Smokers meet outside buildings across Australia and talk almost every day. Now they are talking of dumping the Rudd government. Hiking the price of cigarettes by 25% to generate $5 billion over four years. This tax is unlikely to have much impact on smoking rates — but it may have significant negative electoral consequences.

Successive governments have slowly ramped up the tax on tobacco products and avoided any electoral impact, despite their often mixed messages. But an increase of 25% on an already overtaxed product, as it is seen by smokers, may generate a significant electoral backlash.

Tobacco retailers are reporting that they have never seen such an angry reaction from smokers.

Tobacco is addictive so the impact of increasing the price of cigarettes on reducing smoking is marginal according to a paper from Murdoch University Law:

“Demand for tobacco products has been shown to be price inelastic in Australia. This means that any increase in the price of tobacco products will see a less than proportionate decrease in the demand for them. The price inelasticity of demand associated with tobacco products is basically attributable to the fact that smoking is an addictive activity, and that tobacco has no direct substitute.

“The regressive nature of tobacco taxation is essential where the tax is to achieve a regulatory purpose. The tax achieves its regulatory aim by falling more heavily upon lower socio economic groups; that is those who smoke the most.”

In 1995 research published in The Australian Medical Journal showed that 17% of university graduates smoke compared to 40% blue collar workers. There are far less smokers now, however research from the Australian Bureau of Statistics in 2006 shows most are still disproportionately low income earners.

“After adjusting for age differences, 33% of men and 28% of women in the most disadvantaged areas reported being daily smokers, compared to 16% of men and 11% of women in the most advantaged areas, as measured as being in the first or fifth quintiles of the Index of Relative Socio-Economic Disadvantage respectively.”

Around 32% of people with mental illness smoke compared to the 18% in the general population according to Sane Australia.

Smokers are addicts and giving up is recognised as being harder than giving up heroin. Despite being able to afford hypnosis and a wide range of therapies and treatments for smoking, even the US President Barack Obama can’t quit.

The tobacco tax will now generate $5 billion for the government over four years. It has disproportionate impact on low income people who spend more of their income on necessities. This will lead to a significant reduction of spending in the retail sector. With the price of rolling tobacco hitting $4 per gram the market for illegal tobacco will also grow further impacting the retail sector and depriving the government of tax revenue.

Blue collar workers and those on low incomes still tend to vote Labor. The government is effectively ‘tax gouging’ a large group of voters, with the costs to most smokers increasing $10 to $30 per week or more. For low income people like pensioners, the unemployed and Aboriginal people in remote communities this will represent a significant portion of their income — up to 10% or more.

They spend a far higher percentage of their income on necessities like rent, utilities, food, clothing, etc than those on higher incomes. Only that spending can be cut and this will inevitably reduce spending on children in low income families.

Taxing smoking will poll well in focus groups for the government — initially. However the “good reception” to the 25% hike in tobacco taxes has been brief. The votes of many could have been “preserved” by removing advertising from packets first to measure its impact and then staging the increase in tobacco tax over time.

The May 3 NewsPoll, after the tobacco tax was announced found voters to saw through it with 53% seeing it as a policy “designed to divert attention.” The same poll recorded a significant slump in the Rudd Labor primary and two-party preferred vote.

Low income people in Australia, especially single mothers and the unemployed, have done poorly from successive governments. The Rudd government failed to match the rise in the aged pension with an increase in unemployment benefits. It continued income management for Aboriginal people and kept the requirement that single mothers work 14 hours per week when their youngest is school age — even in the school holidays.

Now it has ‘taxed’ the aged pension increase for those that started smoking when it was socially acceptable as late as the 1970s.

Just how many Labor votes has Rudd just ‘smoked’?

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Peter Fray
Peter Fray
Editor-in-chief of Crikey
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