Suck on this smokers! From The Australian:
The Rudd government has signed off on a $5.3 billion increase in tobacco excise to stay on target for a budget surplus in a calculated risk that voters will accept the impost as a health reform despite the higher costs for millions of smokers.
The move is part of an imminent budget update that raises taxes and cuts spending to make up for a shortfall in revenue that threatens the surplus promised for 2016-17, a cornerstone of Labor’s economic platform.
Wary of a backlash as it heads to the election, the government is planning to phase in the change across four years but expects to add $5.25 to a pack of 20 cigarettes once the full increase is in place by the end of 2016.
But it is also facing doubts over whether the revenue will rise as it hopes, given that revenue from the excise has not increased as forecast when Kevin Rudd last raised the tax rate on cigarettes in May 2010.
…Labor increased tobacco excise by 25 per cent in the 2010 budget, pushing up the impost from 26.2c to 32.7c on a typical cigarette to raise $5.5bn over five years.
That move was meant to add about $1.285bn to tobacco excise in the year to June 2012 (and similar amounts in subsequent years) but that boost did not show up in the budget.
Tobacco excise raised $5.4bn in the year to June 2012, according to the final budget outcome for that year. The revenue was down from $5.6bn in the year to June 2010.
That’s what you’d expect, no? A rising price and falling demand.
No doubt this will be acceptable to most Australians who these days seem to think of smoking as a moral issue. As a reformed puffer myself I have some sympathy for the joy and financial pain that smoking brings.
But, as disguised as it may be under a veneer of moral rectitude, this is more fiscal drag (pun intended).
If it works, Chris Bowen has managed to plug about one quarter of his black hole. But it also means $5.25 billion less spent on other stuff, reducing tax takes in GST, or via the businesses that derived income from that spending. Smoking is more a habit of the blue collar worker (according to the ABS):
And the lower quintiles tend be those that spend every penny so that means the shift won’t be from saving but from spending and ensures the greatest ripple effects.
Of course, the great white hope will continue to be higher household debt and spending offsetting both this austerity and the mining investment cliff. I continue to have my doubts.
If the measure doesn’t work then black hole will need to plugged elsewhere, although there may be some long term benefit in less people feeling unwell.
