Tuesday, 20 December 2011

The limits of cigarette taxation

Today's blog post is at the Adam Smith Institute. While ASH deny that higher prices cause smuggling, the Irish have realised that further cigarette taxes will make them less money.

Laffer curve spotted in Ireland

16 comments:

Curmudgeon said...

There's a lot of circumstantial and anecdotal evidence that the same point is being reached with alcohol taxation in the UK.

smkoervoter said...
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Leg Iron said...
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Anonymous said...

That sentence construction is not typical of LI.

Leg Iron said...
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Curmudgeon said...

Wouldn't Leg-Iron post from his Blogger account? He also posts as "Leg-iron" with hyphen and small i. You are being spoofed here.

Barman said...

This is most excellent news isn't it...?

The anti-smoking Nazis won't let them put the price back down to maximise revenue - there must be a big falling out fairly soon!

Dickie Doubledick said...
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Mark Wadsworth said...

Agreed. The Laffer Curve and booze or tobacco duties is a most interesting topic indeed.

If you are a country surrounded by other countries with open borders, there is no point setting your rate higher than surrounding countries, and it may be to your advantage to set them lower (to pick up trade from smugglers from other countries). But clearly there must be a lower limit where all governments end up with less revenue.

Therefore, by and large and in the absence of other information, your ideal rate is probably just to have the same rate as surrounding countries. They can get away with higher taxes on tobacco rather than booze because it is very tricky, time consuming and rather hit and miss if you want to grow and cure your own tobacco, but brewing and distilling is relatively easy.

The UK is a special case, because people in the South East can pop over the Channel relatively cheaply and easily, but booze cruises are hardly worthwhile for somebody from the Scottish Highlands or Northern Ireland. At the same time, it would be idiotic to have a lower duty in the South East than in SH or NI.

Curmudgeon said...

If your aim is maximising revenue in your own country, the sweet spot on the curve is probably to set your duties just a little bit higher than your neighbours, so cross-border shopping is only worthwhile if you're right next door. The bigger the country the better, of course.

Smoking Hot said...

l feel l have to make a point here that it's wrong to continually talk of smuggling without having reference to legitimate cross-border shopping. Recently l had the pleasure of taking bloggers most of you will know across on P&O Ferries to Belgium to purchase their own tobacco. None of these bloggers were smugglers, they bought for their own personal use.

Too often are cross-border shoppers intimidated and harassed by UKBA simply because the shoppers do not know their rights. UKBA operate kangaroo courts to seize peoples legitmate goods and then they are branded a smuggler for life ... although not on police records, just the UKBA records.

Only today l had a gentleman contact me because he had 3kg of tobacco seized simply because he did not have a receipt. The UKBA had no justification at all doing this. He was told that he was only allowed 1kg of tobacco and if he appealed he would face costs of 2500 pounds. This is gross intimidation and downright lies. There is NO limit for what one can bring in for personal use. Yet cases like this happen day-in, day-out and no-one gives a damn.

How about these for UKBA stats ... between 70-80,000 people a year have their goods seized and yet less than 1% appeal (plead not-guilty). The lies UKBA/HMRC put out are simply beyond belief. Did you know that their stats contain figures that state over half their seizures are overseas in the EU. Yet they have no jurisdiction whatsoever to seize anything except in juxtaposed Coquelles (Channel Tunnel). They claim seizures that other countries Customs have seized simply on the premise that they MAY have been bound for the UK.

Smuggling is not as bad as portrayed by any means. Smuggling is NOT purchasing EU Duty Paid Excise goods for ones own personal use.

The UKBA not only falsely inflate smuggling figures but also provide the customers for the black market. Many of those cross-border shoppers who have their goods illegally seized become customers of the black market because they have been intimidated into not shopping in the EU. It's as though UKBA and the black market are one business.

Mark Wadsworth said...

C: "The bigger the country the better, of course"

That must be true. A lot of people from the SE of England go on booze cruises but very few from Scotland or NI.

I'm not sure about your 'sweet spot'. It is clearly impossible for every country to set the duty rate a little bit higher than their neighbours, neither is it possible for every country to set it lower than their neighbours.

Assuming equal size countries, the rate would be the same everywhere (with a lower upper limit for booze than for tobacco). We can then introduce your perfectly valid observation about the ideal rate being lower in small countries and higher in large countries and we lead to some sort of equilibrium.

My caveat would be that it's not 'size of country' that matters as much as 'how easy it is for your citizen's to go abroad' i.e. UK and France are similar size/population, but we Brits are stuck with buying in the UK, the French can go to E, CH, D or Benelux quite easily.

If I could be bothered, I'd track down duty levels in each country and plot them against the number of other countries it borders onto. I'm sure it stacks up.

Junican said...

First.

Tobacco Control Europe is intent upon raising the price of fags to the same approximate level everywhere in Europe. Witness the massive increase in duties in Spain in recent years. Thankfully, places like Holland are now bucking the trend.That is why the Zealots are screeching. Even Spaniards, it seems, are finding it profitable to travel North to Belgium and such to buy tobacco.

But the Zealots do not give a shit about the Spanish economy. To them,it is just swings and roundabouts.

Secondly, I must disagree with Mark W, much as do not wish to. 'Growing Your Own' is not difficult or time-consuming, if you do it in the right way.

Is it OK to plug the Bolton Smokers Club just a little?

I have written an essay there about growing tobacco plants, fermenting the leaves and making cigarettes. The main, one-off, requirement is to prepare the plot in your garden correctly. Other than that, the main requirement is patience. You do nothing in the winter except germinate the seeds in Jan/Feb. That involves only sprinkling seeds in pots of compost and keeping the pots warm. In spring, you plant the seedlings in the garden. In the summer, you do nothing except wait for the plants to grow. The plants dictate the 'harvesting' of leaves. The only time-consuming element is the curing. But if you then get a good supply, why object to the time involved? If you want almost free tobacco, some effort is required. An hour a day for a few weeks in the Autumn can hardly be considered excessive.

My plan for next year is this:

1. I will travel to where fags are cheapest and buy them there in bulk.
2. I shall grow as much of my own as I can.

I don't have to do this. I can afford fags even at the price they are here in the UK. I do it on principle. The corrupt, stupid politicians in this country will not get from me one penny more than I have to pay them. No charity will get one penny from me.

That is my resolve.

Leg-iron said...

Oho, it seems I might have touched a nerve with the Pseudopat troll. I left an insult for him at my place and now he's pretending to be me.

Unfortunately I arrived too late to see what he wrote this time, it had already been deleted.

And I agree with Junican. Growing the plants is a doddle. Easier than tomatoes. Curing the leaves is a learning curve, I didn't get them all to work this year but I now know what won't work for next year.

Well, back to troll-baiting ;)

Mark Wadsworth said...

I've done the numbers, results here.

regular tripper said...

i agree with junican go abroad baccy and not one penny goes to the uk