smokers.25

Table 17.2.1 Studies of the lifetime health care costs for smokers and non-smokers

Reference

Country and year of study

Main findings

Manning et al.26

United States, 1986

Lifetime net cost (including productivity) of smoking (smokers minus non-smokers):

$0.15 per pack of cigarettes smoked

Lippiatt21

United States, 1986

Difference in lifetime medical costs between a continuing smoker and a smoker who quits at age 35-39:

-$796

i.e. a smoker has a lower lifetime costs

(3% pa discount rate)

Hodgson24

United States, 1990

Lifetime medical costs (from age 17), smokers vs never-smokers:

Men: $35,914 vs $27,276

Women: $52,902 vs $42,783

(3% pa discount rate)

Barndregt et al. 20

Netherlands, 1988

(costs in US$)

Lifetime health care costs (from age 40), smokers vs non-smokers:

Men: $72,700 vs $83,400

Women: $94,700 vs $111,000

(undiscounted; smokers' lifetime costs > non-smokers when discount rate  4.5% for men and  5.5% for women)

Rasmussen et al.23

Denmark, 1999

Total (direct +productivity) lifetime costs (from age 35), ever-smokers vs never-smokers:

Men: 505,344 DKK vs 284,098 DKK

Women: 559,808 DKK vs $315,905 DKK

(5% pa discount rate)

Hayashida et al.27

Japan, 2007

(costs in US$)

Cumulative medical expenditure (age 40 to 90), smokers vs non-smokers

$48,542 vs $49,710

(3% pa discount rate; smokers' and non-smokers' cumulative medical expenditures were the same with a 5% pa discount rate)

Tiihonen et al.28

Finland, 2003

The net contribution of smoking versus non-smoking individuals to public finance balance.

Overall, healthcare and pension costs were €133,800 lower for smokers than non-smokers

However, when QALYs were considered, the net effect was reversed to be €70,200 per individual in favour of non-smoking.

 

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. Research in England found that the costs of smoking-related social care are high to both local authorities and smokers themselves: the cost to local authorities is £720 million a year, while the cost to individuals who pay for their own care is £160 million a year. However, the replacement costs of smoking borne by informal carers (such as family members) and by smokers themselves (when their care needs are not met) are significantly higher: informal carers provide care due to smoking which would cost an additional £10.6 billion a year to be met formally; and unmet care needs due to smoking would cost £9.4 billion to be met formally. The average age at which someone develops a social care need for the first time is 62 for smokers, compared to 72 for never-smokers. About one in four (23.5%) current smokers aged over 65 reported needing help with at least one activity, compared with about one in eight (12.1%) never smokers.29

Studies in Finland,30 Germany,31 and Sweden32, 33 have similarly found that the likelihood of receiving a disability pension is higher for smokers than non-smokers. 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.

17.2.3 Burden of death and disease attributable to tobacco

An alternative approach to quantifying the costs of smoking is to calculate the percentage of deaths and health care services attributable to smoking based on accepted estimates of the excess risk posed to an individual by smoking, taking into account other risk factors.

Worldwide, smoking is a leading preventable cause of morbidity and mortality, and in Australia is consistently the number one risk factor contributing to disease burden and deaths (see Section 3.30). A systematic review published in 2019 found that an unhealthy diet, tobacco use, and alcohol consumption are the biggest contributors to preventable disease in Australia. Tobacco use accounted for over half of all years of healthy life lost due to lip and oral cavity cancer, nasopharynx cancer, oesophageal cancer, and around three quarters of larynx cancer and tracheal, bronchus and lung cancer. Smoking contributed substantially to cardiovascular disease and caused most of the burden related to chronic obstructive pulmonary disease, with estimates ranging from 70% to 75%.34

17.2.3.1 The Australian Institute of Health and Welfare Burden of Disease study

The latest Australian Burden of Disease study35 estimated that in 2015, 4.8 million years of healthy life ('disability-adjusted life years', or DALYs) were lost due to premature death or living with disease or injury in Australia. The role of more than 30 risk factors, including seven behavioural risk factors (tobacco use, alcohol use, physical inactivity, drug use, intimate partner violence, childhood sexual abuse, and unsafe sex), was considered. Together, the risk factors included in the study accounted for 37.5% of the total burden of disease and injury.

Tobacco was responsible for the greatest disease burden (9.3% of total). It was the cause of 20,933 deaths (13%, or more than one in every eight) and the loss of 443,235 DALYs. It was responsible for 22.1% of the disease burden due to cancer, and 11.5% of the disease burden due to cardiovascular disease. At 4.5% of the total, alcohol was responsible for a much smaller proportion of the disease burden than the proportion attributable tobacco.

17.2.3.2 Global Burden of Disease Study

The Global Burden of Disease (GBD) study estimates levels and trends in exposure, attributable deaths, and attributable DALYs, by age group, sex, year, and location for 84 behavioural, environmental and occupational, and metabolic risks factors. The estimate from the GBD study for Australia in 2017 was 22,781 deaths and 567,928 DALYs attributable to tobacco. Diseases with the greatest DALY burden attributable to tobacco included chronic respiratory diseases (30%); cancer (21%); and cardiovascular diseases (17%).36

17.2.3.3 International estimates of costs of health care attributable to smoking

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).37

Researchers in the US linked data on smoking in the home, from National Health Interview Surveys (1998 and 2000), and health service usage and costs for almost 3000 children aged less than five years, from Medical Expenditure Panel Surveys (1999 and 2001).38 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.

A more recent study found that, despite declining over time, US healthcare costs attributable to secondhand smoke exposure at home were still substantial. Secondhand smoke exposure at home for children resulted in an excess of 347,156 emergency room visits in 2000, 124,412 visits in 2005, and 101,570 visits in 2010, which amounted to $215.1 million, $77.1 million, and $62.9 million in excess annual healthcare costs (2014 dollars) in 2000, 2005, and 2010, respectively.39 In England, the additional cost to the NHS of illnesses among non-smokers due to exposure to secondhand smoke is estimated to be £242m.40

Infants and children of women who smoke during pregnancy also have higher healthcare costs during their early childhood. A study in England found that the average cost difference for children of smokers was £91.18 at age one, and £221.80 at age five, largely due to greater hospital in‐patient care.41

In Canada in 2012, the total direct health care costs attributable to smoking were estimated to be 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.42

The latest published study puts health care expenditure attributable to smoking in Australia at $6.8b in 2015-16.43

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.44 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.37 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 billion43 (see Section 17.2.5.2, 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 smoker. The economic impact of this lost productivity over the working lifetime of current Australian smokers would amount to $A388 billion.45 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).46

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.47 Studies in the United States,48, 49 Canada,42 Finland50 and Sweden51 have similarly found that smoking is associated with substantial productivity costs. The Finnish study 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.50 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.42 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.52 One of the US studies48 measured unproductive time at work as well as sick leave between 2001 and 2005. The average annual cost for lost productivity was about 70% higher for current smokers than non-smokers ($4430/year versus $2623/year). About 60% of the productivity losses for smokers were due to unproductive time at work. 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 smoker is $5816.53 Another US study found that in 2013, current smokers 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.54 Research in Japan has similarly found that smoking cessation increases workplace productivity and decreases costs associated with loss of work impairment.55

17.2.5 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. 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 1988,56 1992,57 1998-9958 and 2004-05.59 They also estimated the costs of tobacco use in 1998-99 for Victoria,60 New South Wales61 and Western Australia62 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 ( 17.2.5.1).

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. 43 This report is summarised in 17.2.5.2.

17.2.5.1 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 to the smoker and in some instances others as well.

Second, in contrast to the burden of disease study described in Section 17.2.1.1, 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).59 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'.59

Table 17.2.2. The social costs of tobacco to Australian society in 2004-5 and 1998-9 (adjusted to 2004-5 prices)

 

1998-99

2004-05

 
 

$m

Per cent change

Tangible costs

9,184.8

12,026.2

30.9%

Intangible costs

16,315.2

19,459.7

19.3%

Total cost

25,500.0

31,485.9

23.5%

Source: Collins and Lapsley 2008, 59 Table 49

 

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 17.2.1). 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 17.2.2. 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.63

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 addicted smokers 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.

Table 17.2.3 Tangible social costs of tobacco use in Australia, 2004-05

Cost category

$m

Labour

 
 

Labour in the workforce

 
 

Reduction in workforce

4,969.5

 

Absenteeism

779.6

 

Total

5,749.1

 

Labour in the household

 
 

Premature death

9,156.4

 

Sickness

686.7

 

Total

9,843.1

 

Total workforce and household labour

15,592.2

 

Less consumption resources saved

(7,583.1)

Total net labour costs

8,009.1

Health care (net)*

 
 

Medical

158.4

 

Hospital

223.4

 

Nursing homes

(177.3)

 

Pharmaceuticals

77.3

 

Ambulances

36.6

Total net health care costs

318.4

Fires

63.0

Resources used in abusive consumption (purchase of tobacco)

3,635.6

TOTAL tangible costs

12,026.2

Source: Collins and Lapsley, 2008 59 Table 33

Bracketed figures are negative (i.e. gains)

 

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. 59 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.64

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.65 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.66, 67 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%.68 Costs for smokers 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.69

17.2.5.2 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.43 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 Table 17.2.4).

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). 43 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 2015-16.43

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 smokers 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.43

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, daily smokers, occasional smokers, and ex-smokers 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 current smokers accounted for over 2 million extra days of presenteeism each year at a direct cost of nearly $759.5 million.43

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.43

Other tangible costs

Smoking also leads to harm through the role of discarded smokers' materials 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.43

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.43

Table 17.2.4 Summary of costs of tobacco abuse in Australia, 2015-16

Domain

Central estimate ($)

Tangible costs

 

Tangible net costs of premature mortality

 

NPV* of lost economic output (non-employee)

3,388,405,429

Recruitment/training costs to employers

28,029,971

NPV of value of lost unpaid household work

623,688,044

NPV of healthcare costs avoided

-2,275,922,187

Stillbirths (tangible costs)

5,219,865

Total tangible costs of premature mortality

1,769,421,122

Other workplace costs

 

Absenteeism

4,225,841,638

Presenteeism

759,516,070

Total workplace costs

4,985,357,708

Healthcare

 

Hospital separations

1,520,793,772

Ambulance

200,211,738

Emergency Department

252,653,735

Outpatient care

289,291,963

Primary healthcare

1,458,142,411

Pharmaceuticals for smoking-related conditions

451,117,678

Smoking cessation aids

153,486,565

High-level residential care

293,560,781

Other aged care services

126,576,403

Informal carers

2,041,356,665

Total healthcare costs

6,787,191,713

Other tangible costs

 

Fires

80,768,393

Litter

73,322,292

Expenditure on tobacco by dependent smokers

5,547,172,745

Total other tangible costs

5,701,263,430

Total tangible costs

19,243,233,973

Intangible costs

 

Intangible cost of premature mortality

92,108,544,749

Intangible cost of smoking attributable ill-health

25,562,393,635

Total intangible costs

117,670,938,384

Total costs

136,914,172,357

*NPV = net present value
Source: Whetton et al., 2019.43

17.2.6 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.25 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 neighbourhoods70-72 (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 10.5.3. Most tobacco products in Australia are sold by retailers who also sell nontobacco products.25

Researchers have highlighted two key flaws in the industry's economic arguments against tobacco control.73 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.74

Collins and Lapsley, in a report for the Cancer Council Western Australia,75 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.76 The analysis included taxes on tobacco, and health care and pension savings because of smokers' premature death, 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,.77 and was reported in the British Medical Journal.78 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 smokers' premature deaths.79 Costs associated with smoking while the smoker 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:25

  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.

Relevant news and research

For recent news items and research on this topic, click here ( Last updated October 2020)

 

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