Posts Tagged ‘Tobacco’

The Perils of Plain Packaging

May 1, 2010

It is possible to deduce, without any doubt whatsoever, one of two things about Prime Minister Rudd’s recent proposal to impose the world’s most draconican restrictions on tobacco products through “plain packaging”. Either a)Kevin Rudd doesn’t bother to read evidence and advice submitted to him or b)he reads it, and just doesn’t care. Either prospect demonstrates a very dangerous character trait from a Head of Government. The end result? A bill to the taxpayers of up to $3.4 billion dollars, for a policy that won’t even work.

That plain packaging is a blatant violation of intellectual property rights, of numerous treaties Australia has signed, as well as of international law in general, is not in doubt. So why has Prime Minister Rudd done this? Well, it is clear that Kevin Rudd is on the nose. In the last week he has jettisoned the job-killing ETS, scrapped the disgraced home insulation scheme, and withdrawn from debating Tony Abbott. The fact that he is desperately trying to create a diversion is without question, banking that it’s enough to change the topic from his deceit and cowardice, and talk instead of his  being “tough” and “bold”.” In many ways such behaviour is on par for Kevin Rudd’s Labor. What makes this case more problematic than most, however, is the severe flow-on effects this proposal will have.

But first, let us look at Kevin Rudd’s justification: that it will reduce smoking rates. A nice soundbite in a press conference, sure, but is it actually true? Even if we ignore the extreme nanny-state authoritarian implications of this policy, will it actually do what it claims?

The answer is an unambiguous no. There is no credible evidence that plain packaging will reduce smoking. None. Zero. Zip. Zilch. This is a fantasy made up by Kevin Rudd to justify this proposal. Nothing more. The reason for this is two-fold. Firstly, with cigarette advertising already banned, plain packaging will remove the only method of brand distinction available. As a result, brands will have only one thing to compete on: price. So they’ll drop prices. The result could, paradoxically, be an increase in smoking rates.

Secondly, this will create black market in cigarettes. Trademarks are the strongest protection possible against counterfeiting, and when you abolish them, a black market will invariable arise. It is already possible to buy a carton of cigarettes on the internet in for as little as $15, and this will doubtlessly increase. Indeed, this is already happening all over Eastern Europe, where trademark protection is minimal. And whilst some people may this this a minor issue, people die as a result of the illegal cigarette trade just as they do as a result of drug and human trafficking, and tobacco smuggling has also been found to directly finance terrorism.

Not only will this utterly fail in terms of its aims, however, the negative consequences will be disastrous to our economy, and our international standing.

As I have written previously, private property rights ought to be sacrosanct in any democratic country. The right to own and enjoy property is a fundamental part of rights of people, and indeed we consider it an extension of human rights. The protection of property, both physical and intellectual, is critical to economic development, and is the most important guarantee of freedom we have. Yet plain packaging legislation would clearly violate the intellectual property rights of companies, through forbidding them from displaying their trademarks and thereby differentiating their products on the basis of said trademark.

Tobacco companies have created significant intellectual property rights through their trademarks, as demonstrated in the significant degree of ‘brand loyalty’ in the market, and plain packaging legislation would significantly erode the value of these property rights. By denying tobacco companies their right to use their trademark to identify their product, the government – literally – intends to steal their intellectual property. This not only violates the legal rights of the companies affected, but furthermore sets a very dangerous principle for the future of a government unwilling to honor or respect intellectual property rights. And this doesn’t even begin to note how important trademarks are to prevent counterfeiting.

Yet this is not only morally bankrupt, it is also illegal. The Paris Convention, the Agreement on Trade-Related Aspects of Intellectual Property Rights, and the U.S-Australia Free Trade agreement clearly prohibit such conduct. There can be no question of this, which is why companies have the right to sue to recoup their lost investment.

The most galling situation about this is that there is currently a Senate Inquiry into plain packaging, set to report later this year. If Kevin Rudd had a shred of integrity, he would have waited till it released its report. However, in what can only be described as a cheap media stunt, he decided to announce it anyway. This is just madness. And will cost the Australian taxpayer, who are already suffering the burden of record spending, and a future of outrageous interest rate payments due to this, billions.

Yesterday, I was on the 2GB Afternoon Show discussing this with Chris, which you can listen into here. Alternatively, if you wish to read a more in-depth analysis of the legal issues surrounding this matter, you can read the Senate Submission I authored for the Property Rights Alliance here.

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Kevin Rudd’s Tobacco Tax Hike

April 30, 2010

In seeking to justify his regressive 35% tax hike on smokers (an additional $2 per pack, on top of some of the highest tobacco taxes internationally), Prime Minister Rudd put forward two primary justifications. Firstly, that the revenue from this great big tax will help fund his healthcare power grab. Secondly, that it will reduce the rates of smoking.

Considering the severely deleterious economic effects of such a tax, it is worth investigating these two claims in greater detail, and not simply take them on face value. After all, this will cause serious harm to Australia’s economy. It will cost jobs, hurt working families, and affect Australia’s economic growth. The reason for this is rather simple: tobacco products will cost consumers more, meaning decreased consumption (not necessarily on tobacco, but overall as they have less disposable income), and will hurt retailer revenue, forcing many small businesses to reduce costs through cutting down hours of employment, hurting their employees. Some small businesses may even shut their doors. The potential economic consequences of this are significant. Indeed, the one thing all economists – irrespective of political stripe – say is that you do not under any circumstances raise taxes in the midst of a global economic downturn. Yet this is precisely what Kevin Rudd is proposing to do. Actions have consequences. Taxes have wide-ranging effects. We must not forget this.

So let us examine his justification, and see if it is worth it. Firstly, will it really lead to increased revenue for the government? A lot of empirical evidence from overseas suggests not. This is not because people will quit smoking. Rather, it is through the rise in counterfeit tobacco, and internet purchases.

According a 2009 study by Americans for Tax Reform,   only 29 percent of the cigarette tax increases in the United States over the past decade actually met revenue projections. Let us just look at a few examples.   In 2007 New Jersey raised its cigarette tax by 17.5 cents per pack in an attempt to raise revenue. They predicted the tax would raise an additional $30 million: it actually came up $52 million short – a net loss of $22 million. Washington, D.C. experienced the same predictable phenomenon. After last year’s 50 cent per pack cigarette tax increase, the city saw a net revenue drop of $7.6 million, and Arkansas will face a $10.3 million drop in tobacco tax collections for fiscal year 2010 starting July 1 after their tax hike.The list goes on. Hence, we can not rely on this as a revenue raising tool. So on that front, Prime Minister Rudd’s argument fails.

Prime Minister Rudd also argued that this is worth it if it will decrease smoking rates. Yet, once again, the evidence is just not there. The most comprehensive longitudinal analysis of the relationship between smoking rates and tobacco taxes in the last decade comes from Canada, where HEC Montréal recently released a report examining the effects of a 1994 Canadian tobacco tax reduction on smoking rates. The report is based off of the largest study examining the effects of decreased tobacco taxes in the country to date. Through statistical analysis of the cigarette consumption of ten Canadian provinces, five of which lowered taxes with the 1994 tax reduction and five of which did not, the report concluded that decreasing excessive tobacco taxes does not increase smoking rates, even among the youth.

The reason for this is simple. People will not quit smoking, rather, they will substitute retailed cigarettes for other tobacco products, and will begin to purchase either counterfeit or smuggled tobacco, a trend that with the internet and cheaper international shipping costs, shall surely increase. So, on this second ground, Prime Minister Rudd’s argument fails also.

The evidence is pretty clear. Tax hikes on tobacco products do not achieve their stated objectives. Rather, they are enacted either simply as a tool of social control and reshaping society, or as a media smokescreen to divert attention from a week of backflips, embarrassments, and other failures.  At the same time, they seriously hurt our economy.

For these reasons, this tax grab must be opposed.