Tobacco Excise Tax in Australia

Topics: Supply and demand, Tobacco, Price elasticity of demand Pages: 6 (1812 words) Published: October 6, 2012
Economics Assignment
Case Study #2- Cigarette Tax
Executive Summary
There are 3 million smokers in Australia and people living with respiratory or other smoking related diseases (ABC 2010). The Rudd Government on July 1 2010 implemented a 25 % cigarette tax, causing at 17% price increase. The tax has impacted on a list of stakeholders who are all were are all impacted, such as the Government, the National Health System/ Department of Health and Aging, Consumers & Retailers, Manufactures of tobacco products, cigarette companies and service companies relative to the tobacco industry. Aiming to reduce smoking in the long term, the Government’s tax has been estimated to reduce smoking by 6% (870000)(ABC 2010), which would be significantly beneficial to national health. In supplementing that, the tax revenue, projected 5 billion dollar over a four-year period, would be totally invested into the National Health System. When imposing the tax many economic theories are applied to the various situations each of the stakeholders. These vary from leakages & injections within the economy to the opportunity cost consumers and the Government has to decide on in regards to their financing decisions. There are a variety of alternative that could be taken to counter the cigarette consumption rate in Australia. Examples of this include, increasing legal age to 21, stricter requirements regarding smoking related diseases with Medicare, restriction of smoking to private areas and the introduction of new legislation regarding the amount of cigarettes one can buy at one transaction. Introduction

In Australia, there are an approximately 3 million smokers and people living with smoking related diseases. To counter this, the Federal Government, led by Kevin Rudd, implemented a 25 % tax increase on cigarettes and tobacco products. This tax increase has a primary aim of reducing the amount of smokers by 6% (approx 87,000)(ABC 2010; Sydney Morning Herald 2010), however also raising tax revenue by 5 billion dollars over a four-year period. Increased revenue by the Government is to be diverted directly to the health system, which indicates a positive impact to society. This tax has had various impacts on a multitude of stakeholders and affects the economy in general. Expected to only slightly alter the demand for cigarettes, consumers and tobacco companies are spending more and gain less profit.

There are a multitude of stakeholders, who are affected by this tax increase on cigarettes. These include retailers, consumers, the Government, importers, manufacturers of complementary and supplementary goods and tobacco companies. The Rudd Government, who imposed the tax, is a key stakeholder. Their aim for this tax is to increase Government tax revenue by $ 5 billion and reduce the smoker population by 6% (87000) (ABC 2010; The Australian 2010). This $ 5 billion dollar increase will be utilised to fund the health system, while the tax also aim to discourage consumers from purchasing cigarettes in order to improve national health initiative. Consumers and retailers collectively are another main stakeholder as they are the primary consumers of the final goods produced. This tax impacts heavily on the quantity demanded by these two groups, which is an important micro economic issue. Additionally, they are the target group, who the Government is directing this tax at and impacting on their consumer spending. Producers and tobacco companies, collectively, are crucial stakeholders in this issue, as the tax of 25% influences their revenue and the quantity of goods they supply. This sector can also have significant impacts on Manufacturers of complementary goods are another stakeholder group in this issue, as the quantity demanded for complementary goods will be affected. A common example of this is the demand cigarette filters and lighters, which are commonly bought along with tobacco products.

A 25% tax increase has impacted...
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