Making the Tobacco Industry Pay, Ms. Rachel Foley - European Week Against Cancer 2013

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Making the Tobacco Industry Pay, Ms. Rachel Foley - European Week Against Cancer 2013

  1. 1. Making the Tobacco Industry PayMs. Rachel FoleyPolicy & Public Affairs Manager, Irish Cancer Society
  2. 2. Making the tobaccoindustry payRachel FoleyPolicy and Public Affairs ManagerIrish Cancer Society
  3. 3. Joint Proposal• Branston, R. & Gilmore, A. (2010) ‘The case for OFSMOKE: how tobacco priceregulation is needed to promote the health of markets, government revenue andthe public’. Tobacco Control, doi:10.1136/tc.2009.034470.• Branston, R. & Gilmore, A. (2013) ‘The case for Ofsmoke: the potential for pricecap regulation of tobacco to raise £500 million per year in the UK’. TobaccoControl, doi:10.1136/tobaccocontrol-2011-050385Based on the work of UK academics, Dr Robert Branston &Professor Anna Gilmore, Bath University
  4. 4. “These companies remain some of themost profitable in the world. This isthanks in part to their endlessinventive ways of undermining andcircumventing regulation.” AnnaGilmore, University of Bath, UK, 2011
  5. 5. What’s the problem?MarketpowerPricingpowerHigh pricehightaxesSignificantprofits
  6. 6. Price of a packet of 20 cigarettes netof tax in 27 EU countries, July 2011
  7. 7. Tobacco industrySmallnumber ofcompaniesAbility tomanipulatepriceProfitsequal toCoca-Cola, Microsoft andMcDonalds
  8. 8. A duplicitous industry
  9. 9. Our approachTobaccoregulatorTaxstructureTaxescalatorTaxhand-rolledtobaccoIllicittrade
  10. 10. IrelandProfits =€100 milliona yearProfit margin= 26-55%Governmentrevenuecouldincrease by€41-60million a year
  11. 11. Market share and profitability2011 Imperial JTI BAT Total tobaccoindustry profitsMarket Share 33% 46% 10%Revenue(after VATand duty)€79,777,706 €112,184,988 €34,538,000 €226,500,694Profitactuallymade€32,973,449 €62,280,000 €9,003,000 €104,256,449Operatingprofits41% 55% 26%
  12. 12. A tobacco regulatorNewapproachCapprofitsCoverlegitimatecostsPaid forby thetobaccoindustryCould beextendedbeyondprice
  13. 13. 2011Imperial JTI BAT Total tobacco industry profits33% 46% 10%€79,777,706 €112,184,988 €34,538,000 €226,500,694€32,973,449 €62,280,000 €9,003,000 €104,256,44941% 55% 26%€15,955,541 €22,436,998 €6,907,600 €45,300,139€17,017,908 €39,843,002 €2,095,400 €58,956,310€9,573,325 €13,462,199 €4,144,560 €27,180,084€23,400,124 €48,817,801 €4,858,440 €77,076,365Impact of price regulation 2011Optimistic scenario(12% profit)Conservative scenario(20% profit)Reduction in Profits due to regulation €77,076,366 €58,956,310Implied reduction in corporate tax @12.5% €9,634,546 €7,369,539Cost of regulator €7,000,000 €10,000,000Potential net increase in tax revenue to Exchequer €60,441,820 €41,586,771
  14. 14. BenefitsMarkettransparency– shieldsGovernmentfromindustrylobbyingRemoveprice asmarketingtoolLess moneytounderminetobaccocontrolpolicies,lobby anddevelop newproductsAdditionalrevenue forGovernmentCorrectmarketfailure
  15. 15. Could thesebenefits beachieved through adifferentmechanism?
  16. 16. Wholesale price Total taxRetail priceProductionCostsIndustryprofit (incl.retailmargin)Advaloremexcise tax(9%)Specificexcise tax(65%)Sales Tax(23%)79%21%Tobacco tax structure
  17. 17. Specific TaxCalculatedon volumeMaximumallowablelevel =76.5%CouldincreaseGovernmentrevenuewithoutincreasingpriceIndustrycouldabsorb taxincreaseReducedown-trading
  18. 18. RevenueCommissionersPriceelasticityofdemand:-3.6LandmarkEconomicsPriceelasticityofdemand:-0.5FrankChaloupkaPriceelasticityofdemand:-1 to -2.3Why not a price increase?
  19. 19. Structure of taxShould notfacilitate theintroductionof economyproductsShould notencouragepricecompetitionShould notallow tobaccoindustry toabsorb taxincreases onthe cheapestbrands
  20. 20. PallMallReported that PJCarroll wasreducing therecommendedretail price forPall Mall by 50cent from €7.75to €7.25: ‘Lessmoney morequality’.BensonandHedgesAn example ofproductinnovation isBenson &Hedges’ ‘B&H BigBox’ in which a23-cigarette boxis being sold for€9.75.MarlboroGoldTouchRetailing for€7.80 and isdescribed as ‘aninnovative newdimension insmoking: slightlythinner thanMarlboro GoldOriginal...’.But doesn’tIreland have thehighest price inEurope at€9.20?If the tax structure changed, the price of cigarettes would be relatively uniform
  21. 21. Tax EscalatorReal pricehasn’t keptpace withnominalpriceHigh pricebut averageaffordabilityCPI + 5%Becomepolicy in theUK
  22. 22. Loose tobaccoSalesincreasedby 71% in2009Tax only60% ofretailprice1 pouch= approx.25cigarettesfor €4.25
  23. 23. SmugglingIncreasespending by€8m peryearImproveenforcementMake itillegal to buysmuggledtobaccoDe-linksmugglingfrom priceRaiseawarenessof industrycomplicityAdherenceto Article 5.3FCTC
  24. 24. ChallengesPublichealth andDept. ofFinanceobjectivesnot alignedRecessionhappycoincidenceLegalchallengesalwayslooming
  25. 25. Contact me:Rachel FoleyPolicy and Public Affairs ManagerIrish Cancer Society00 353 1 231 6634rfoley@irishcancer.ie

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