Laffer suggests there may be an optimum tax rate that maximises tax revenue (the peak of the Laffer curve), moving either direction (higher or lower taxes) from that peak will lower revenue.
It seems likely that a Laffer type effect exists in the cigarette market in Ireland and the current level of taxation may be beyond the optimum. Therefore higher tax rates (higher prices) will lead to lower tax revenue.
They even included a nice little graph to explain to this to the Emerald Isle's politicians:
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From a purely financial point of view, the tip of that curve is the sweet spot and the Irish government was going beyond it, spurred on by zealous anti-smoking folk in a country that prides itself on "leading the way" in tobacco control. As I said at the time...
As Ireland’s customs wonks have now realised, this golden goose has reached the limit of how many eggs it can lay. Smokers, like drinkers, traditionally take a hit when economies tank, but governments in the highest taxing nations—including the UK—may have to start taking Arthur Laffer more seriously if they want to protect their income.
They should have listened to old Snowy, because now this has happened...
Black market cigarette trade on the increase
State losing hundreds of millions in revenue as gangs go door to door selling smuggled goods
Cigarette-smuggling continues to soar in Ireland, with new Department of Finance figures showing that tobacco excise tax receipts are falling dramatically short of targets, even though taxes have increased and the number of people smoking has remained constant at 29 per cent of the population.
There is more than a little cognitive dissonance at work here, as Dan Mitchell notes:
I have to laugh at the part of the article that says, “receipts are falling dramatically short of targets, even though taxes have increased.” This is what’s called the Fox Butterfield effect, when a leftist expresses puzzlement about something that’s actually common sense. Named after a former New York Times reporter who was baffled that more people were in prison at the same time that crime rates were falling...
And it gets worse in tobacco control's "jewel in the crown"...
Criminal gangs are openly selling smuggled cigarettes on the streets of central Dublin and other cities, door to door and at fairs and markets. Counterfeit cigarettes can be brought to the Irish market at a cost of just 20 cents a pack and sold on the black market at €4.50. The average selling price of legitimate cigarettes is €9.20 a pack.
And there could be worse to come...
Former PSNI assistant chief constable Peter Sheridan has warned that EU and Irish government proposals for the introduction of plain packaging for cigarettes could result in "significant opportunities" for terrorist organisations such as the Real and Dissident IRA.
Onwards and upwards! Just keep doing what a small cabal of unelectable anti-smoking lunatics like Deborah "It is a myth that high duties on tobacco lead to increased smuggling" Arnott tell you and everything will be grand!
In case you've forgotten, Ireland is the country that has consistently come in the top two of the European 'Tobacco Control Scorecard' (battling it out with the UK). The country has followed the anti-tobacco blueprint to the letter, from smoking bans to display bans to eye-watering tobacco taxes. How has that worked out for them? Just in case you missed it when I quoted it above, here's that key line again...
...the number of people smoking has remained constant at 29 per cent of the population.
I've said it before and I'll say it again. Tobacco control is not a results-driven business.
Meanwhile, snus-loving Sweden, a country that came a mediocre 9th in the Tobacco Control Scorecard, has a smoking prevalence of 14 per cent. Go figure!
Arnott's solution of course is to simply do "more of the same" in terms of enforcement, bullying the tobacco companies to not sell their products to customers overseas, and still more tax increases.
ReplyDelete"Doctor, Doctor, my head was hurting so I hit it with a hammer. Then it started hurting some more so I hit it again. And it STILL hurt even worse so now I'm REALLY pounding my head with the hammer and it's hurting worse than ever!!!
WHAT SHOULD I DO?????"
Sheeeesh.
And, as far as I've seen, Arnott et al haven't even TOUCHED on another aspect of all this: the COSTS of enforcement! As the black market becomes more and more profitable, you'll end up spending more and more on police, courts, jails, and lost productive societal production as you lock people up. Nor have they ever mentioned the problem with engendering disrespect for, resentment against, and increased noncompliance/evasion of a the wider tax systems because of that feeling of resentment due to injustice.
And finally, as we've seen in our own blogs and mailing circles over the past few years, there's an increasing movement toward "growing your own." Remember Bill Drake's "Cultivator's Handbook of Marijuana" from 1970? (Original out of print, but Amazon has several new editions listed.)
Well, that was forty years ago. But ol' Bill is still alive 'n kickin' and he's now come out with:
"The Cultivator's Handbook of Natural Tobacco":
http://www.amazon.com/Cultivators-Handbook-Natural-Tobacco-Culture/dp/1451514646/ref=sr_1_1?s=books&ie=UTF8&qid=1363778547&sr=1-1&keywords=bill+drake
Wait till your CCTV cams are joined by "black helicopters" seeking out all the little grandmoms with tobacco plants growing in their window flowerpots. Arnott says, "No worry. a few Drone Hellfire Missiles will solve THAT problem!"
- MJM
As a matter of common sense, I tend to agree, however that little excerpt does not actually say what you think.
ReplyDelete"State losing hundreds of millions in revenue..."
This is not their admission that we are passed the Laffer peak. It is possible (unlikely, I know, but possible) that we are still on the left hand upward part of the curve.
Of course there is some smuggling at any level of duty, and governments multiply up each smuggled pack by normal duty per pack and then claim that the smugglers are costing them £x.
Which always seemed like a strange thing to bother measuring to me. It's like me counting the number of goals I never scored in a cup final at Wembley.