Will a fat tax work?

Smoking in Australia is in free-fall. Just 13 per cent of adults smoke daily, which is down from 28 per cent in 1989-90 and over 40 per cent in the 1960s.

There are many reasons why this is a good thing. The population will be healthier for a start, which means they will be more productive and less likely to take sick leave. It also means that the government’s health expenditure costs will be lower with fewer people presenting to the doctor and hospital for the litany of smoking related illnesses. It also means that those who do not smoke can either save or spend their cigarette money elsewhere in the economy.

There are many reasons for this quite massive change in smoking rates. I will not attempt to quantify the impact of each factor, but there is no doubt that societal awareness of the health risks from smoking is dominant.

Also read: What Aussie firms are really paying in tax

In a triumph for the role of government in successfully managing change and a blow to those who often castigate the ‘nanny state’, government policies that have banned cigarette advertising, delivered anti-smoking campaigns, the massive hike in excise taxes, banning displays of tobacco in retail outlets, graphic health images on packets and plain packaging, have no doubt all played a part.

Another critical factor behind the declining overall smoking rate is the fact that each year in Australia around 15,000 people die from smoking related illnesses. For tobacco companies and retailers, this is a big loss of other otherwise dedicated (or addicted) customers each and every year.

The excise tax increase to the point where cigarettes now cost around $1 a stick, shows how price signals in the economy work. It is economics 101.  When prices of a particular good or service rise, demand falls. With tobacco, the impact of higher prices due to the tax hikes has been clear. As an aside, it was also the case that electricity consumption fell when the carbon price was in effect.

Also read: Ciobo not a fan of sugary drink tax

The other issue impacting smoking rates is the introduction of plain packaging laws in 2011. The otherwise attractive packets in which cigarettes are sold are now a drab green. There is nothing fancy about the packaging. The impact of this change is likely to be over the longer run as it is aimed to reducing the appeal of the packet to young people.

Interestingly, since the plain packaging laws were introduced, Australian Bureau of Statistics data shows that the volume of tobacco consumed has fallen has fallen 29 per cent. Tobacco consumption is at a record low.

All of which is good news.

It begs the question whether a strategy similar to the one used in cutting tobacco consumption could apply to alcohol and sugary and fat foods. Advertising bans, education campaigns, tax imposts, graphic pictures and plain packaging all might work.

It is not fanciful to think that a consumer would not buy a bottle of soft drink if they has seen advertisements dealing with the facts about the health consequences of consuming soft drink, if it was $5, in a plain brown bottle with a photo of a damaged heart as a label, without the brand of the drink displayed in glorious colour.

As the decline in tobacco consumption shows, such policies just might make Australians healthier, live longer and be less expensive for the health system to look after.