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January
2004 --
Neither Finance Minister Greg Sorbora nor Health Minister George Smitherman
appear to get it. Both Ontario ministers, along with Premier McGuinty and
his Manitoba counterpart believe the orthodox fiction pushed by Canada’s
anti-tobacco activists that raising tobacco taxes is an innocuous, cost-free
policy measure that improves public health. Yet the evidence clearly shows
that both of these claims, that higher tobacco taxes improve public health
and that they are a cost-free policy measure are untrue.
The
claim that higher tobacco taxes improve public health is based on the view
that young persons are particularly sensitive to the cost of smoking and
will reduce their tobacco use as the price rises. The problem with this view
is two-fold: it is based on cross-sectional studies which claim to show
that higher tobacco taxes reduce youth smoking and on the myth that young
people quit smoking.
Cross-sectional studies are snapshots of a particular market and a
particular group of young people at a specific moment. Their usefulness is
severely limited by the fact that they do not follow the smoking behaviour
of young people in response to tobacco tax increases over several years.
They also assume that smoking is an isolated behaviour and thus often fail
to examine such crucial issues as how much money young people have to spend
on things like tobacco and how a price increase for cigarettes might lead
them to reallocate their expenditures from other things- e.g. cell phones-
in order to smoke.
This
view is also based on the mistaken belief that young people actually stop
smoking in large numbers. But this is not the case. As the US government’s
Longitudinal Survey of Youth has shown, from ages 11-18 less than 1% of
smokers quit each year. The relevant policy question then is not whether
tobacco taxes encourage young people to quit but whether they discourage
them from STARTING to smoke.
This is
where longitudinal studies are so helpful. Unlike cross-sectional studies,
longitudinal studies follow a group of young people over time in order to
determine what effect an increase in tobacco taxes has on their smoking
behaviour.
Take,
for instance, a study by three Cornell University economists that looked at
the smoking behaviour of a group of 12,036 American 8th graders
as they moved through the school system from 1988-1992, using data from the
National Education Longitudinal Survey. Their question was whether changes
in tobacco taxes would deter these young people from starting to smoke as
they entered the high risk high school years. They found that tax increases
had a statistically insignificant effect (“the negative effect of cigarette
taxes is nearly nonexistent”) on preventing young people from starting to
smoke. This should not be surprising as it replicates the findings of other
longitudinal studies and even a number of cross-sectional studies that have
found that tobacco tax increases have no significant effect on young smokers
or on youth experimentation and initiation.
The
Cornell study is also interesting in another respect in that it shows once
again that two of the strongest factors in predicting youth smoking are poor
academic achievement and dropping out of school, something that suggests
that the Liberal anti-tobacco strategy ought to be much more connected to
its education strategy than to its tax policies. But then, raising taxes is
a much simpler, albeit ineffective, response to youth smoking.
This
longitudinal data from the US is also supported by evidence from Ontario.
Dr. Adrian Wilkinson, formerly of the Addiction Research Foundation of
Ontario, looked at data compiled by the Centre for Addiction and Mental
Health in its Drug Use Among Ontario Students, a survey of the drug use of
between 2800 and 4700 Ontario students in Grades 7,9,11, and 13 in
odd-numbered years between 1977 and 1999. The survey asked students to
indicate the extent to which they used each of 16 different substances,
including tobacco and alcohol. What Wilkinson found was a remarkably similar
use pattern across all drugs (see chart), regardless of whether the drugs
were taxed or not, or indeed, whether they were advertised or not. As he
noted, changes in price could not account for this extraordinary symmetry.
But
higher tobacco taxes not only fail to prevent kids from smoking they also
come with the far from insignificant consequences of increased cigarette
smuggling, black markets and crime. Despite the experience of high tobacco
taxes in the early 1990’s, policymakers seem to have forgotten the lesson
that people respond to economic incentives created by the government. When
the price of any good reaches a certain level then it becomes profitable for
someone, in this case criminals, to provide that good at a lower cost. Ten
years ago Ontario and Quebec experienced a wave of hijackings and warehouse
and shop burglaries- all in search of cigarettes. In one instance, a
convenience store clerk was killed for 10 cartons of cigarettes.
Ontarians need look no further than New York City which now has the highest
cigarette taxes in the US and one of the largest black markets for untaxed
tobacco products. A recent study noted that since the recent tax hike, sales
of taxed cigarettes in the city have fallen by 50%, representing a diversion
of hundreds of millions of dollars from governments and legitimate
businesses.
At the
end of the day the government will still raise tobacco taxes. But if it
wishes to increase the tax burden on some of Ontario’s least affluent
citizens, it should do so without trying to con the rest of us into thinking
that this will reduce youth smoking or not increase tobacco smuggling and
all of the nasty things that go with it.
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