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.


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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