Innovative and Sustainable Financing Mechanism for Health Promotion and Tobacco Control

About Lesson

4.5 Journey making the case to policymakers for innovative sustainable financing for health promotion – advocacy and challenges (myths and facts)

Introduction

The tobacco industry and its front groups frequently spread false information against raising tobacco taxes to perpetuate misconceptions. Being informed about these misconceptions and knowing how to respond is critical.

In this section, you will learn about the counter-arguments to the critics of tobacco tax increases of establishing a Health Promotion Fund.

Lost Revenue

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Myth:
Tobacco tax increases will result in lost revenue. If demand for cigarettes falls when prices are increased, then revenues must fall as well.

Fact:

Demand do not affect revenue

When cigarette taxes increase, declines in demand do not exceed gains in revenue

Increased government revenues

Several studies and case studies from the Philippines and South Africa have proven that raising taxes will lead to increased government revenues

Inelastic demand

Given that the demand for tobacco is relatively inelastic, the uptick in revenue more than compensates for any appreciable decrease in demand
The drop in demand would also be offset by increased human productivity and savings from health care costs

Revenue gain offset Illicit trade

Even if illicit trades do occur, any revenue losses are dwarfed by tax revenues collected by the government

Job Losses

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Myth: If the demand for tobacco falls, there will be more permanent job losses in many countries.

Fact:

Only a few jobs in low-and-middle-income countries (LMICs) heavily depend on tobacco production. There would be no net loss of jobs due to declining consumption even in large producer countries.
With few exceptions, the share of total employment involved with tobacco is already very small.
E.g.: China, the world’s largest producer and consumer of tobacco products, only 2% of its farmers grow tobacco.

There may even be gains in certain cases:

If people do not buy cigarettes, they will be able to spend their money on other goods and services.
Lost jobs will be replaced with new ones.
Consumer spending will shift to non-tobacco sources of livelihood, creating alternative jobs.

Even if tax increases were introduced right away, the decline in smoking and jobs would be gradual and the economy would have time to adjust.
Many studies have shown - there is likely to be a net gain over time rather than loss of employment in NEARLY ALL countries that raise tobacco excise tax rates.

Promotes smuggling

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Myth: Higher cigarette taxes will result in more cigarette smuggling.

Fact:

This statement is false

Cigarette smuggling is a serious problem that requires strict regulation
According to surveys conducted in several countries with high tax rates, these activities are not necessarily a result of high tax rates

The real fact

A high magnitude of illicit trade occurs in countries with low tax rates (according to a European study)
Even with rampant smuggling, tax increases still bring greater revenues and reduce consumption

The cause of illicit trade

The main drivers of illicit trade are corruption and weak regulatory enforcement
In some cases, the industry itself is involved and largely responsible for the smuggling

The solution

Tax administration is the main determinant for curbing illicit trade in tobacco products

Penalises the poor

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Myth: Poor people are penalized more by increased tobacco taxes.

Fact:

Existing taxes consume a higher share of income of poor consumers than rich consumers

Yes, existing taxes do consume a higher share of poor consumers’ income compared to rich consumers
However, poor smokers are usually more responsive to price increases than rich smokers, so their cigarette consumption will fall sharply following a tax increase and their relative financial burden from ill-health will be correspondingly reduced

An increase in cigarette prices will lead to a decline in cigarette consumption among the poor

A 50-percent increase in cigarette prices will lead to a 30-40 percent decline in tobacco consumption for the poor, a much larger relative decline than among the rich

What are some methods of compensation that can be implemented?

Making other taxation regimes more progressive
Using some taxation revenues to subsidize cessation programmes and products as well as other services for the poor

What benefits from raising cigarette tax?

Price sensitive poor smokers will consider quitting and spending their income on other beneficial commodities such as food, health, and education
They will get the largest share of health and economic benefits from smoking cessation following a tax hike
Considering that people in poverty generally have poorer health as a result of smoking, a reduction in smoking may lead to greater health benefits

An unpopular action

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Myth: Increasing tobacco taxes will be unpopular with the people, who do not support tax increases.

Fact:

This is a myth designed to make governments feel nervous about losing popular support and, therefore, reluctant to raise tobacco taxes.
While increasing taxes is generally unpopular with the community, it becomes a popular move when it is tied to funding public health, education, tobacco control or health promotion programmes.

Surveys carried out in Victoria, Western Australia, and Thailand prior to introduction of tobacco legislation to raise tobacco taxes confirms this view
A public opinion poll in Victoria found that while only 47% of people approved an increase in tobacco tax, that number rose to 84% when it is found out that part of the tax was used for programmes such as:
- Health education
- Medical research
- Funding for sports and the arts

The same was replicated in Thailand where 80% of non-smokers surveyed and 65% of smokers supported the tax increase when a proportion of the funds was to be directed to health promotion programmes.

Measuring public opinion is important.
In these cases, polls were used to dispel the myth that tax increases are always unpopular, a myth that has the potential to obstruct change.

References

World Health Organization. (2004). The establishment and use of dedicated taxes for health. World Health Organization Regional Office for the Western Pacific.
Patricio V. Marquez and Blanca Moreno-Dodson. (2017). Tobacco tax reform at the crossroads of health and development: A multisectoral perspective. World Bank Group.
Ratanachena-McWhortor S, Ismail A, and Dorotheo U. (2020). Tobacco industry interference in tobacco tax policies in ASEAN countries. Southeast Asia Tobacco Control Alliance (SEATCA), Bangkok, Thailand.
International Agency for Research on Cancer. (2011). Effectiveness of Tax and Price Policies for Tobacco Control. Volume 14, IARC Handbooks of Cancer Prevention, Tobacco Control.
World Bank Group. (2019). Confronting Illicit Tobacco Trade: A Global Review of Country Experiences.
Tobacco Tactics. (2020). South Africa-Country Profile.
Hu, T., Mao, Z., Shi, J., & Chen, W. 2008. Tobacco taxation and its potential impact in China. Paris: International Union against Tuberculosis and Lung Disease.
U.S. National Cancer Institute and World Health Organization. (2016). The Economics of Tobacco and Tobacco Control. National Cancer Institute Tobacco Control Monograph 21. NIH Publication No. 16-CA-8029A. Bethesda, MD: U.S. Department of Health and Human Services, National Institutes of Health, National Cancer Institute; and Geneva, CH: World Health Organization.
Joossens L, Raw M. (1998). Cigarette smuggling in Europe: who really benefits? Tob Control. 1998;7:66– 71.
Kelton MH Jr, Givel MS (2008). Public policy implications of tobacco industry smuggling through Native American reservations into Canada. Int J Health Serv. 2008; 38(3):471-87.
Jha P, Joseph RC, Moser P et al. (2012). Tobacco taxes: A win-win measure for fiscal space and health. Mandaluyong City, Philippines: Asian Development Bank.