Tobacco tax to make pack of cigarettes $30 is crazy

Comments on Christian Kerr “Higher taxes a poor shield”, 2/09/2009, http://blogs.theaustralian.news.com.au/houserules/index.php/theaustralian/comments/higher_taxes_a_poor_shield/

Kerr asks a question that whether the Preventative Health Taskforce report to recommend very high taxes on tobacco and alcohol is just a revenue grab or cultural snobbery and his answer is it if both. That is likely to be true, because it is very attempting for government to increase revenue and be seen as doing good for the society’s health.

If the government embraces the recommendation that imposes high taxes to make tobacco packs cost $30 or more, that would be a popular but not a rational approach to public policy.

Taxes on tobacco or alcohol should not be too punitive and go beyond the externalities that consumption of those goods generates. An economically sound tax on a good that has a negative externality to the society should be enough to counter that externality. In the tobacco case, the benchmark is the additional health costs that consumption of cigarettes causes to the nation, such as losses in normal well being and treating any illnesses due to tobacco.

We have a Henry review going on at present and its recommendations will be made at the end of the year. Presumably, its rationale or designing principles are based on the economic foundation. It would be ill-advised to depart from good tax design principles to pursue for reasons of popularism.

The health minister should and must act with caution regarding to the Taskforce’s recommendations on taxes as solutions to health problems and goes too far beyond economic reasons.