Monday, January 5, 2009

Smoke that cigarette … government needs you

Angeline Webb, of the Canadian Cancer Society, is proclaiming a victory in the war on smokers. Ms. Webb claims Alberta’s Tobacco Reduction Act, banning smoking in all public places and workplaces, is having the desired effect and forcing smokers to quit.

She was reacting to the latest government fiscal data from Alberta, indicating a drop of $50 million in provincial tobacco tax revenue. The 5.6% drop in revenue may, or may not, be indicative of a decline in smoker prevalence. But, apparently, Ms. Webb sees this as evidence Alberta smokers are on the run . . . to the nearest drug store for the nicotine patch or a pack of that foul tasting gum.

Obviously, she hasn’t given much thought to the alternative explanation. And, there is an alternative explanation. Maybe the constant rise in tobacco taxes has finally reached critical mass and Albertans are running in the other direction; to the nearest dealer in contraband tobacco.

Over the past three years, Alberta’s tobacco tax revenue has increased annually; from $697 million in 2004/2005 to $890 million in 2007/2008. The constant increase in sin taxes on smokes makes Alberta’s one of the highest in the country, including Ontario. And, as might be expected, they have the highest price per pack in Canada.

By contrast, Ontario reached it highest level of tobacco tax in 2004/2005 when it extorted 1.45 billion dollars from smokers. According to figures provided by Physicians for a Smoke-free Canada (PSC), the amount collected in 2007/2008 had dropped to 1.22 billion. And, tobacco tax revenue in Ontario is in freefall.

But, no one in Ontari-ari-ari-o is proclaiming a victory for anyone but the smugglers and dealers in contraband tobacco products. Current estimates for contraband sales of tobacco in Ontario go as high as 50% of total tobacco sales.

Smoking prevalence in the province has remained stagnant for the past three years, as it has nation wide, suggesting something besides smokers kicking the habit is responsible for the declining tax revenues. In Ontario and Quebec, there is little confusion as to what that something might be.

Meanwhile, back in August, Michael Platt of the Calgary Sun reported on the latest smoking prevalence numbers by saying: “One-in-five Canadians smoked in 2005 and one-in-five Canadians smoke now. All indications suggest there will be one-in-five Canadians smoking three years from now, too. The survey shows the number of teens who smoke regularly isn't dropping, either”.

Rob Cunningham, of the Canadian Cancer Society, his vision apparently obscured by the blinkers mandated for anti-smoker crusaders, was recommending higher sin taxes to deal with the problem. "The Alberta government should move swiftly to increase tobacco taxes." Uh-huh.

That’ll solve the problem. Increase the profit margin for the distributors of contraband tobacco. It will help defray the costs of transporting black market smokes the roughly 1700 miles from source in Southern Ontario to new markets in Calgary. It will even make counterfeit smokes from China and South America, imported illegally through ports in British Columbia, more profitable.

Obviously the Canadian Cancer Society believes Alberta is different from the rest of Canada; not subject to the lure of cheap (tax-free) tobacco. But, if they don’t think that contraband tobacco is responsible for the biggest part of the decline in Alberta’s tobacco tax revenue, they’re dreaming in Technicolor. Or maybe they’ve just got their heads buried deeper in the sand than most Canadians.

At any rate, Ms. Webb and the Canadian Cancer Society were patting themselves on the back for their contribution to what they believe to be a decline in smoking prevalence. On the other hand, Premier Ed Stelmach was whining about the “hefty deficit” faced by the provincial health department. A deficit estimated to be somewhere around 1.3 billion dollars.

That’s obviously bad news for the folks in Alberta. The government now has to find ways of generating revenue (or cutting costs) for health care. Increased sin taxes on tobacco won’t work; people will either quit or, more likely, switch to contraband. So they’ll have to find some other product to demonize and tax to death. Any bets on what may be next?

And, just in case the anti-smoker fanatics succeed in eliminating smokers from Canadian society, I wonder what contingency plans the government has to replace the billions in tax revenue now generated by smokers? No, Virginia, the savings in direct health care costs won’t offset the loss in tax revenue.

What’s that word again? Paradox?

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