State should seize far bigger portion of cigarette profits, say lobby groups

An official submission has said Ireland should increase its tax take on a packet of cigarettes to about 90 per cent, writes COLM KEENA,Public Affairs Correspondent

A RADICAL proposal to seize much of the profit made by the tobacco industry in the Irish market has been made to the Department of Finance by the Irish Cancer Society (ICS) and the Irish Heart Foundation (IHF).

In a detailed pre-budget submission made last June, the two organisations have argued the tobacco industry makes super-profits here and that a competitive market in the sector does not exist.

For these reasons it proposes that the sector become regulated, with its prices controlled in the same way as energy prices, taxi fares and phone rates. With such a change, the actual price of a standard packet of cigarettes could remain the same, but the proportion of the price that would go to the exchequer would increase.

At the very least, according to the submission, Ireland should increase its tax take on a packet of cigarettes to about 90 per cent – the rate in the UK, where the industry has been accused of making super-profits – from the 79 per cent that applies here.

The increased public income, which the organisations say could amount to €150 million per annum, would help society pay for the costs associated with the health problems caused by smoking, and help fund measures aimed at stopping people from taking up the habit, according to the advocacy groups. Also, it would reduce the amount of money available to the industry to fund its efforts to combat public health policy objectives. The submission says the argument from the industry that adding to the price of a pack of cigarettes only gives a boost to tobacco smuggling is challenged by the fact that additions by the industry to the price of a packet of cigarettes over the past 10 years exceed the additions that have come about due to tax increases.

In the decade to 2010, the sector’s revenue from a pack of cigarettes has risen to 183.7 cent from 100.2 cent, or by 83.33 per cent, while the exchequer’s take has risen to 671.3 cent from 377.2 cent, an increase of 78.02 per cent, according to the submission. According to Chris Macey, head of advocacy at the IHF, the industry has successfully hidden the price increases it has introduced in the past decade behind government increases in the tax take on cigarettes. The proposal made in the joint submission, which also includes the suggestion that the Government should commit to increasing the price of a packet of cigarettes by 5 per cent per annum over the rate of inflation, (bringing in an additional €50 million per annum), cites a paper published in the UK in 2010 in Tobacco Control, a peer-reviewed journal aimed at health professionals. In the paper, The Case for OfSmoke, authors Anna Gilmore, Robert Branston and David Sweanor argue three of the four recognised conditions for market failure exist in the tobacco sector. These are information failure, externalities (costs imposed on others through the use of tobacco) and market power. The paper concentrates on the latter.

Outside China, the tobacco market is dominated by Philip Morris International, British American Tobacco (BAT), Japan Tobacco International and Imperial Tobacco (IT). Outside China and Indonesia, according to the paper, three out of these four companies control more than 80 per cent of all major markets.