A Win-Win - Coalition Quebecoise pour le Controle du Tabac
Transcription
A Win-Win - Coalition Quebecoise pour le Controle du Tabac
A Win-Win: Recommendation for an inflation adjustment to federal cigarette tax rates Submission to The Hon. James Flaherty, P.C., M.P, Minister of Finance, and The Hon. Leona Aglukkaq, P.C., M.P., Minister of Health Endorsed by: Action on Smoking and Health (Alberta) Canadian Cancer Society Canadian Council for Tobacco Control Canadian Dental Association Canadian Dental Hygienists Association Canadian Lung Association Canadian Medical Association Canadian Public Health Association Coalition québécoise pour le contrôle du tabac Heart and Stroke Foundation Non-Smokers’ Rights Association Ontario Campaign for Action on Tobacco Physicians for a Smoke-free Canada May 3, 2013 1 A Win-Win: Recommendation for an inflation adjustment to federal tobacco tax rates Submission to The Hon. James Flaherty, P.C., M.P, Minister of Finance, and The Hon. Leona Aglukkaq, P.C., M.P., Minister of Health May 3, 2013 Summary: A Win-Win The health organizations endorsing this submission urge the federal government to make an inflation adjustment to cigarette taxes of $3.89 per carton of 200 cigarettes. This would result in incremental federal tobacco tax revenues of an estimated $520 million per year, not including GST. It is recommended that this inflation adjustment be made immediately. Higher cigarette prices are a highly effective way to reduce smoking, especially among youth. Thus implementing an inflation adjustment would be a win-win for public health and for public revenue. Tobacco use remains the leading preventable cause of disease and death in Canada, killing more than 37,000 Canadians each year. Cigarettes are highly addictive and cause cancer, heart disease and stroke, emphysema, and many other diseases. The overwhelming majority of new smokers are adolescents. A sustained, comprehensive response to the tobacco epidemic is essential, and tobacco taxation is a key component of that response. Federal cigarette taxes are being eroded by inflation There has not been a net change to federal cigarette tax rates since June 17, 2002, fully 11 years ago. Cumulative inflation has been 22.9% between June 2002 and March 2013. This means that, after inflation, federal tobacco tax rates are in fact decreasing year after year, with adverse effects for public health and for public revenue. The absence of an inflation adjustment undermines efforts to reduce smoking. To respond to this situation, the federal government should implement an inflation adjustment of $3.89 per carton, which is 22.9% of the current federal tobacco tax rate of $17.00 per carton. In the United Kingdom, the tobacco tax rate is adjusted upwards each year. The same approach should occur in Canada, but this has not been the case given that there has not been a federal tobacco tax increase over the last 11 years. 2 In Canada, federal income tax is based on a percentage of income, while the Goods and Services Tax (GST) is based on 5% of the retail price. Thus the total income tax revenue and the total GST tax revenue collected automatically increases with inflation. But that is not the case with excise taxes, which do not automatically increase with inflation.1 Federal Government is giving up revenue to provinces While the federal government has not increased cigarette taxes since June 17, 2002, provinces and territories have implemented extensive increases. Here is the total tobacco tax increase by province and territory in the 11 years since June 17, 2002: $0.00 $14.60 $8.00 $17.10 $29.00 $12.64 $7.70 $18.50 $27.73 $29.71 $14.00 $15.60 $24.00 $18.80 Federal government British Columbia Alberta Saskatchewan ($18.00 less $0.90 for a 1% PST decrease) Manitoba Ontario ($7.50 plus $5.14 for 8% portion of HST implemented on tobacco) Quebec New Brunswick Nova Scotia ($26.00 plus 2% increase in provincial portion of HST) P.E.I. ($22.10 plus $7.61 for 9% portion of HST implemented on tobacco) Newfoundland and Labrador Yukon Northwest Territories Nunavut If every province and territory can increase tobacco taxes, as has been the case, then so can the federal government. There is no reason why the federal government should be ceding tobacco tax revenue to provinces. Federal tobacco taxes are more beneficial than provincial tobacco taxes. Federal tobacco taxes apply everywhere across Canada. Federal tobacco taxes apply at the point of manufacture/importation, and thus are more efficient in terms of tax administration and in terms of deterring diversion into contraband distribution channels. If the federal government today had a tobacco tax rate that was $7.70 per carton higher – the lowest amount of the cumulative tobacco tax increases since June 2002 among 1 Note that since June 17, 2002, there have been two small adjustments to federal cigarette taxes totaling $1.15 per carton to offset reduction in GST from 7% to 6%, and from 6% to 5%. But the purpose of these increases was to leave net taxes including GST unchanged, not to increase cigarette taxes. 3 provinces/territories – the result would be an estimated increase in federal tobacco tax revenue of more than one billion dollars per year, specifically $1.015 billion per year. Tobacco industry price discounting emphasizes need for federal action In June 2002, at the time of the last federal tobacco tax increase, virtually all cigarette brands had the same retail price. Today, each of the three major manufacturers engages in massive price discounting as a marketing strategy. Discount brands such as Pall Mall and Studio can sell at a price of at least $25 per carton less than premium brands such as du Maurier and Benson and Hedges. The $25 per carton discount exceeds the provincial tobacco tax increases over the last 11 years in all but two provinces. The widespread availability of discounted cigarettes counters the benefits of higher tobacco taxes, but also creates room for the federal government to adjust tobacco tax rates upward to help fill the price gap. Widespread cigarette discounting certainly emphasizes the need for an immediate inflation adjustment to federal tobacco tax rates. Past federal tobacco tax changes have been outside the budget All of the federal tobacco tax increases since 1994 have been made outside the federal Budget. Here is a list of a series of small federal cigarette tax increases and their effective date (none of which was a Budget date), with the last increase being June 17, 2002: Feb. 18, 1995 Apr. 1, 1995 Nov. 28, 1996 Dec. 12, 1996 Feb. 14, 1998 Nov. 6, 1999 Apr. 6, 2001 Nov 2, 2001 June 17, 2002 This experience of implementing tobacco tax increases outside the federal Budget provides historical context for the federal government to do so again in 2013. Revenue projections The estimated incremental revenue of $520 million is based on 31.372 billion cigarettes sold in Canada in calendar 2012, and a nominal increase of $611 million in revenue if 4 there were no decrease in sales.2 The final estimate of $520 million factors in a reduction in aggregate sales based on a price elasticity of -0.04, that is a 10% increase in retail prices will lead to a reduction in tobacco sales of 4%. Additional recommendations While this submission focuses on an inflation-adjustment for cigarette taxes, it is also recommended that an equivalent tax increase for loose tobacco (manufactured tobacco) be made concurrently, with the tax increase for 0.5g of loose tobacco equal to the tax increase for one cigarette. Moreover, it is recommended that any tax increase for cigarettes also apply to cigarettes sold in duty-free stores and to cigarettes subject to the federal export tax, and that any remaining tax rate reduction for these categories be eliminated. Support for Budget 2013 tax increase on loose tobacco The 2013 federal Budget included an increase on the excise tax rate for loose tobacco (manufactured tobacco) in order to address a long-existing loophole. The organizations endorsing this report strongly support this increase. We believe the federal government deserves appreciation for implementing this measure. Conclusion The federal government should immediately implement an inflation adjustment to cigarette taxes of $3.89 per carton. Such a measure would be a win-win for public health and public revenue. Further information As a source for further information, please contact Rob Cunningham, Senior Policy Analyst, Canadian Cancer Society, [email protected], 613-565-2522, ext. 4981. 2 $3.89 per carton equals $0.019465 per cigarette; $0.019465 per cigarette times 31.372 billion cigarettes equals $611 million