So Nick Xenophon is out and about promoting the idea of minimum pricing for cigarettes.
Independent senator Nick Xenophon is pushing for a minimum floor price on cigarettes to counter a tobacco giant’s “cynical” move to sell discounted packets.
British American Tobacco Australia has launched what it claims is the cheapest legal packet of cigarettes on the market at $13 for a 25-pack.
It is blaming federal government policy for the move, saying it’s simply seeking to remain competitive as sales of cut-price cigarettes soar.
Here is the story – the government banned cigarette branding and undermined the ability of tobacco firms to maintain price premia for branded products. In addition to low-priced cigarettes now becoming more attractive, illegal cigarettes entered the market. After all there is no penalty to counterfeiting the government mandated olive green pack with medical porn on the cover. That combined with discounting to maintain market share is leading to decreased prices and consequently increased consumption.
It is an open question as to whether existing smokers are smoking more, or if new smokers are taking up the habit.
What is very clear, however, is that tobacco consumption is up – contrary to the stated aim of the plain packaging policy.
So what to do next? Mandate a minimum price for cigarettes to undermine the price war. At first you might think that this would simply guarantee the profits of existing tobacco firms. In fact, that is precisely why The Australian National Preventive Health Agency argued against minimum pricing for alcohol (emphasis added):
As Australia’s alcohol distribution and retail systems are fully private, a regulated minimum price increase (as distinct from a tax) would lead to profit increases flowing to the private sector from the monopoly rents created. This significantly reduces the available public benefits which could be used to further reduce or treat alcohol-related harm or be redistributed by government for other purposes. Even with extensive benefits from reductions in alcohol harms which would result from the implementation of a regulated minimum price, the loss of major offsetting benefits makes it very difficult for this policy to result in net benefit to the community. As a result, at a national level, it would be difficult for minimum alcohol price regulation to deliver sufficient benefits to overcome this hurdle.
But that is only part of the problem – consumers would also substitute to illegal and more harmful forms of tobacco and/or other drugs.
By taking away retailer’s ability to discount the government would also be undermining the ability of smaller retailers to compete in the market and earn their livelihood. Not to mention those massive price increases flowing through to all other Australians via the rather large weighting tobacco has in the CPI calculation.
At some point the government needs to tell the anti-smoking lobby “No more”. It is one thing to discourage smoking, it is quite another to keep intervening to correct for the unintended consequences of the last intervention.