The Australian government has announced it will raise tax on tobacco by 12.5% every year from 2017-2020. By 2020, the average pack of cigarettes is likely to cost AUS$45 (US$34).
Australia already has a reputation as one of the most expensive places to live. Last year it was named as the most expensive country in the world by a Deutsche Bank report.
However, the Australian treasury views the increase as a health measure. It will also bring the country into line with World Health Organisation (WHO) recommendations, which advise a tax rate of 70% on the price of a cigarette. By 2020, 69% of the cost of an Australia pack of cigarettes will be tax, raising “$4.7bn over the next four years,” said treasurer Scott Morrison.
Where is the tax highest?
The following chart shows the countries where the total tax on cigarettes is the highest percentage of the final price. The data is taken from the latest available year, 2014.
Bosnia and Herzegovina emerges on top, with 86% of the total price of cigarettes made up of tax. Israel and Slovakia complete the top 10. Smokers in all of the top 10 countries pay over 80% tax on their cigarettes.
Total tax includes cigarette specific excises, ad valorem excises (percentage of the total cost), value added taxes, import duties and other taxes.
Are taxes an effective prevention measure?
The health risks associated with smoking are well documented, with steps being taken around the world to reduce its prevalence. According to a 2015 WHO report, “tobacco tax increases are the single most effective policy to reduce tobacco use.”
The report points to research showing that a 10% price increase reduces overall tobacco use by 4% on average in high income countries. The results in low and middle income countries are more variable, but often point to a larger reduction, according to the authors.
Alongside revenue generation, higher taxes also reduce tobacco-related deaths and improve overall public health. Evidence from France highlights these benefits:
This chart highlights the falling number of smokers and lung cancer deaths as cigarette prices increase.
With the reported benefits and influence of increased prices and taxes, Australia’s government will hope their rise has the same impact.
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