Monthly Archives: March 2014

Tobacco Taxes, Smoking Rates, and Poverty

Some policies appear effective, however, economists, policymakers, and statisticians–not to mention the media–often times misinterpret the data underlying their assertions. Take, for instance, tobacco taxes, which the government levies both as a means of generating revenue and dissuading smokers from purchasing cigarettes.

Nova Scotia’s government collects $0.2352 per cigarette sold, accounting for roughly 3 to 3.5 per cent of own-source revenues (yet, revenues are trending upward). The provincial rate it third highest in Canada and double that of Ontario’s rate. In addition, the government employs several anti-smoking campaigns aimed at discouraging young adults from adopting the habit and encouraging those who already ritualize it to quit.

 

Graph 1

Graph 1

 

Smoking prevalence throughout Canada, and in most developed countries, has been decreasing significantly in recent years. Researchers disagree over what caused this decline, although most concede that education and awareness are primarily responsible. There is weaker consensus, however, about the effect of taxation on consumption rates. Proponents of the tax-and-discourage mindset suggest that higher rates dissuade smokers from purchasing their next pack. The evidence suggests something different: higher tax rates typically discourage certain smokers–those who consume tobacco moderately (or, in other words, occasionally)–whereas heavy smokers either turn to the black market or bear the additional cost.

To begin with, consumption rates in Nova Scotia have fluctuated in the last decade, as opposed to declined per se. For instance, Graph 1 tracks smokers as a percentage of Nova Scotia’s population (aged 12+) between 2003 and 2012. Although prevalence is lower in some years compared to others, the frequency is relatively stable at 20 per cent of the population. In fact, there is a tremendous amount of fluctuation in smokers as a percentage of the total population in all age groups recently (Graph 2). Indeed, smoking prevalence decreased steadily in the 1990s and plateaued in the 2000s (yet the trend is slightly downward again since 2009). However, as a percentage of specific age groups, i.e. 45-year-old+ smokers as a percentage of those aged 45+, the rate is much higher (and trending upward since 2003) (Graph 3). This is what drives fluctuation: most teenagers and young adults are smoking less, but their elders are not. In other words, the rate of smoking among the healthiest individuals is low, whereas the rate of smoking among those with declining health is high: the war on smoking succeeded with the millennial generation and failed with its predecessor. Considering the financial burden that high smoking rates among older Canadians places on the country’s healthcare system, the government should consider strategies for reducing their cigarette consumption.

Graph 2

Graph 2

 

Contributing to black market growth is another worrisome scenario. This not only reduces tax revenues, but also prevents the government from using the tax system to discourage young smokers in the first place. Generally, it thrives as tobacco taxes trend upward, since it presents an economical alternative to those who can no longer afford legal cigarettes, and the larger it becomes, the more likely it is that teenagers and young adults will turn to it. Not to worry, though: when Ottawa raised the federal excise tax on cigarettes from $17 to $21 in January, former Finance Minister Jim Flaherty asserts that any increase in black market activity would be met with an increase in police activity. Yet, hiring more police officers and expending more taxpayer dollars on law enforcement seems counterintuitive.

Ontario and Quebec successfully tackled contraband tobacco by reducing taxes, leading to a dramatic decline in RCMP seizures, as pointed out by the Canadian Taxpayers Federation: “In 1994, Canada’s federal government cut excise tax rates on cigarettes in half, and many provinces, including Ontario, followed suit with their own cuts. Ontario’s tobacco tax decreased by 66 per cent and Quebec’s were slashed by nearly 71 per cent. This was done in an effort to combat widespread cigarette smuggling from on-reserve as well as across the U.S. border, where tobacco was taxed at a fraction of the Canadian levies. Within six years, RCMP seizures of illegal cartons of tobacco dropped by 93.6 per cent.”

The social cost is more disturbing. Poorer individuals tend to consume greater amounts of tobacco than those who are more affluent. This is particularly troubling, as the literature suggests not only that heavy smokers are less likely to quit, in its place turning toward the black market or bearing the cost, but also they are more likely to earn less annually. Higher tobacco taxes, therefore, disproportionately affect low-income Nova Scotian’s who are unlikely to quit and, instead, become poorer.

3

Graph 3

There is a considerable link between smoking rates and education, though (and there is a broader association between them and socioeconomic status). It is clear that education and economic growth is the key to smoking cessation, however, the likelihood of both phenomenon’s reducing smoking altogether is low–some folks enjoy smoking, despite the financial- and health-related costs. In any case, governments abound should reconsider their approaches to tobacco consumption and develop alternative strategies that do not excessively harm those with low-incomes. These individuals are society’s most vulnerable and relying on them increasingly each year as a source of revenue seems discriminatory and counterproductive. Furthermore, considering the success of global anti-smoking campaigns, perhaps it appropriate to develop new strategies for targeting the older generation, which, due to advances in medicine and technologies, live much longer, despite their unhealthy habits.

Shaun Fantauzzo is a policy analyst and the AIMS on Campus project coordinator at the Atlantic Institute for Market Studies 

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Election Shows Parti Quebecois Solidifying its Pragmatism

The newly-called general election in Quebec is worth watching because it has the potential to bring another Quebec referendum some time down the line, should the Parti Quebecois win a solid majority.  The thought of another Quebec referendum is enough to make most Canadians who were of age in 1995 shriek. Those who weren’t, not so much.

But therein lies the central question.  A large segment of the Quebec electorate has no experience of the brink to which the Parizeau-Bouchard team took the country, and the feverish faith in an independent Quebec doesn’t seem to be there anymore. While it doesn’t mean that it could not return, it’s been gone too long.

Pauline Marois, Pierre Karl Peladeau,The anticipation of what the campaign could bring in future has also been heightened by the announcement that Quebec media mogul Pierre Karl Péladeau has just entered the fray and will run as a candidate for the governing Parti Quebecois.  Péladeau is the vice-Chair of Quebecor, the media conglomerate that owns Sun Media and TVA, one of the largest communications companies in Canada.

This is significant because upon its founding, the Parti Quebecois was the most labour-oriented political party in the country, and it has traditionally enjoyed near complete support of the province’s militant labour unions.  It is among these unions and students that the movement to separate from Canada has been nourished.

That said, for some time, the most radical edges in Quebec had accused the Parti Quebecois of becoming more traditional and of veering to the right. Many such accusers populated the new Montreal-based party Quebec Solidaire, founded in 2006.

In short, many of those who would likely be offended by Péladeau joining the Parti Quebecois left for Quebec Solidaire by the time the last general election took place.  What will be interesting to see is how much of the traditional labour movement the Parti Quebecois manages to hold on to at the polls.

The FTQ (Quebec Federation of Workers), one of the largest union groups in the province, has already referred to Péladeau’s candidacy as a “catastrophe for Quebec workers.”

Il s’agit probablement de l’un des pires employeurs que le Québec ait connu. Est-il besoin de rappeler que monsieur Péladeau traîne avec lui un record de 14 lock-outs ? La FTQ est convaincue qu’il ne s’agit pas d’un actif positif pour le Parti Québécois.

(It is probably one of the worst employers that Quebec has known. Need we be reminded that Mr. Péladeau carries with him the record of 14 lock-outs? The FTQ is convinced that this not a positive action for the Parti Quebecois).

It seems somewhat improbable that FTQ executives would want to sit at the same governing table as Pierre Karl Péladeau.

This is all politics, to be sure.  But the entry of Péladeau into the mix changes things.  Or perhaps it doesn’t really change them as much as it solidifies the PQ veering away from radical labour –and from the sovereignty option.

Given the demographic make up of the province, there aren’t as many young separatists as there used to be.  Young Quebeckers in the last 20 years have learned to live in a world that is interconnected, they are more travelled and more worldy, often do business in English.  They are more likely to reject the parochialism once embraced by their parents , whether it is personified by labour or by large capital.

Likely what we see is the institutionalization of the PQ as a political party comme les autres –like the other pragmatic parties. Its high ideological energy is waning.  The end goal of separation looms far in the horizon only as a token idea for the sake of a core of voters but the party is now after power (to control the policy agenda of the Quebec State), …and their policy agenda with sovereignty ahead of everything has become unworkable.

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Halifax Should Not Build a Stadium

For each dollar spent by the state, there is one less spent by the private sector–there is no free lunch, not to mention breakfast, dinner, and midnight snack. Government spending requires taxes (and when the government spends without taxing individuals and firms, i.e. deficit spending, it shifts the burden of taxation unto future generations, who must foot the bill later, often with added interest).

Hazlitt concedes that some amount of government spending is necessary to perform essential functions, such as infrastructure: “With such public works, necessary for their own sake, and defended on that ground alone, I am not here concerned.” Instead, he is concerned with government spending as a means of providing employment or creating wealth:

“When providing employment becomes the end, need becomes a subordinate consideration. ‘Projects’ have to be invented. Instead of thinking only where bridges must be built, the government spenders begin to ask themselves where bridges can be built. It soon becomes absolutely essential. Those who doubt the necessity are dismissed as obstructionists and reactionaries.”

Several studies indicate that subsidizing stadiums is a net financial loss for taxpayers. Those lobbying on behalf of franchises often exaggerate the benefits associated with hosting a professional sports team or a major event. For instance, the average economic return in cities that hosted the Super Bowl between 1970 and 2001 was $60 million–roughly 6 per cent of Halifax Regional Municipality’s operating and project budget. On the contrary, the average estimated return was 500 per cent higher. Furthermore, most ventures are tax-exempt–a convention that flourished out of the assertion that stadiums have a superior economic contribution than shopping malls, coffee shops, and convenience stores.

Studies also question the notion that building them facilitates economic growth. In fact, economist Victor Matheson argues that, “Most of the independent research can’t find any economic impact associated with new arenas, new stadiums, or new franchises or large events. Building a new arena doesn’t seem to have any effect on a city’s employment, per capita income, hotel occupancy rates, or taxable sales.”

Consider, for instance, Detroit–the former economic engine of the United States. The city offers a number of generous perquisites to three of the largest sports franchises in the world and it is bankrupt. Brookings Institute’s Andrew Zimbalist and Roger Noll point toward “perhaps the most successful new baseball stadium,” Oriole Park at Camden Yards in Baltimore, which, “Costs Maryland residents $14 million a year.” Then there is Quebec, which hosted the 1976 Winter Olympics in Montreal, incurred nearly $1.5 billion in debt, and finally managed to pay it off thirty years later.

Hazlitt’s concern was much more philosophical: public works mean taxes and taxes discourage, if not divert, production. Unless the government dedicates taxpayer dollars toward projects of necessity–those that reduce the transaction costs associated with commerce–it is merely removing capital from the private sector that would have otherwise been spent on goods, services, construction, investment, and so on.

Stadium building is not a silver bullet and it is unlikely to surge the region’s economy. If it was, there would be no debate about whether to build a new stadium–it would be about whether to build a second, third, fourth, and fifth.

One thing is certain, though: public works mean taxes. That means higher property taxes; higher goods and services taxes; higher income taxes. In a region where taxation exceeds the national average (and so too unemployment), however, indulging in ambitious ventures seems irresponsible. Instead, the government should focus on creating conditions conducive to economic growth. Then, maybe, the Canadian Football League will decide to foot the entire bill.

Shaun Fantauzzo is a policy analyst and the AIMS on Campus project coordinator at the Atlantic Institute for Market Studies

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