A Healthy Tax Return More money, fewer deaths

Dr Yussuf Saloojee

National Council Against Smoking

Tobacco use causes 44 000 deaths a year in South Africa (9% of all deaths). Globally it kills 6 million people a year and this will increase to over 8m by 2030.

The effect of raising tobacco excise

taxes • Higher excise taxes on cigarettes will

– reduce cigarette consumption

– reduce smoking prevalence; and

– Increase government revenues.

• An increase in “the real price of cigarettes by 10% globally would prevent: 10 million tobacco-related deaths worldwide”

World Bank, 1999

4

Tax & consumption

1st Law of Economics

• When price goes UP consumption goes DOWN.

• When price goes DOWN consumption goes UP.

Price - an important influence on short-term consumption.

Real prices and cigarette

consumption South Africa 1960-2008

R3

R4

R5

R6

R7

R8

R9

R10

R11

30

40

50

60

70

80

90

100

1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010

Pac

ks/a

du

lt/y

ear

Year

Packs per Real retail pr.

6

Higher taxes mean higher tax

revenues

– Increases in tobacco taxes lead to increases

in tax revenues, despite reductions in tobacco

use.

Tobacco taxes and Revenuese South Africa 1980-2009

0

1 000

2 000

3 000

4 000

5 000

6 000

7 000

0

1

2

3

4

5

6 1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

So

uth

Afr

ican

Ran

ds (

tho

usan

ds)

(co

nsta

nt

2005 p

rices)

So

uth

Afr

ican

Ran

ds (

co

nsta

nt

2005 p

rices)

Excise tax per pack Excise tax revenue

Source: Van Walbeek (2005), updated with data from National Treasury

Why does revenue increase even

as consumption falls?

• Tax revenue = amount sold X tax rate

• High volumes at a low price or

• Low volumes at a higher price.

South Africa 1993-2007

– Real excise tax ↑357%

– Real prices ↑146%

– Per capita consumption ↓48%

– Real excise revenue ↑215%

Is current tax policy aligned to

health policy?

• No. Tax is no longer consciously and deliberately used to control levels of tobacco consumption.

30

40

50

60

70

80

90

100

Pac

ks/a

du

lt/y

ear

Year

Packs per

The Future?

If current tax policy is maintained

tobacco use will increase

Potential Revenues for a HPF

Year Excise Tax 2% levy

Rm Rm

2008 7842 157

2007 7004 140

2006 6214 124

Levies:Trends

• National

• Road accident fund

• Plastic bags

• Toll roads

International

• Unitaid

• WHO - The Solidarity Tobacco Contribution (STC) for International Health Financin

• US Financial taxations tax

From a win – win

to a win-win-win Fewer deaths from smoking

More government revenues

More money for promoting the quality of life/

Thank You