Cigarette Tax

Topics: Supply and demand, IPhone, Consumer theory Pages: 8 (2230 words) Published: January 6, 2012
Section 1:
“Cigarette tax hike sparks panic buying”

By Ashley Hall
Updated Thu Apr 29, 2010

What is the main issue presented in the media report?
Discuss what has actually happened:
In the year of 2010, the Federal Government raised taxes on cigarettes by an extra 25 per cent, resulting in an increase price of $2.16 to every pack of 30 cigarettes. A proclamation stated by Prime Minister Kevin Rudd on the crackdown on Internet advertising of cigarettes was mentioned. Mr. Rudd also affirmed ‘the government will spend $27.8 million on an anti-smoking campaign (Hall, 2010)

This media report outlines the publics impulsive buying of cigarettes upon the government’s mention of the very rapid increase in taxes, thus resulting in an upward increase in price. It mentions the dismays retailers and tobacconists faced due to the tax hike. Further more, mentioning the concerns of philanthropists and other individuals.

Highlight the reason for the issue being raised:
This issue was one that arose quite soon after its announcement, as it impacted the country in its majority in numerous ways. The justification behind this issue was the government’s lack of planning. The release of the tax hike occurred only several hours before its prospected start of midnight that night, which ultimately left little or possibly even no time to adjust and prepare for the subsequent price increase. (Hall, 2010)

Outline what possible impacts this change could have:
The unexpected change posed many impacts on an abundant area of the population. The change impacted the consumers (smokers), the suppliers/producers, retailers/tobacconists, charity workers and the government. The sudden publication of the price increase would lead to a majority of smokers purchasing larger amounts of cigarettes than usual, in an attempt to purchase the product at a cheaper price rather than at its increased price. The retailers/tobacconists face the prospects of higher demands and physical impossibilities such as lack of stock and time to prepare. Although on the contrary as stated by the executive director of Quit Victoria “100,000 people will quit smoking as the result of the price increase and 250,000 children will not take up the habit”. (Hall, 2010)

From another viewpoint, the rapid increase in tax had an immediate negative impact on the number of people seeking assistance. This is solely the case, as a widely held proportion of smokers come from low-income groups, “In fact, people from low-income groups are 13 times more likely to quit smoking in the face of a prime increase than those from higher income groups”. (Hall, 2010) Who are the key stakeholders that are impacted by the issue outlined in the report?

The key groups that may be impacted by the issues raised in this report are ultimately the key stakeholders; i.e. the customers, suppliers, regulators and competitors. The customers (smokers) are faced with the increased price on packets of cigarettes. Which ultimately puts an excise burden on consumer’s income.

The suppliers were faced with a rapid increase in demand in the hours before the implementation of the tax increase, and perpetual demand between the periods after the tax. This is due to the notion that smokers are not willing to go cold turkey over night simply due to an increase of $2.16, but ultimately the possible immediate decline in number of packets bought/sold in the event prior to the tax increase. Suppliers are also faced with the concern of consumers opting for substitute goods (This means a good's demand is increased when the price of another good is increased) for example replacing cigarettes with chewing gum (even considering that cigarettes are inelastic). (McTaggart, 2010)

Regulators, which in this case are the Government, are faced with constant scrutiny regarding their decisions and lack of planning. However, this tax hike increased an extra $5 billion over four years, which the Government would put...
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