The federal government will announce a 35 percent increase in tobacco excise and also plain packaging legislation. Both of these policies are irresponsible and short-sighted. Unfortunately smokers are such a despised minority that the government will be able to get away with some of it. Putting aside the creation of black markets and the implicit subsidy to criminals, tobacco tax is regressive. In a paper published in Policy I collected up data from a NATSEM study and showed the difference in the tax system with and without sin taxes like tobacco excise.
More importantly, however, the plain packaging legislation constitutes an expropriation of intellectual property rights. My IPA colleague Tim Wilson has done some work in this area.
By introducing plain packaging, the intellectual property of films and tobacco products – their trademarks – will be stripped from packaging. The effect will be:
• As required under Section 51 (xxxi) of the Commonwealth Constitution, Australian taxpayers may be required to gift to film and tobacco companies billions of dollars to compensate for the loss of their trademarks. In the case of films an indicative calculated range (depending on the formula for calculations) could be $108m to $357m per year, and in the case of tobacco products the gift from taxpayers to tobacco companies could range from $378m to $3,027m per year.
• Australia will breach its international obligations under the Paris Convention for the protection of intellectual property, the World Trade Organisation’s Agreement on Trade Related Aspects of Intellectual Property Rights and its free trade agreement obligations to not discriminate against the registration and use of trademarks. Doing so may allow for retaliatory measures to be taken against Australia’s exports.
• Under Australia’s free trade agreements, equivalent compensation may be required as under Section 51 (xxxi) of the Constitution for the expropriation of an investor’s property.
Update: ABC now reporting.
Update II: From the Canberra Times
… the Government will dictate the standard colour, font style and position on the packets. The packets will still feature the graphic health warnings. The change billed by the Government as a ”world first” is designed to reduce the attractiveness and potential of packaging to mislead the public, particularly young people.
Government dictating packaging requirements is not a world first – the Soviet Union did this for decades.
Update III: Excise increase is 25 percent not 35 percent from midnight tonight. The government is using the same disgraceful mechanism to increase tobacco excise as the alcopops excise increase.