Last week’s budget went down quite badly with the tobacco lobby, which remains deeply displeased with a 40-cent excise hike which brought the price of 20 cigarettes to €10. This comes as the industry marshals an extensive international campaign against Ireland’s move to introduce plain tobacco packaging.
Minister for Finance Michael Noonan predicted the latest excise increase will bring an additional €53 million into the exchequer in 2015, no small sum. In the face of an inevitable industry backlash, the Minister’s projection could be seen as an implicit prebuttal to claims that the measure would drive business into the dreaded black market and deprive the public coffers of smokers’ cash.
But Mr Noonan indicated in reply to a parliamentary question in June that the Coalition was all too aware that yield does not inevitably follow an excise rise.
Sinn Féin TD Sandra McLellan had sought the exchequer gain from an increase of 10 cent, 20 cent, 50 cent or 60 cent on 20 cigarettes, which was set in a “potential” range between €16 million and €92 million. Such estimates, however, were based on an assumption of no change in behaviour by smokers.
Citing Revenue, the Minister said then this was unlikely. “I am informed by the commissioners that economic research conducted by Revenue has shown that [further] cigarette price rises, particularly at the higher end of the range, are unlikely to increase excise receipts from the sale of cigarettes (the largest source of excise duty on tobacco) and this is supported by experience in recent years.
“In economic terms, the demand for Irish duty-paid cigarettes has moved to become much more elastic in nature, this implies an increase in price will lead to a proportionately larger decrease in consumption of Irish duty paid cigarettes resulting in an overall decrease in cigarette excise receipts.”
To the great chagrin of the tobacco industry, such arguments did not prevail on budget day. Only time will tell whether the additional money comes in and, although the Government insists it wants to make Ireland smoke-free by 2025, it is very fond of the tax boost it continues to receive from smokers.
