Tabacco_Tax

Economics Assessment 2 Over the past few years there have plans of a significant tax increase on Australian tobacco companies and their products. The government’s endeavour to raise prices on cigarettes would eventually help smokers to quit as well as keeping the government’s promise to improve Australia’s health care system and hospitals using up to $3 billion within the first four years of the tax boost on cigarettes as part of Rudd’s $18 billion health reform. However, on the other hand this increase may be viewed as ineffective, discriminatory and above all will cause serious harm to Australia’s economy. The Herald Sun released an article in April 14th, 2010 titled ‘Packet of cigarettes could cost $20 a packet under proposed Rudd tax’ explaining the objective of Kevin Rudd’s proposal for the tobacco tax increase, how the tax increase will be spent and its effectiveness. The article acknowledges that Mr Rudd plans to increase the cost of cigarettes and ensures that national health organisations support him on this project. The Government’s National Preventative Health Taskforce has called for a tax rise up that would add $6.50 to the cost of a packet of 30 cigarettes by May. The article also mentions that the government needs to find an extra $3 billion in revenue to fund its promises on extra funding for elective surgery, emergency departments and aged care over the next four years. According to article, the government's National Preventative Health Taskforce has called for the tax rise and the soon-to-be-released Henry tax review also examines the option to increase the price of cigarettes which would add $6.50 to the cost of a packet of 30 cigarettes. The taskforce believes such a hefty rise would reduce the number of smokers by one million within a decade, helping the government save some of the $31 billion which smoking costs the community each year. The strategy of a price hike on cigarettes would lower the demand for cigarettes consumption thus lowering smoke related illnesses and subsequently lower the burden on the health system is backed by a research conducted by ‘Quit Victoria’. According to Fiona Sharkie, executive director of Quit Victoria, the research demonstrates that three out of four smokers would try to quit if he price went to $20. However, a poll conducted by Herald Sun for the purpose of this article of 4503 votes found that 51.3% of the voters did not support the plan for a $6.50 hike on cigarettes. Opponents and smokers argue that tax hikes on tobacco products do not achieve their stated objectives but rather will cause serious harm to Australia’s economy due to the possibility of fall in demand. It will cost jobs, hurt working families, and affect Australia’s economic growth. The reason for this is that tobacco products will cost consumers more, meaning decreased consumption (not necessarily on tobacco, but overall as they have less disposable income), and will hurt retailer revenue, forcing many small businesses to reduce costs through cutting down hours of employment, hurting their employees.