17.5 Impact of tobacco control strategies on the Australian economy

Last updated:  January 2020

Suggested citation: Scollo, MM & Lal, A. 17.5 Impact of tobacco control interventions on 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/17-5-impact-of-tobacco-control-strategies-on-the-australian-economy


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.

17.5.1 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 17.12, advertising revenue continued to increase after the ban.1 Due to restrictions in other media outdoor cigarette advertising became the biggest revenue source for outdoor advertising worth $75 million per annum by the time it was phased out in various jurisdictions between 1988 and 1995—see Chapter 11, Sections 11.3 and 4. However, in this case also, the predicted collapse of billboard advertising vendors failed to materialise as other advertisers were more than happy to purchase the vacated space.1 For more details refer to the previous edition of Facts and Issues

Table 17.1 Advertising revenue received by Australian television and radio broadcasters before and after the ban on tobacco advertising, ($000)

 

Television $000

Radio $000

Year

Revenue ($current)

$1989–90 (constant)

% change

Revenue ($current)

$1989–90 (constant)

% change

1969–70

91,192

546,060

 

37,059

221,910

 

1970–71

87,869

510,866

-5.0%

39,481

229,541

5.0%

1971–72

92,040

511,333

0.1%

43,630

242,389

5.6%

1972–73

105,389

548,901

7.3%

46,696

243,208

0.3%

1973–74

118,381

579,731

5.6%

53,494

261,969

7.7%

1974–75

136,816

593,562

2.4%

59,017

256,039

-2.3%

1975–76

195,916

728,312

22.7%

74,378

276,498

8.0%

1976–77

257,049

845,556

16.1%

92,884

305,539

10.5%

1977–78

303,929

878,408

3.9%

107,688

311,237

1.9%

1978–79

366,909

968,098

10.2%

121,476

320,517

3.0%

1979–80

428,238

1,044,483

7.9%

134,253

327,446

2.2%

Source: Winstanley et al. 19951

17.5.2 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.2, 3 In Australia and around the world, many studies have investigated the economic effect of smokefree policies in restaurants and cafes.4 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 overall sales or unemployment.4 Additional studies have been included in the above analysis and the conclusions remain the same.5, 6

Three of the studies included in the above reviews have controlled for changing economic conditions and tested for statistical difference in objective measures to examine 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 1999.7 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 2001.8 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.9

The picture appears not to be so clear-cut, however, for venues offering electronic gaming (‘pokie’) 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.10 Two studies from the US have examined the effect of smokefree policies on electronic gaming machine expenditure, with mixed conclusions. One11 found no effect of the law on gaming revenue while another found a significant decrease in revenue.12 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.

17.5.3 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.13 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. However, arguments put forward by the tobacco industry and retail groups that restrictions on advertising and display in retail outlets would have significant negative economic consequences on retailers have not been borne out—see Section 11.9.4.

As discussed in Section 17.4.1, money not spent on tobacco products will be spent on other sorts of products and services. An Australian study found 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 by about 7%14 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 to 0.152% for food products other than meat and dairy products. 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 people to an increase of 275 depending on assumptions about the precise ways in which households would reallocate their expenditure.

17.5.4 Impact on small business of plain packaging legislation

For discussion of this issue see 11A.3.2 Inconvenience, errors and lost trade for retailers. 

17.5.5 The economic importance of the tobacco industry

One of the arguments employed by the tobacco industry against tobacco control interventions is that it generates much-needed employment and government revenue; however, a reduction in tobacco use has had no negative impact on Australia’s economy—see Section 17.2.6.

 

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References

1. Winstanley M, Woodward S, and Walker N, Tobacco in Australia; facts and issues Carlton South: Victorian Smoking and Health Program; 1995.

2. Glantz S and Smith L. The effect of ordinances requiring smoke-free restaurants on restaurant sales. American Journal of  Public Health, 1994; 84(7):1081-5. Available from: https://www.ncbi.nlm.nih.gov/pubmed/8017529

3. Glantz SA. Effect of smokefree bar law on bar revenues in California. Tobacco Control, 2000; 9(1):111–12. Available from: https://www.ncbi.nlm.nih.gov/pubmed/10798865

4. Scollo M, Lal A, Hyland A, and Glantz S. Review of the quality of studies on the economic effects of smoke-free policies on the hospitality industry. Tobacco Control, 2003; 12(1):13-20. Available from: http://tobaccocontrol.bmj.com/cgi/reprint/12/1/13

5. International Agency for Research on Cancer. Vol 13. Evaluating the effectiveness of smoke-free policies. Handbooks of Cancer Prevention, Tobacco Control, Lyon, France: International Agency for Research on Cancer, 2009. Available from: http://publications.iarc.fr/383.

6. Scollo M and Lal A. Summary of studies assessing the economic impact of smoke-free policies in the hospitality industry - includes studies produced to January 2008. Melbourne: VicHealth Centre for Tobacco Control, 2008.

7. Wakefield M, Siahpush M, Scollo M, Lal A, Hyland A, et al. The effect of a smoke-free law on monthly restaurant retail turnover in south Australia. Australian New Zealand Journal of Public Health, 2002; 26(4):375-82. Available from: https://www.ncbi.nlm.nih.gov/pubmed/12233961

8. Lal A, Siahpush M, and Scollo M. The economic impact of smoke-free restaurants and cafes in Victoria. Australian New Zealand Journal of Public Health, 2003; 27(5):557-8. Available from: https://www.ncbi.nlm.nih.gov/pubmed/14651406

9. Lal A, Siahpush M, and Scollo M. The economic impact of smoke-free legislation on sales turnover in restaurants and pubs in Tasmania. Tobacco Control, 2004; 13(4):454–55. Available from: http://tobaccocontrol.bmj.com/cgi/content/full/13/4/454

10. Lal A and Siahpush M. The effect of smoke-free policies on electronic gaming machine expenditure in Victoria, Australia. Journal of Epidemiology and Community Health, 2008; 62(1):11-5. Available from: https://www.ncbi.nlm.nih.gov/pubmed/18079327

11. Mandel LL, Alamar BC, and Glantz SA. Smoke-free law did not affect revenue from gaming in delaware. Tobacco Control, 2005; 14(1):10-2. Available from: http://tc.bmjjournals.com/cgi/content/abstract/14/1/10

12. Pakko M. Smoke-free law did affect revenue from gaming in delaware. Tobacco Control, 2006 15(1):68-9. Available from: http://tc.bmjjournals.com

13. PricewaterhouseCoopers. Sales of cigarettes and tobacco products by type of retail business. An analysis of the significance of sales of cigarettes and tobacco products to tobacco retailers in Australia. Sydney 2005. Available from: https://www.parliament.nsw.gov.au/committees/DBAssets/InquirySubmission/Body/38276/Sub%2046%20BATA%20-%20Attachment%202.pdfw.

14. Junor W, Collins D, and Lapsley H. The macroeconomic and distributional effects of reduced smoking prevalence in New South Wales. Sydney, Australia: The Cancer Council New South Wales, 2004. Available from: https://cancercouncil.com.au/wp-content/uploads/2011/08/The-macroeconimic-and-distributional-effects-of-reduced-smoking-prevalence-in-NSW.pdf.