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Tobacco tax proposal deserves support

Here is an opinion piece I wrote for ABC News online.

3 comments to Tobacco tax proposal deserves support

  • Uncle Milton

    Harry, you can’t logically make the argument that it is good to tax tobacco because it will make people quit, and also argue on standard Ramsey grounds that tobacco taxes are good because the elasticity of demand is small. If you believe that it is good policy to tax smokers into quitting, then the Ramsey arguments, that a good tax is one that doesn’t change behaviour, don’t apply.

  • hc

    Uncle Milton, The point has occurred to me but I think I can make the claim I do. The elasticity isn’t big so you don’t get a big demand response but 40-80,000 out of a pool of 2.8 million is not negligible. And you get tonnes of revenue. As Mr Rudd says its a ‘question of balance.’

    But I agree your point is a good one. You can model this and Small and Parry have done this for fuel excises directed at congestion and other externalities also but which have quite inelastic demands. Its a Ramsey rule accounting for externalities.

    Doing this the total desired excise here is huge and of the order of $2 per litre. (compared to 38 cents at present!) with $1-60 of that reflected Ramsey and about 40 cents capturing externalities. 80% revenue and 20% targeting externalities.

    You could do the same thing for tobacco excises.

  • Mark U

    If the Opposition is consistent, they should also let the alcopops legislation through.