Given the relationship between cigarette prices and consumption, it is possible that tobacco taxes could be used to create incentives towards manufacturer development and consumer shift to less hazardous tobacco products. It might be possible, for instance, to less severely tax tobacco products with a lower addictive potential or those which were less attractive or those less palatable to children. Under such a scenario, cigarettes in plain packaging might be excised at a slightly lower rate, as might cigarettes that had a high ph value and which appears to be less easily tolerated by new smokers.
Just prior to the striking down of the state tobacco franchise fees, the South Australian government introduced ammendments to its tobacco licence fee legislation which would have seen higher fees payable in respect of sales cigarette brands yielding tar above a certain level (ref from Mel). This measure was not enthusiastically supported by public health specialists cocerned about the unreliability of machine-measured tar levels as an indicator of ingested levels. It might, however, be possible to consider lower taxes for cigarettes demonstrated by superior methods to deliver substantially lower levels of key carcinogens.
Requiring manufacturer disclosure of sales information and security markings on cigarettes would help to prevent the development of a black market for cigarettes, and would have the added advantage of enabling tracking of cigarettes to an individual retailer, thus permitting detection of stolen or bootlegged cigarette stock and effective enforcement of laws prohibiting sales to children.
The Consumer Price Index (CPI) is a statistical indicator intended to measure price movements on a representative selection of basic goods and services used by the typical household. Movements in the CPI have major flow on effects in terms of inflation, wage and salary negotiations, and the wider Australian economy.
As noted above, rates of federal excise were indexed with the CPI in 1983. This policy has merely served to maintain real excise revenue.
There is now some debate, on a number of counts, about whether tobacco would be better removed from the CPI. Since smoking is a discretionary activity in which only around one quarter of Australian adults engage, it has been argued that its inclusion in the CPI is inappropriate and has a distorting impact on the costs of living of the majority who do not use it.(19,35) In recognition of declining consumer spending on tobacco, in its five-yearly review of the CPI, the Australian Bureau of Statistics has regularly reduced the tobacco weighting in the CPI, for instance from 8.9% to 7.5% commencing with the September quarter of 1992.(69)
CPI indexation for federal excise has also been criticised as it effectively discourages the government from raising the tax. Tax increases (and hence price increases) may lead to flow-on inflationary effects, with an array of wider adverse economic ramifications. (It was this concern which led to the routine federal excise adjustment being discounted by around 1% as part of an anti-inflation strategy in February 1988(56)).
Analysis by the Victorian Office of Prices suggests that measures for the tobacco component of the CPI derived by the Australian Bureau of Statistics overstate average expenditure by smokers on cigarettes (as most cigarettes are sold at heavily discounted prices at the retail level).(48) In response to price rises in tobacco products, CPI estimates of resultant expenditure are liable to be significantly overstated. Any flow-on effects in terms of wages are likely to offset the price increases.(48)
Tobacco has been removed from the CPI in Luxembourg since 1991. Indices without tobacco have been published in France since 1990, in Belgium since 1991, and in Italy since 1992. These indices are not used for the calculation of inflation rates, but as an indication of the impact of tobacco price rises on the official index.(76)
The Australian Bureau of Statistics and most economists have opposed the exclusion of tobacco from CPI on technical grounds. A way around the problems of concern to health groups would be to use the CPI which excludes tobacco and alcohol as the index used for wage increases and indexation of pension and benefits.