How to Stand Up to Big Tobacco

By Hertz, Noreena | New Statesman (1996), June 12, 2006 | Go to article overview

How to Stand Up to Big Tobacco


Hertz, Noreena, New Statesman (1996)


A satirical film, Thank You for Smoking, looking at the power of Big Tobacco, hits our cinema screens on 16 June. It's a sharp reminder of just how sinister tobacco companies are. Five hundred million people will die of smoking-related illnesses over the next 50 years, yet the tobacco lobby continues to do all it can to keep up its sales.

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Despite the tobacco industry's zeal, however, its efforts in developed countries have been somewhat thwarted. In the developed world, smoking rates are on the decline, thanks in large part to the hike in tobacco taxes that has taken place--on average, in high-income countries, two-thirds of the price of a packet of cigarettes is now tax.

In low-income countries the story is very different. Tax rates on tobacco products are often as low as one-third: in a quarter of developing countries examined in a recent study, tobacco was actually becoming more affordable in 2000 than it was in 1990, owing to increased wages. The upshot is that by 2030, if nothing changes, 70 per cent of smoking-related deaths will stem from low- and middle-income countries.

Why are low- and middle-income countries so reluctant to raise taxes, given that it is a policy measure proven to save lives? The evidence is now clear that, for every 10 per cent increase in price, ten million lives would be saved. The spin of the tobacco lobby goes a long way in explaining this. "Increased taxes would mean less revenue" is the main line the lobbyists peddle. Their evidence is typically cobbled together from research published by economists and academics they have funded. Yet any economist worth her salt knows that when the demand for a product is as price-inelastic as it is for tobacco, increases in taxes will generate net gains in tax take, not losses.

Other objections to raising taxation favoured by the tobacco lobby are similarly false. Lobbyists claim that taxes "are the main cause of largescale smuggling". But smuggling is a function of corruption. And anyway, smugglers don't seek out tax arbitrage opportunities: they try to avoid paying any taxes at all, a commercial benefit that has led some tobacco companies to support and participate in the illicit tobacco trade themselves.

As for the line that raising taxes is "inequitable" because the taxes hit the poor more, although it is true that smokers from lower-income groups are more likely to quit in response to price rises, that doesn't mean the policy is unfair. The poor spend disproportionate amounts of their income on tobacco. In Morocco, for example, poor households spend more on tobacco than on health and education combined.

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